So broadband internet in the United States is going to be reclassified as a Title II utility. A high level overview of that is that the government will have some control over the speeds available and pricing models available to customers, as well as having a huge amount of say as to which markets broadband providers can enter into. This opens the door to government corruption, I will fairly admit this, but it closes the door on latent, active corporate corruption.
Anyway, some weeks ago (months, now?) I got into an argument with a libertarian and Google never forgets. Related to that, I use Google Now extensively; it is a service that delivers me information it thinks I will find useful. Because of my head first dive into libertarianism, it has been sending me libertarian news articles with stunning regularity since then (I can finally relate to a line by Weird Al “I only watched Wil and Grace one time, one day, wish I hadn’t because Tivo now thinks I’m gay.”). With the FCC voting yesterday on the Title II provisions, Libertarians are in a bit of an uproar about government overreach.
Specifically, this article was what Google Now decided was important to me–and being as I feel this article completely ignores vast swathes of the argument I thought I would write about it here.
The article compares Title II classification with a grocery store. Certainly, in grocery stores, having a position on an endcap or being placed at eye level are valuable, and the article argues that you can’t be “neutral” because someone gets to be on the end cap or at eye level. Surely, it is the greatest ill if the government is the one to choose, rather than that holy talisman “market forces.” I think this metaphor is terrible, but I am going to need to lay some groundwork before I can explain why.
Internet Service Providers have signed regional agreements promising certain levels of “broadband penetration” in the States (usually in the 90% and up range), for which subsidies are given to them from the government. The subsidies are for infrastructure investment allowing the ISP to meet this agreement, and is the incentive for this agreement to be signed.
Previous to recent legislation, “broadband” was defined in the United States at 4Mbps down and 1Mbps up–which really barely allows for streaming of Netflix these days. Tom Wheeler (a man is slowly gaining my trust) is the FCC chairman, and he has stated he will pass legislation defining Broadband as 25Mbps down and 3Mbps up. The ISPs have fought this tooth and nail, because they will have to *spend money* on infrastructure to meet their infrastructure agreements with the government. Here is where I have to put a BOLD NOTE that the libertarian will, I hope, read; for all the amount of Market Forces you are leaning on where it comes to ISP infrastructure, they are accepting government aid (often at the municipal, state, or even federal level) that is earmarked for infrastructure, and then not using it.
That isn’t capitalism, that is corporate greed… And the fact that Comcast, AT&T, and Verizon fought bitterly against Tom Wheeler redefining what “broadband” is, we can infer that they would continue to not invest in infrastructure if they were left to their own devices. The waters are about to get a bit muddy, but here’s the thing; no matter whose numbers you choose, ISPs are making a great deal of money. An article I was reading was saying that Comcast’s margins are razor thin, as though they were about to go bankrupt, despite the fact that they cleared a market value of $100 billion in 2012. A rebuttal to that argument claimed that they were making only a 4.5% net revenue–but think about that for a moment–that is over $4.5billion in profits that the executives can put in a pool and swim in. That is revenue after they have paid themselves lavish bonuses. That is revenue they have earned after outsourcing their customer service to the worst firms anyone has ever had the displeasure of phoning. It has become almost a sport to post recordings of gross negligence and outright lies on the part of Comcast support centers.
Edit: It has been pointed out that my understanding of business profit reporting is sorely lacking, and I accept that. I am not business analyst. That being said, clearer numbers can be found here for those with a mind to reading them.
Now, let’s work back, now that I’ve laid some ground work. Redefining “broadband” doesn’t even mean ISPs are in any way required to meet the higher standard of 25/3, it just means that on paper their high “broadband penetration” numbers will plummet precipitously, and they will have to invest some money into their infrastructure to bring them back up. A very potent example showing that the ISPs are sitting back on their profits to the dismay of their customers is the story of what has happened in Kansas City with Google Fiber. There was “competition” in Kansas City, before Google entered, in that Comast and Time Warner both had a large presence in the region. Their prices were ungodly, their speeds below the national average, and there seemed more collusion to profit than competition for consumers (which became blatantly obvious when Comcast and Time Warner petitioned to merge, which would have screwed the people of Kansas City royally). Then Google Fiber came in, some real outside competition, and things got spicy. I can’t go into detail, I am afraid if I traced every thread of the weave of this story, we’d never finish writing.
What I am saying here is traditional competition was not serving the consumers, market forces be damned. And if you call Google a “Newcomer” or “Internet startup”, I am going to have to ask you kindly to leave. The only company that could even afford to compete with the incumbent services is a $400 billion company that could afford to lay an entire city’s worth of infrastructure and not break a sweat
(more accurately, they bought a massive amount of dark fiber, but that’s a story for another day). Do you think a new startup could compete with the incumbents? Lay infrastructure to bring real internet speeds to the people of Kansas City? No, Comcast and Time Warner were making money hand over fist by colluding to screw the customers. Is that how market forces work everywhere? I am not so naive as that, but the ISPs in the United States have traditionally been a terrible bunch, filing spurious lawsuits and backing anti-competition bills. I think in this arena forcing a change is important.
Now let’s go back to our grocery store analogy. Imagine we’ve got a modest city of 5,000 who has one Wal Mart and one Whole Foods. Wal Mart carries the cheap groceries, Whole Foods the expensive, higher quality groceries. A small family shop opens up, but Wal Mart buys the full stock of the cheap groceries, Whole Foods the whole stock of the expensive groceries. The new startup can’t keep anything on their shelves, and they go out of stock. Whole Foods and Wal Mart, having killed the smaller grocery stores and not directly competing with each other (separate demographics for expensive and cheap groceries) increase the price on everything in their stores by $2.00. Your $.99 chocolate bar? $2.99 now. New Startups can’t enter the city because Wal Mart and Whole Foods like the little empire they have built, and like that people are forced to pay their higher prices because Market Forces allow it. There is no competition, despite both being grocery stores.
That is an accurate grocery store analogy to current ISP competition in the States.
Now, I have to make my own counter points. This certainly does open the door to government corruption, government overreach. The really funny way is all of the news I have been reading is paranoid that the government will do something markedly evil and anti-capitalism, but no one seems to know what that would be. The author of the top linked Libertarian complaint piece thinks that this means that the ISPs will again control everything, because lobbyists and government, and evil overlords. Well, you are right, there will always be lobbyists, but the fact that Comcast is staunchly opposed to this, so opposed in fact that they are suing the American Government to have the decision reversed, and the fact that they have the most lobbyists in Washington, should at least show that this isn’t what they want.
Is this a perfect solution? No, it isn’t. That being said, it protects consumers in one tangible way already; ISPs have been champing at the bit to create tiered packages (for lack of a better analogy, something akin to TV channel packages, though I am aware this is inaccurate), and this has headed them off. They had already extorted money out of Netflix for equal access to their environment. That is what Market Forces drove; they drove the owners of the infrastructure to treat competition like second class citizens, and I think it should count as a very deep conflict of interest for an ISP to host their own video streaming service in competition with another company, then charge that other company extra to even be allowed to offer their services. If that is what libertarians what, if that is what market forces demand, I think stepping in must be done. If the people can’t, the government can.
There may be problems with this approach in the future, maybe. Maybe. But right now, citizens in the United States have very few options. (That is a joke about how much “competition” there has been between colluding ISPs.) I am no anti-capitalist–if your product is legitimately better, or legitimately more affordable, I want the market to support you. If your product is inferior, causing you to blackmail your competitors so that you can even get a foothold, then capitalism has failed. It failed spectacularly. It failed horribly. It failed to provide the consumer anything useful.
Mr Mises guy, got spend some time with 4Mbps internet, download a few pieces of news, try to watch some streaming news sources, then come back and tell me the market is functioning perfectly.
Unless you are of the opinion that it is the personal responsibility of farmers or rural municipalities to build their own network infrastructure? Because right now their options are sit on a dick eating cake, or sitting on a cake eating dick — and that is not a choice that should be forced on anyone. And unless you can propose a better option (and keeping in mind the horrible failure that is the market forces with regards to available internet bandwidth…), stop standing in the way of people who have put forward a good option.
And before you attack what I just said as though it is a gaping hole in my armor, please do know that I always try to to make citations of people who have proposed a better option–I don’t just tear things down, I try to build something in their place. Not always my own idea, but from what I have read of so many articles lately, the general sentiment is “Government evil, corporations good, because capitalism is always right. Right? For those not clicking on that, it is an article counting the deaths that Nestle has caused in South Africa with their baby formula — but it’s ok! Obviously NESTLE DID NOTHING WRONG, because the people bought the formula on their own, something something CAPITALISM!
Sorry, but people who just blindly state “market forces are good,” and who completely ignore evidence to the contrary drive me CRAZY. AUGH!