TOC Bells toll and Hell to go Your Turn

My academic knowledge about economics is quite limited but one lesson I will never forget. As someone with a long practice of industry at the highest levels told me one day, nothing beats a good monopoly. Political and academic luminaries may extoll competition, business leaders may flaunt their competitive skills, every CEO secretly dreams of a nice monopoly. Since monopolies are seldom popular with their captive audience, the next best thing is to work for their public relations. The clients seem to print money and their demand are everlasting.

Monopolies have been around us for a while. Think of Charon (1) who according to ancient Greek lore operated the only ferry across the Acheron. Since every departed soul had to cross it to reach Hell, he had infinite market power and no worries about customer feedback. Spinmeisters can promptly point to price stability. Absent competitive pressure, Charon never raised his unit price of one obol. As for those unfortunate enough to come empty handed, service was offered according to empty seat availability. According to Wikipedia, this meant a wait from one hundred years (1) to an eternity (2).

Stephen Labaton's recent article, "Congress To Take Up Net's Future" (*), is a timely reminder that Bells Junior (3) and cable companies are eager as ever to assume Charon's mantle. The scheme is slightly more involved but the principle is the same: pay a toll for speedy transmission or else...

Let us quickly dispose of a canard. If an area is serviced by phone company A and cable company B, this is not the death of all monopoly power. This charming duo offers a choice to customers akin to the proverbial one between the rope and the bullet. If it quacks like a duck, if it acts like a duck, it's still a duck by any other name.

But what link can I possibly see between eprivacy and net neutrality ? A fair question. Though I am as good as any for speaking at length on all topics, you are entitled to expect me not to stray here from my area of expertise. As indeed I do not.

Stephen Labaton gives us a good summary of what is behind the Net Neutrality battle. On one side, the so-called pipe providers, phone and cable companies, on the other the content providers, such as Google and Yahoo. Forget the consumers and the US Congress. They are not the warriors, they are game. I feel no excessive love for Google's positions (5/16/06, 12/12/06, 11/07/06 fillips). However I view individual data rights as similar to intellectual property (see 5/23/06, 6/20/06 fillips). If the law were to recognize and protect such rights, all consumers would turn into content providers, not only for juvenile self-expression, for every routine commercial contact. And the Internet is for me the ultimate pneumatic network (11/21/06 fillip), the ideal distribution mechanism to extract value from those rights (4).

Together with all content providers, I am for Net Neutrality in the name of eprivacy. My reasons extend further.

If pipe monopolies were ever allowed to exercise control over content providers, another danger would arise. In a competitive, open market I fully support the right of content providers such as newspapers, magazines and television channels to aggregate and publish content according to their editorial discretion. This is an old case of a recommendation business, a growth industry in my opinion (10/10/06, 8/22/06 fillips). But when a pipe provider starts to discriminate among the content providers to whom they give access, I call it censorship, as pernicious when it aims to maximize monopoly profits as when it props up political power (9/05/06 fillip). Large content providers such as Google would suffer an economic penalty but individual data right owners would be effectively muzzled. Censorship falls equally on users, bereft of useful content, and content providers, deprived of a conduit. In the peer to peer universe of the ultimate pneumatic network, users would be hit twice, as readers and as providers.

Being on the same side of the Net Neutrality battle as the large content providers does not mean I embrace their goals. This is just another case of practical pronaocracy (12/19/06 fillip). But speaking of neutrality, it is only fair I give some room to the two arguments invoked by pipe companies as they fight for their right to segment content for the sake of distribution.

The first argument is existential. Without the extra revenues they plan to extract from the content providers, pipe companies warn that they lack the resources to upgrade the network infrastructure on a timely basis, as detailed a few months ago in an article by John Gapper (**). I do not buy this argument. Unable to justify their prices through a free market, monopolies have been pleading poverty as long as they have found themselves threatened with or subject to, regulation. Money is always plentiful to finance good projects. What pipe providers really mean is that their projects are not attractive enough without taking subsidies from the content industry. Yet David S. Joachim (***) reported there is no lack of opportunities for pipes to strikes deals with publishers to lure customers to part with their money. Enforcing new subsidies, aka taxes, seems both a lazy way to negotiate with publishers and a bit out of fashion today. Even Putin has turned bearish on pipe providers and their transport tariffs (5).

I find the second argument worthy of greater consideration. Again following John Gapper, one can argue that the quality of video services would suffer unless pipe companies are authorized to control content delivery over the Internet. This is technically correct. For a long time phone companies had nothing to fear from the Internet. For until recently Internet packet-based networks, so well suited to data exchanges, lacked the bandwidth to compete with phone line-based networks when it came to transmitting voice. Whenever video cannot be buffered but lightly, e.g. in real time situations, it puts even more demand on the network. The choice is between building an expensive, closed network with excellent video quality, what the traditional phone network did for voice, or wait until the cheap, open network with no quality control, the current Internet, will sport enough bandwidth to satisfy the viewers as well as today's listeners.

To an expert, this will appear a rather crude simplification. But it shows a technical gap exists which will not be closed for some time. So a decision, even if it parades as the absence of any, must be taken today by the legislator for the regulator to implement. My own support for Net Neutrality is as biased as any since in the end, it is a matter of whose pocket to pick. But I do have some objective advice for the US Congress. If you believe a special, high quality service must be deployed without undue delays, go ahead and say so but forbid current local phone and cable monopolies to enter this business. Who would put draft horses and thoroughbreds under the same roof and expect optimal management? And if you hear whining from Bells Junior, tell them that as former draft horses, they have no reason to complain of monopoly breakup orders.

Broadcast television has shown that three is a crowd and provide genuine competition. Only pessimists will argue that Charon's dog, Cerberus, was still very much one beast, despite its three heads.

Philippe Coueignoux

  • (*) ....Congress To Take Up Net's Future, by Stephen Labaton (New York Times) - January 10, 2007
  • (**) .. It is too soon to impose net neutrality, by John Gapper (Financial Times) - Avril 30, 2006
  • (***) Sports' Greatest Hits at One Web Site (but Theres's a Catch), by David S. Joachim (New York Times) - July 31, 2006
  • (1) see Charon in the Wikipedia
  • (2) see Obolus in the Wikipedia
  • (3) I cannot bring myself to write Baby Bells. They have grown by leaps and bounds and the survivors have reached the legal age.
  • (4) value, not necessarily money (see (8/1/06 fillip)
  • (5) see the Russia-Belarus dispute in the Wikipedia
January 2007
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