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Phillip "The Only One Not Being Paid" Dampier
Tim Karr from Free Press dropped me a note alerting me that the Heartland Institute had responded to the comments from both Karl Bode at Broadband Reports and myself in regards to their transparent anti-consumer Net Neutrality is Bad position the telecommunications industry and their fellow astroturfing friends have been spouting as of late.
Free Press occasionally reprints some of our content on the Save the Internet! blog, which I always appreciate. But James Lakely wanted to take issue with several points, so the cross-blog debate begins. Free Press has already responded, but now it’s my turn. The quoted sections come from Lakely’s piece:
The general theme of the responses is: Government regulation always good, wise and beneficial; the market responding to consumers’ needs always nefarious, short-sighted and harmful. It goes without saying that we here at The Heartland Institute disagree. And here are my rebuttals to the rebuttals.
My rebuttal to the rebuttals to the rebuttals begins with calling out this sweeping generalization which actually doesn’t represent my view at all. In fact, it’s wildly against what I believe personally.
Government regulation is not always good. In fact, I’d like to see as little government regulation as possible. I’d prefer robust, healthy competition on a level playing field, because as a consumer (and this site is 100% consumer, with absolutely zero industry/special interest money) I and my friends stand to benefit from that. But unlike my “free market is always right” friends who cannot say they are 100% free of industry/special interest money, I also recognize that in the absence of a healthy, free market, the abuses are sure to follow without oversight. And they have.
Let’s be honest. The broadband industry in the United States is a duopoly for most Americans. One telephone company and one cable company. Wi-Fi and wireless broadband service remains either unavailable, uncompetitive from a pricing standpoint, or heavily limited by usage caps.
Since the late 1990s, the choice for broadband has been simple – DSL from the phone company or a cable modem from the cable company. Pricing competition for most comes only for new customers in the form of promotional sign-up offers that quickly expire.
The marketplace has been stable for a decade with the business model of DSL competing mildly on price, a recognition of its often slower speed service, and cable bashing the phone company over the head for not offering “blazing fast speeds” and charges slightly more to deliver them.
Customers have made choices accordingly. When a customer doesn’t care about a speed race, gets a competitive bundle offer from the phone company throwing in something like a free netbook, and still has phone service from their local phone company, DSL can make sense for them. For those who want the fastest speeds, already dumped the phone company for a cable “digital phone” product, and got an attractively priced bundle offer from the local cable company, they’re likely using a cable modem. For a lot of Americans in rural areas it’s “take whatever you can get.”
That marketplace worked well for a decade for more populated areas with the loudest clamoring for any change coming from underserved rural areas just looking for any broadband service.
Then things began to change. In November 2005, SBC-AT&T decided it wanted to change the model. Instead of providing connectivity for customers, they decided there was more money to be made by doing away with the founding model of the Internet — providers treating all traffic equally — and pondered forcing content providers to pay for transporting that traffic across their “pipes.” Companies with no business relationship with AT&T were told they could no longer use “AT&T’s pipes for free.” Now, under AT&T’s new model, if they wanted assurances of fast speed to their customers, those independent providers would have to pony up.
That sounded like a grand idea to Wall Street who trumpeted the potential earnings enhancements a new revenue stream would provide, and several other service providers with dollar signs in their eyes yelled “me too, me too!”
Predictably, some of the loudest outrage about this came from consumers — the ISP’s own customers. They had the apparently-mistaken notion that they were paying for broadband service to build and maintain a network to serve their needs for fast, reliable, broadband service for any site they visited. Apparently not. Consumers were often unmoved by a lobbying effort that suggested other big corporations were raking in profits on the backs of service providers “forced” to deliver their traffic. Good old common sense speaks volumes. Consumers don’t want their Internet service throttled, or see the content they want to access fiddled with just to fatten industry profits. The industry didn’t listen to consumers and are back yet again fighting Net Neutrality legislation.
The reason for the fight against Net Neutrality is simple: companies answer first and foremost to their shareholders, the supporting culture of Wall Street analysts and the media that trumpets their views. Short term results matter more than long term strategies. Monetizing broadband traffic, a growth industry to be sure, was a golden opportunity, even if the companies originating the traffic already pay hosting companies to deliver it.
From there, the story is always the same. In a healthy, competitive market, abusive practices are checked when customers flee a provider that stops listening to them. In a duopoly or limited competitive market, with reduced risk of customer defection, and in the absence of any other force to check unrestrained behavior, customer opinion becomes a low second in importance. It is the government that provides the necessary oversight and protection mechanism from market abuse running wild. Oversight does not limit competition. It can actually encourage it.
The players have assembled:
- Consumers like myself who are fed up with the abusive practices some bad actors in the broadband industry are engaged in and have no reason to obfuscate, lie, or hide the facts;
- Providers like cable and telephone companies that actively lobby to keep regulation and oversight at bay in hopes of continuing their free-wheeling ways, even if it harms consumers;
- Lobbyists and astroturfing organizations that receive a substantial amount of funding from those providers to bolster industry opinions on issues, create fictional, biased studies to prove industry theories, and whose very existence relies on the generosity of the corporations that pay their expenses;
- Employees of astroturf organizations whose paycheck comes from “sharing” the same positions on issues as their benefactors, and whose credibility would fall seriously into question should the direct financial link between providers and their paid mouthpieces be exposed to the public.
The most absurd part of this play is that I, as a consumer, am paying for all of it, and am the only one in the group not getting anything from it. Providers are paid. Lobbyists are paid. Astroturfing groups are paid. Mr. Lakely is paid. I am not paid. In the end, that makes me the guy that can walk down any street day or night and never fear that someone driving by will roll their window down and ask “how much?”
Pretend? C’mon. By even the Federal Communications Commission’s own research, the vast majority of consumers in this country have several choices of broadband providers. I have AT&T’s DSL service, a technology that is fine for me (at the moment), but is largely considered pedestrian. Cable is better. And fiber is better still. If I’m living in a fictional world, I’d love to ask the author of my fate for a few revisions — none of which has anything to do with how fast my connection is.
Most Americans have the following choices for broadband service:
- Cable company
- Telephone company (DSL or fiber in limited areas)
- Clearwire WiMax (significant ownership interest by cable and mobile/cellular industry)
- Mobile broadband (owned by cellular industry)
Cable and telephone companies are the two wired providers capable of providing broadband at the fastest speeds. Clearwire WiMax is being leveraged by the cable industry to offer wireless broadband to their existing customers. What are the chances Clearwire is going to bash their cable investors while competing for customers? Mobile broadband remains useful only for web browsing and e-mail because of onerous usage caps, speed issues, and pricing (which virtually every provider sets at the same level: $50/5GB per month). I didn’t even bother with satellite, because current providers offer service only slightly better than dial-up when used in real world conditions.
Your choice in broadband technology has everything to do with speed. In “broadband backwaters” where competition is exceptionally light and increasingly in areas where a fiber or advanced DSL product is not forthcoming, there is simply no competitive pressure to increase speeds no matter how loudly customers demand them.
The horror! ISPs earn “healthy profits” by providing a desirable service. It is here that Free Press and the rest of the net neutrality crowd reveal an ingrained anti-capitalist sentiment. We’re to believe that an ISP, earning healthy profits (which please both the company and its shareholders) are upset that demand for their services increases. In response, they do not see a great opportunity to expand their business and attract even more customers, but to “actively reduce investment.”
No. Instead the logical response is to be “neglectful,” and let rival ISPs in an ultra-competitive market swoop in and steal away their disaffected customers. That makes no sense to anyone who has any knowledge of how free market capitalism works. Verizon announced in 2006 that it planned to invest $18 billion in building out its fiber ViOS product by 2010. Why? Because it wants to (gasp!) pursue profits by serving more and more customers. I could care less about Verizon’s business plan — other than to note that without any government funding or “plan,” it seems to be moving quickly to bring more broadband options to more people.
The only thing Lakely avoids in this dramatic overreach is calling me a “socialist.”
Two important points here. Lakely should take his free market crash course to companies like Time Warner Cable who are doing exactly what he proclaims makes no sense: Broadband customers up. Demand for bandwidth up. Investment to upgrade networks to handle increased demand… down!
Lakely’s mistake is to assume that free market capitalism is always benevolent towards consumer interests, presuming they are first on the minds of providers when making any strategic changes in their business plans. But, for those who have lived under a throttled and capped broadband regime, like in Canada, or those in four American cities that were to be subjected to an unwarranted, unwanted pricing “experiment” on the part of Time Warner Cable to engage in all of the classic Internet Overcharging schemes – usage caps, consumption billing, overlimit penalties and fees, what the consumer wanted was completely irrelevant to the provider.
Time Warner Cable answers to investors, who howl over increased capital and upgrade costs in a normal economy. In this one, spending on virtually anything is scrutinized. Indeed, Wall Street even shudders at the thought of financing a competitor’s efforts to overbuild into another provider’s service area because it might launch a price war — a disaster for the Wall Street guy even if it’s a boon for consumers.
Lakely brings up Verizon, but leaves out the hostile reception many on Wall Street continue to have about the construction of that fiber optic network they call overspending:
FiOS has been very popular with consumers because it offers faster Internet service, more high-definition video channels and more bells and whistles than most cable systems. But Mr. Moffett’s argument is that what is good for customers is not good for investors.
“If I were an auto dealer and I wanted to give people a Maserati for the price of a Volkswagen, I’d have some seriously happy customers,” said Craig Moffett, an analyst with Sanford C. Bernstein. “My problem would be whether I could earn a decent return doing it.”
Stopping the monetizing of Internet traffic and treating content equally isn't Net Neutrality, it's Socialism in the eyes of some special interest groups.
Verizon thinks so, but has to spend an inordinate amount of time trying to convince short-term-thinking investors and skeptical darlings of the Wall Street media like Moffett that serving your customers with excellent service keeps them as loyal customers generating reliable returns.
Other companies, like Time Warner Cable, are much less interested in “seriously happy customers” when it launched its “experiment.” Of course, it limited its exposure by choosing markets where customers lacked a safety valve alternative providing equal levels of service. In Rochester, Frontier Communications retains a 5GB usage limit in their Acceptable Use Policy (currently not enforced) for broadband service and relies on traditional DSL service. In other nearby cities from Buffalo to Syracuse, and further downstate, Verizon FiOS is merrily wiring fiber optic service that does not have hostile customer policies, much faster service, and subscribers can freely switch.
When “experimenting,” it’s probably safer to choose a market that doesn’t have a powerful company like Verizon just waiting to pounce.
Where lower speed DSL prevails and the upgrade frenzy is nowhere to be found, it’s been much easier to simply maintain the same service year after year. No major upgrades. No market-changing shakeups. Just keep cashing the checks.
In some communities in the United States, such as Wilson in North Carolina, the duopoly simply refused to upgrade service no matter how often people begged and pleaded. The city finally decided to run a bond issue to finance the construction of their own municipal fiber optic network, and the incumbent providers did two things — try and stop it at all costs, and when that failed, finally made plans to upgrade their own networks to compete.
Lakely and I do agree: competition is wonderful. But I always add “when it exists.”
What happens when that competition doesn’t appear is an issue Lakely prefers to tap dance around, misstating my own position in hopes his readers won’t notice:
Super. Hurray! I wish the petitioners luck. But why, in a free-market economy, must the government force Verizon to “overbuild” in Rochester? Or why is it essential that taxpayer money be used to fulfill the wishes of some Rochester petitioners?
No reader here has ever seen me advocate the government “force” Verizon to overbuild my community. In fact, I’ve always been skeptical Verizon could be attracted to compete here legislatively or with $10 bribes would-be customers mail to Verizon corporate offices to show there is demand here. That’s because the telecommunications industry is loathe to overbuild in someone else’s territory. Phone companies and cable companies will nominally compete, but two traditional phone companies and two cable companies going head to head is something else. Nor have I advocated taxpayer money be given to Verizon to build a network in Rochester. In fact, it’s the providers themselves who want the government handouts without oversight of what they do with that money. By the way, does the Heartland Institute oppose broadband stimulus funding?
The tapdance continues when Lakely attempts to connect two different ideas to suggest they are contradictory:
There’s a lot to unpack from Dampier’s post, including the following contradictory passages:
The only thing Net Neutrality protects IS the status quo, a free and open Internet.
Followed shortly by …
… in a world without codified Net Neutrality protections — the free market at work under today’s reality — we’re seeing continued evidence of price increases and a decline in investment in networks, and some providers continue to drag their feet on upgrades.
So which is it? Is “today’s reality” worth preserving? (My view.) Or are government controls needed to protect the “status quo.” Can’t really have it both ways — unless your not really being clear about what it is you advocate.
Nice try. A law codifying Net Neutrality protects the free flow of traffic on the Internet tomorrow from the “monetize and control everything” mentality customers are already fighting providers about on pricing and usage limits today.
A foreshadowing of broadband service in America without Net Neutrality principles protected by law can be found in Canada. Do as Lakely suggests and it’s only a matter of time before broadband providers begin throttling speeds of undesirable online applications, favor traffic from paid content partners over those who didn’t pay for that privilege, and use traffic management to delay necessary infrastructure upgrades to meet the needs of paying customers. Customers will discover “blazing fast speeds” only from those websites that ponied up the money to guarantee that. In short, an online protection racket.
Provider mentality under “the free market at work under today’s reality” tells the story of what broadband customers are facing today in this country — Internet Overcharging schemes, astroturfing propaganda efforts to bolster claims that “controls” are necessary to balance traffic, and financial reports illustrating a pervasive lack of willingness by some providers to upgrade their networks. All this makes selling those “controls” to a frustrated public waiting for a web page to display much easier.
Be it trying to fiddle with the traffic passing through a network, or overcharging for access to it, the only reason consumers are increasingly calling for government oversight and protection is because providers have engaged in practices which demand such a response.
And those who want to impose their vision of how the Internet should work under the guise of “net neutrality” want to change it. I don’t think they make a very good argument for messing with a market that has brought the world the online wonders we take for granted.
Lakely has it entirely backwards. The Internet’s vision has, since inception, been one where legal content traveled freely without foe or favor. It was the providers that sought to change the “vision” (or as they would see it, their “business model”). Lakely and I agree that the Internet has brought online wonders we take for granted. But I know that is threatened when providers decide to control and monetize it. That’s about as acceptable as charging your aunt in San Francisco for a long distance call you made at your own expense, all because it traveled across the phone company’s wires.
Although Lakely did some pretty serious taffy pulling to stretch my arguments to fit his premise, his most recent hit piece on Free Press was a site to behold:
McChesney is an avowed socialist/Marxist. Through Free Press, he is promoting an agenda that would replace the free market system that has led to once-unimaginable advances in information technology — including freedom of communication — with a state-controlled system directed by government on behalf of “the people.” In short: McChesney and Free Press see the Internet as the last, best realm to finally usher in the long-dreamed socialist utopia.
Establish net neutrality principles by force of law, and the socialist/Marxist revolution (at least online) is underway.
Part two will follow shortly. Stay tuned.
Oooh, can’t wait for that. (Make sure you throw in some Hugo Chavez references. No self respecting “socialism under every rock” rant is worth reading without some Chavez sprinkles on top.) I just hope Lakely gets it written before he and his industry friends get their way. Otherwise, he’ll discover providers at his door demanding some ‘scratch’ to protect the Heartland Institute’s position as a “preferred content partner.”
What I am sure really upsets Lakely and his astroturf friends is that the Internet has allowed individuals to determine the merit and value of content based on its quality and integrity, not based on how much money is blasted into the amplification process. The proof of this in action exists right here, right now. Stop the Cap!, funded by me out of my own pocket and run in my spare time, with the help of other consumers volunteering to contribute their own content here, can stand toe to toe with an industry-funded Heartland Institute trying to create a right-left divide on an issue that is neither.
That leaves groups like theirs forced to respond to ordinary consumers like myself capable of blowing astroturf fluff out of the water with the most basic research and application of common sense. To think, a consumer website without the six or possibly even seven figure annual budget astroturf groups blow through can get as much attention and exposure as even the most well-financed industry propaganda festivals, all because of a free and open Internet.
That burns up the special interests to no end. That’s not a people-powered “socialist utopia.” That’s consumers fighting for their rights, organizing consumer-powered activism, and taking on, and hopefully eventually taking out, the special interest lobbyists that work against our best interests, and are well paid for doing so. No wonder Net Neutrality represents a threat so serious, it can provoke rhetoric invoking the Red Scare.
WELL DONE MR. DAMPIER!!!!
I read Lakely’s tirade first before reading this reply. It made me so angry I had to take a walk…..my blood was boiling! His arrogant, self-serving, snake charming antics were only overshaddowed by the sheer volume of lies flowing from that ignorant pie hole of his.
Reading this reply was like watching your favorite boxer deliver a knock out blow. Keep up the good work and keep fighting the good fight!
“Let’s be honest. The broadband industry in the United States is a duopoly for most Americans. One telephone company and one cable company.”
That’s if your lucky. Realistically, most Americans have a choice between Cable or Dial-Up. I happen to fall into that category, unfortunately.
Nicely written. Some people just need a solid blow to the head to set them straight, but this was good too.
And yes, it’s funny how the socialism line has become the default response to any argument in the interest of network neutrality, as if socialism is somehow inherently evil. Or even relevant.
One quick ting about the long distance example: your aunt doesn’t pay for the received phone call, but if I’m reading things correctly the phone company does. There are originating and terminating long distance charges that, in rural markets powered by local telephone companies/co-ops, may reach several cents per minute.
Want proof? Check out this direct-dial long distance provider:
http://www.pioneertelephone.net/index.asp?xid=PTGOOG&gclid=CM7ovNa5nZwCFSnKsgod3wPcTQ
Check your local phone number. Now check 830-324-6xxxx. That’s a local cooperative number, where rates are significantly higher on long distance due to origination fees from the telephone company. Who, incidentally, sells its own (7¢ per minute, no unlimited plans) long distance package.
So “billing on both ends” has a definite precedent, though billing for quality-of-service on an all-else-equal connection doesn’t.
As for service choice, I live in an area that currently isn’t competitive. Cable (TWC, Austin area) in town, very little/slow/expensive DSL (WIndstream) in town, slow/capped wireless provider if you can get line-of-sight to a tower, slow/capped satellite or capped mobile broadband if you can’t.
A few dozen miles away though the local telco (a cooperative, not the one I just mentioned) has 20 Mbps, uncapped fiber-to-the-home, albeit at rates higher than the equivalent FiOS tiers due to rather lackluster cable competition (TWC, same tiers as are available in my town).
Go a few miles further into San Antonio and you get another cable company (Grande Communications), who I think was partially responsible for TWC’s deciding not to cap this region. When Time Warner proposed the caps, Grande used the opportunity to point out that they weren’t even thinking about doing any such thing. Grande’s service is a bit slower for the price versus Time Warner’s, but when you put things in light of caps vs. no caps, guess who wins? In San Antonio, AT&T also has their U-Verse product, with speeds up to 18 Mbps down and 1.5 Mbs up. No caps yet, though they were also thinking about it.
About Clear WiMAX, Clearwire’s old system (pre-WiMAX) was heavily throttled. Their new system isn’t. No caps either. Their speeds aren’t competitive with DOCSIS 3.0 cable from Comcast, but their pricing fills the void below cable internet for those who would otherwise choose DSL. Pretty brilliant, actually. Also, remember that the cable companies combined don’t have a controlling interest in Clear. Sprint does, with a 51% stake. Guess who’s the most progressive wireless carrier when it comes to mobile data? Sprint. Personally, I think that Clear is in as good hands as it can be.
Don’t get me wrong, I neither like caps nor am paid by those who do. However this post needs a good dose of Devil’s Advocate.
Yes the long distance systems do work on a pricing model wherein you pay origination and termination fees (though that’s changing as voice networks start to use IP more and more and the line blurs a bit between voice and data).
However as a caller (or a receiver) you do not get charged once for the service and a second time for the level of call quality. What AT&T and others proposed is that content providers would not only pay for their access, but also pay for a level of delivery service across all networks traveled separately from their access.
Put another way, if I ran a content-heavy website I’d theoretically pay my local ISP for high-speed upstream access. Then I’d pay AT&T a premium to make sure my content is delivered swiftly across their networks. Then I’d pay Sprint a premium to make sure my content is delivered swiftly across their networks. Then I’d pay Virgin a premium to ensure my British users can get at my content with ease. You see where this is going, don’t you?
No one’s opposed to anyone getting paid for their effort. We’re opposed to extortion and money-making schemes at the cost of freedom (by effectively taking something accessible to everyone and making accessible only to the affluent).
AT&T is also slowly rolling out U-Verse in parts of Austin and the surrounding suburbs (Cedar Park and Round Rock). They’re using fiber to the node (FTTN) for existing neighborhood retrofits (relying on existing copper lines to the house), and fiber to the home (FTTH) for new neighborhood construction.
I consider myself one of the lucky ones. My options are FTTH U-Verse, TWC, and DSL (The footprint in the Austin area with all those choices available is very small, so there’s really no competition for speed or price….yet), but I have lived in parts of the city where TWC is the only option.
“One quick thing about the long distance example: your aunt doesn’t pay for the received phone call, but if I’m reading things correctly the phone company does. There are originating and terminating long distance charges that, in rural markets powered by local telephone companies/co-ops, may reach several cents per minute.”
Call termination fees have been part of the historic business model of the telephone industry. They vary from several cents in very rural areas, where the costs of doing business are routinely higher (and divided between fewer customers) to a tiny percentage of that in urban areas.
What you are writing about doesn’t actually challenge my original analogy, since the costs of long distance service for the vast majority of providers does not vary based on where your interstate long distance call ends up. They recognize that even though the costs to deliver calls to rural Iowa can be much higher, there is only a tiny percentage of customers placing those calls, versus folks calling San Francisco, or other more populated places. All of these costs are accounted for when setting a uniform long distance rate (which the majority of companies do), which the caller pays.
You hear about this issue only when an enterprising individual seeks to exploit the call termination fee system, such as what happened when a whole bunch of “free international call” services sprung up a few years ago. By calling a number, often in rural Iowa, you had a “dial tone” to place calls internationally, just for the price of that call to Iowa. Since many customers have flat rate long distance for their home or mobile phone service, it cost them nothing to use the system. The service used cheap VOIP connections to connect the calls.
The rural phone company charged the phone companies delivering the calls to rural Iowa the prevailing call termination fee, which was a financial boon to them, and they split the proceeds with the people running the “free calling” service.
The phone companies stuck with the call termination fees howled, and the crackdown against this loophole ensued.
What I wrote about was something beyond the call termination fee argument. Let me explain in terms of a long distance call, then explain how this translates to Internet service.
I actually have flat rate long distance service here, but let’s assume I didn’t and my calling plan charged me seven cents per minute for long distance calls to San Francisco. Under the current system, most of that seven cents will end up in the pocket of my long distance carrier, which in this case happens to be my local phone company, Frontier. But Frontier has to share a penny or two per minute with AT&T California, which I believe is the local company there.
Frontier gets paid and AT&T California gets paid. But now, AT&T California wants to get paid twice, by also charging my aunt seven cents a minute to receive my call. So the effective cost just shot up for the exact same call, despite AT&T already enjoying revenue for handling the call in the first place.
Now let’s take this to the Internet. Stop the Cap! already pays for bandwidth. I pay for a hosting company to make room on their servers for this web site. As part of my monthly fee, I get an allowance of traffic, which is used anytime I or anyone else accesses this website. My ISP, Time Warner Cable, also gets $50 a month from me to connect to the Internet and to support their costs of connecting Rochester to the Internet as a whole, first locally, then at their regional center in Syracuse. But I also am paying, as part of my monthly fee, their costs to plug Syracuse into the global Internet. Time Warner Cable does it on a massive scale, grouping customers from all over and buying access at the considerably discounted “group rate” (for lack of a better term).
So I pay for monthly hosting and traffic fees for this website, and I pay my ISP not only to access the site, but also handle the costs of delivering that traffic to me, the end customer.
But under the “you can’t use my pipes for free” analogy proposed by AT&T, I should pay a third time — this time to AT&T and any other provider, be it Time Warner, Grande, AT&T, Verizon, et al., an additional monthly fee to get them to agree to handle my website traffic at the same speed and service quality it’s handled today. If I don’t, my traffic gets potentially throttled or sent to the back of the line, leading to slow page loads, potential outages, or other issues that would have been handled lickety quick if it happened to CNN, but is just not that important to rush on for a “freeloader” like Stop the Cap! that refuses to pay extra insurance that guarantees that won’t happen.
Now providers will swear that won’t happen to me, but if that was the case, there would be no reason, much less a market, to offer (much less purchase) this “added insurance.” I think smart consumers can see where this will go. Providers don’t pay millions of dollars in lobbying fees and astroturfing efforts for something that “won’t happen.”
I have to zip to the dentist now, but I’ll be back shortly and address your other points.
“Go a few miles further into San Antonio and you get another cable company (Grande Communications), who I think was partially responsible for TWC’s deciding not to cap this region.”
Grande is one of a handful of competing overbuilders, and proves my point about Wall Street’s intense dislike of them. Grande had to sell itself to a bigger partner because it simply could not get sufficient financing to build out its system. Investors feared head-to-head competition could lead to a price war, beneficial for consumers, but not at all good news for their short term revenue expectations. That’s one of the problems with the all-free-market solution some would have you believe is the only answer to this problem. When dealing with established competitors in a marketplace defined by those investors as “stable,” rocking the boat with an upstart is not the golden opportunity so many free marketeers suggest. It’s a threat, and the established players will fight tooth and nail to keep the competition out, the Wall Street media will whine about the impact on revenue for everyone, and investors will be hard to find.
An example of what happens to an upstart competitor can be found in Vancouver, where Shaw leveraged their high pricing in most service areas to sustain pricing targeting their Novus competition at what most believe is “below cost” predatory pricing. Their intent isn’t really to compete at those prices — it’s to devalue Novus to make their business unsustainable. In many cases, hobbled competitors usually get purchased by the established player at a fraction of their original worth.
What kept TWC from going forward with their experiment wasn’t Grande, or AT&T (the phone company — the traditional “other” competitor for most Americans). Grande’s footprint was not that large. It actually was a combination of consumer outrage and the attention it drew from New York legislators, culminating in Rep. Eric Massa and Senator Chuck Schumer forcing TWC to pull back because of the political damage it was causing them.
In short, government oversight and the threat of the scrutiny that oversight brings (and potential regulation) was the safety valve that at least temporarily shelved the Internet Overcharging.
I agree with you that in many cases, consumers will choose an uncapped, slower alternative provider over a faster capped one. That would be true for me, personally, although I’d be stuck with Frontier’s 3.1Mbps DSL service, which is the best they could do for me in a suburb less than 1/2 mile from the Rochester city line.
Valid points. Remember that I was playing Devil’s advocate.
As far as internet price wars go, you’re right that there tend not to be any except in markets where a muni utility has laid fiber, and either they or other providers (Wilson/Lafayette for case #1, UTOPIA for case #2) have offeredd service over it that can’t easily be colluded with by the MSOs/ILECs. In Canada the same thing is happening, but with the much-feared competitor being a privately held, single-network fiber operator. Heck, even TekSavvy is having a hard time of it, and they’re only selling vanilla DSL!
On the LD analogy, I guess you’re right there, since the calling party/carrier pays the termination fees to the co-op or equivalent. Of course, with cellular plans (voice and messaging) people get charged twice in the US, but on the other hand I don’t want to pay 15 cents per minute long distance to call a cell phone, common with “calling party pays” systems elsewhere. Especially now that I can get an unlimited Verizon-based phone for $40 per month through page Plus Cellular.
Speaking of cell phones and price wars, there is some light/hope in that market. An operator based out of San Antonio, Pocket Communications, has competed prices down in their service areas (San Antonio, Laredo, McAllen, Corpus Christi) to the point that their direct competitor, CricKet, has prices $5-$20 lower (for more features) in the south Texas area than Pocket does. CricKet has EvDO here, but Pocket’s network coverage is superior. Guess where people (300,000 of them to be exact) are going?
Here you can a $25 cellular plan that covers local, long distance, caller ID, text messaging and picture messaging. Of course, you’ll probably want to pay for the $37.50 plan, which includes every feature you could possibly want, plus web browsing added on, but $25 is about what you’d pay for unlimited-local-and-long-disance VoIP, let alone landline or cellular service. Whereas in many areas there’s an internet market failure, this is a cellular market success.
Can’t wait until Pocket rolls out 3G/4G on their network. I’ll bet an uncapped mobile broadband card will be priced around $35 per month just to “give the big boys hell 24/7″ (that used to be their motto).
As for capped service vs. non-capped, unfortunately around here everything except Millenicom-powered Sprint $70-a-month EvDO and low-coverage 1.5/512 DSL would have a cap if TWC decided to cap their residential connections. At least for now. Up in Colorado though, if Comcast’s 250GB soft cap was really putting a cramp on my style, I could switch to Qwest DSL. My problem there is I’m cutting my upload speed by two-third (by over 90% while PowerBoost is on) and my download speed by about half, when the “85% rule” is accounted for :/
Phil, congratulations on an excellent piece of writing. Until recently I thought that the “socialism” taunt at any and every government intervention in the marketplace was dead, but the health care “debate” cured me of that. If a free markets were genuinely free, that would be an ideal, but unfortunately it is no more realistic than a vision of “pure” socialism. Adam Smith is often invoked by people who rail against ANY government intervention in the economy, but what they conveniently omit to quote is a statement of his to the effect that two or three business people will rarely get together except to conspire against the public interest. That’s where we are now in certain types of industry, of which telecommunications is a poster child: competitive markets when they exist at all degenerate into duopolies or monopolies.
The government has an accepted role in the economy in all kinds of ways such as providing a framework for company law and a court system for resolving disputes (though that’s been undermined in recent years at the behest of companies to make things much more burdensome for the consumer). What the government has turned its back on is the anti-trust movement which was pushed by that good old Marxist Teddy Roosevelt in response to the abuses of the robber barons. It’s time to bring it back, no ifs ands or buts. And where that doesn’t provide genuine competition in the broadband marketplace, then by all means governments should enter the market as a service provider. The legislators are supposed to work for us, not corporations.
You know we could have a telecommunications industry based on the “free market”. Unfortunately Congress and the FCC are influenced by the huge sums of money AT&T, Verizon, Time Warner, and all the corporate duopolies throw at them.
Until we change our system or how money is donated to our politicians campaign re-election committees nothing will change. Many if not most politicians act like the good loyal employees they are of the communications industry. With all this money given to them they are on the payroll of these large companies. Because of this we will be stuck with slower and high priced internet access.
I’m not optimistic things will change anytime soon. Just look at how the large insurance companies are giving huge sums of money to congressmen right now. Has anyone noticed how the health-care bills in congress are stalled with many congressmen coming out in support of private insurance companies. In most cases even against the wishes of their own party. Now how does that happen (sarcasm)? Just follow the money trail.