Friday, June 11, 2010

Reflex Action

I don't know much of anything about Andy Kessler, but he's got an op ed in today's journal that perfectly illustrates why I find the part of the right wing I reckon I'm supposed to agree with so goddamn frustrating. 

He frames a debate over internet regulation by first talking about how AT&T's new monopoly over the iPhone and their recent move to charge by the GB is is going to stifle the growth of the mobile internet in the same way that AT&T's old monopoly over the telephone lines stifled their interest in adapting them to new purposes (like the internet).  He then goes on to complain that there's no competition in many markets for high-speed broadband -- cable is often the only game in town.  Finally, he writes about the FCC's recent decision to reclassify the internet from Title I (lightly regulated information services) to Title II (heavily regulated telecommunications services) in the wake of losing their net neutrality beef with Comcast in front of the Supreme Court. 

And so a month ago, on May 6, the FCC announced its intention to reclassify portions of broadband as a common carrier telecommunications service and start regulating like crazy—imposing net neutrality, setting rates and data speeds, and who knows what else.

At this point in the story, you might be confused.  He's bitching about monopolies with their lack of incentive for innovation and their extortionate pricing, but when the most obvious solution to the problem is presented -- they need some sort of regulation -- he tries to scare you about that too.  To make it worse, the scare tactic is factually inaccurate; the FCC does intend to reclassify broadband, but they explicitly and in no uncertain terms say that the do not intend to set rates, enforce data speeds, treat data as a common carrier situation where cable companies would be forced to sell wholesale access to their pipes, or, in fact, anyone knows what else.  He's simply full of shit here.  It's impossible to describe the FCC move as an intention to start "regulating like crazy".  If you don't believe me, read the damn thing yourself.

So, what exactly does Mr. Anti-Regulation think we should do about these progress crushing monopolies?  Well, he proposes we regulate them:

I think competition fixes all that. But according to a study a few years ago by, less than 1% of 30,000 cable markets had more than one provider in 2000 and 2005. Any guesses for 2010? In Paris and Tokyo, competition is vibrant, with eight to 10 competitors, speeds higher, and prices much lower than in the U.S. More competition here is the way to keep bandwidth charges reasonable.

Thinking a few more chess moves ahead, the FCC can use the threat of regulation to kick-start real competition in wireless data and cable broadband. How? Just threaten local cable companies with common carrier/telecommunications service regulations, unless they can prove that there are viable competitors, municipality by municipality. And not pokey phone-company DSL competition, but real broadband providers offering service at, say, 10 megabits per second.

To do this, the FCC would set common-carrier pricing for consumers of now-Title I designated cable-modem Internet service just below the debt-servicing level of the cable companies. Comcast has almost $30 billion in debt, Time Warner Cable $24 billion, and Cablevision $11 billion. With potential negative cash flow, see how fast cable companies will start lobbying for competitors.

Again, this is all tremendously sloppy and factually misleading -- it's not the number, but the size, of individual markets without competition that matters, there is, by hypothesis, no competition in these markets, so asking the cable companies to prove that there is asks them to come up with some scam; and they will not start "lobbying for competitors" if you set the price of cable broadband so that it falls just short of servicing existing debt.  Remember, they call them cable companies because 70% of their profits come from, um, cable.  If you say that they should be able to pay their interest bill out of internet profits, you are effectively subsidizing cable TV with higher broadband prices, which is hardly the progressive position he imagines himself supporting.

But the fact that this guy's head is so far up his ass that he needs a periscope to take aim at the crapper is not, ultimately, my point. I have a simpler and more conceptual concern.  Here's your typical WSJ guy praising the virtues of competition and the free market, and scaring you off about the big bad government coming in to regulate.  But the actual market does not necessarily police itself in all instances, and is demonstrably failing to police itself in the instance we're discussing.  Competition is wonderful, if it exists.  And when there's no competition, there is typically a reason why, so simply saying that it would be nice if it existed is not going to make it magically happen.  Of course, it's also clear that over-regulation can ruin competition.  It happens all the time, and I'm the biggest beater of this dead horse that you can imagine.   But it's pretty hard for over-regulation to ruin what you're already claiming doesn't exist.

My point is that competition and regulation are two sides of the same coin  If you are in favor of competition, you are in favor of regulation.  It's that simple.  I'm sick of people like this who abstractly pretend that competition is the opposite of regulation.

Competition is the only way we can stop talking about allocating scarce resources via regulation and network neutrality and start talking about how we are going to use a future bandwidth bounty of 100 megabits per second. Maybe video calls will finally come of age.

Without some regulation, you have no competition.  That's why you're writing the fucking op ed you moron! You want regulation.  In fact, by proposing we regulate the end price for broadband consumers, you propose more draconian and invasive regulation than the motherflippin' French.  The whole reason competition is vibrant in Paris and Tokyo is because they force the big pipe providers to sell wholesale data access to anyone who wants to resell it at the retail level.  In other words they have competition because they have regulation.

The only truly free market is the one where we go around hitting each other over the head with bones and dragging women back to our caves by the hair.  Every other market is a game.  We set up a game with certain rules to keep things interesting and to be able to keep playing the game.  The game has to be designed with strong enough rules that it doesn't immediately stop, and few enough that it's still interesting to play.  The rules have to apply to everyone and they have to be enforced.  And if the game of making up the rules of the game gets too prehistoric, then all the other games are ruined as well.  Designing games and meta games is not easy, but you can't just pretend that stable, satisfying ones will design themselves (at least on relevant human time scales).

The question is not whether we should regulate.  We have always-already regulated in some way, explicitly or implicitly.  The question is how we should regulate.  And the answer is usually "in inverse proportionality to the amount of competition".  I know that's not the only question in regulation (externalities and blah blah blah), but it's a pretty good start.  Design a fun game that people enjoy playing and that leads to even more fun and games.  After all, that's what existence is all about.

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