My colleague Tom Hazlett has this excellent op-ed in today’s Wall Street Journal. Here are the opening few paragraphs:
We should be celebrating an anniversary this month:
One year ago, in August, the Federal Communications Commission voted to
deregulate residential broadband services. Never heard of it? Well, I’m
not proposing a parade; but this victory for freer markets undermines
the current proposal to re-regulate the Internet via "net neutrality."
First, the broadband situation. Under the "open
access" mandate, the federal government used to be the ultimate arbiter
of what telephone companies could charge independent broadband
providers to use their own physical infrastructure, such as wires and
cables and other network components. But reformers argued that
depriving the telcos of the power to set prices and cut customized
business deals meant they could not attract the investment they needed
for critical but very costly improvements to these networks.
The deregulation debate was acrimonious: Critics
complained that, left to market forces, households would be handcuffed
and gouged by telcos pushing their own broadband services, excluding
competitors and restricting access to Web content. After the vote was
taken, FCC Commissioner Michael Copps challenged his colleagues: "I
hope next year the commission will put its money where its mouth is to
see if the assumptions yield the results. And if it doesn’t, I hope it
will admit that and take appropriate action. I’ll be keeping tabs."
The results are in: DSL packages are cheaper,
performance speeds are faster, and the number of subscribers is growing
more quickly than under open access rules. According to Leichtman
Research, for the nine months following deregulation (fourth-quarter
results aren’t posted), the number of households with DSL increased by
4.6 million — some 31% above the previous period’s growth. Meanwhile,
the DSL competitors — cable modem services — have added 3.8 million
subscribers.
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There's only way to describe the free market in action: BEAUTIFUL
There's only way to describe the free market in action: BEAUTIFUL
I haven't seen prices come down (and I recently re-surveyed the field as I considered buying broadband). Where is the evidence for this? Perhaps I'm just unlucky in my area.
And speeds doubling doesn't help much given that each extra kilobit-per-second has a negligible marginal value for most people.
I'm not arguing that regulation is better; but I think this is one of those bothersome public utility situations where the result is going to be bad pretty much any way the system is run.
The US probably screwed itself by subsidizing the construction of the telecom network in the first place. Without that, the coverage would be smaller and more nimble.
These aren't real speed increases, they're just doubling the line speed. Most ISPs significantly oversubscribe their backhaul.
Here's what I've seen in my local market:
1) Available speeds have not gone up in the last year.
2) Price for a given broadband speed has not changed.
3) The local providers *have* begun offering cheaper lower speed broadband services.
So from my point of view, the consumers who are benefiting most from the 'deregulation' are the price conscious, quality insensitive consumers.
The fear is that the telco will behave like the monopoly it used to be, and would like to be again.
I think that the central fact of DSL technology escapes this discussion. The technology is limited to a 3 mile (or so) maximum distance from the Centrex (central telephone exchange). Beyond that limit, DSL is whistlin' Dixie … meaning its throughput dives to zero. (DSL Version 2 will extend this distance only slightly.)
So, if you are in a large city, where repeaters/signal boosters are common, then throughput is what the ISP more or less says it is. It really depends and speed is all over the place.
The more rural your location, the less chance you have of getting DSL throughput that is any better, really, than a dial-up line. Except that DSL tends to be a fixed price not based upon usage – which is a good sales argument anyway.
So, all this chat about throughput is irrelevant. It depends upon how far away you are from the Centrex where the ISP has installed their DSLAM (DSL Access Module).
For rural communities, well, they are going to have to wait for WiMax. Even in a city, WiMax just might do a better job of providing real bandwidth performance, but that will depend upon the investment in positioning antennas.
The bandwidth race is still on and adequate results still to be seen. And, this has nothing to do with Free Markets. In matters of any distance related service (telecoms, telephony, railroads, electricity, water) the access to markets and therefore pricing is determined by those who own the means of transport. There is often not sufficient existing competition amongst them.
Telecom technologies are not at all like providing your breakfast cereal.
There is a bit of a catch-22 in this discussion:
In many major markets, municipalities have limited the number of competing franchises in sectors such as telephone and cable. In the late 70's and 80's, no one thought to look at the copper networks of phone companies and cable companies being fundamentally the same in terms of future technological changes. And cable and telcos were more than happy with their supposed pseudo-monopolies in a given area. But as times have changed, so has the competitive landscape.
Now the cable providers have had a few years to break out against telephone companies since telco regulation was put in place – deregulation has thus provided a mechanism for a more level playing field in terms of who carries what over what wires. This is giving room for the old-school telcos to finally reap some of the benefits of their networks they laid out just as the regulatory clamp-down set in. Cable had an advantage as they were beyond the reach of the FCC's regulations at the time.
Now it may be a bit early to cite a total victory as 1 year is hardly any means to base a trend on, yet as the op-ed points out, the data does look promising. As A. Perla points out, the technology will continue to change with Wi-Max looking to shape up to be the next advent in high speed networking to reaching further into the rural markets of the US. I do not believe we've seen the full impact of deregulation yet as it will still take more time to show the full benefits.
In my local market, the cable company (around the time the deregulation was announced) doubled data transfer of their standard plan, added a higher tier and added a lower tier at lesser cost. The standard plan remained the same cost. I also do not believe that, as Mr. Krowne pointed out, that there is enough marginal benefit at the present time to justify doubling speeds. However with the rise of VOIP and the breadth of digital video content delivery taking shape, there will be a significant marginal benefit to the higher speed plans in the near future for consumers.
But what is truly amusing is that the large internet companies that have backed "net neutrality" are essentially ensuring that any and all costs of the internet are more directly distributed to the consumer. Because google provides the bulk of it's services for free, if they would theoretically to have to pay a variety of vendors for increased attention on a network, it would have a significant impact on their bottom line as it would be difficult to pass these costs onto consumers of their products. Instead, by keeping the net "neutral", free services thus off-set some costs by indireclty passing these hidden costs back to the consumer.
Quadrupole said:
"So from my point of view, the consumers who are benefiting most from the 'deregulation' are the price conscious, quality insensitive consumers."
So, improving the situation of people that probably tend to have low-income is a bad thing?
For my part, I have seen speeds – both nominal and actual – increase, and prices rise slightly (cable) or decrease (DSL). However, competition is way down, which makes getting decent service somewhat difficult. In most major markets there are exactly two players, the cable monopoly and the phone monopoly, and neither does a very good job.
Wait, there's the problem right there! It doesn't really have anything to do with federal open access mandates, it's about local grants of privilege to incompetent providers with little incentive to provide a good deal.
@colson: Google does not get to give its services away free. They, like everyone else who operates a web site, pays for server space and bandwidth for their site. Google's costs in this area are extremely high. Just like you might pay for Internet access through your Cable or DSL provider they have to pay for Internet access too.
The issue with net neutrality is that it hurts both those who run websites and consumers when we don't have it. New companies that can't afford preferential treatment on the networks have can't compete with established companies with large funds. That means they are less competitive and consumers see fewer cool products.
Additionally, since the web site providers have to pay not only for their bandwidthy but a bribe for good treatment to each and every service provider worldwide (think how many dial-up, cable, DSL, satellite, and other companies there are) costs for producrs and services can go up significantly. This means that your cheap or free IM, Voice over IP, online gaming, and other services cost more for you to use. Think Vonage will survive long if AT&T, Comcast, and others decide to intentionally drop their calls and lose Vonage data packets in favor of Comcast or AT&T VoIP data? The only winner in this scenario is the company like Comcast or AT&T that charges you for internet access and charges Google for using their lines that you just paid for.
I liken the whole thing to the phone company charging you more for important calls and charging businesses for a clear line to their customers when someone calls them. Imagine if a hospital had to pay your phone company extra for a clear line when you called them.
You can rest assured that any money that comes in from this form of extortion would do nothing to lower consumer rates.
Net Neutrality is also not about competition. Networks should compete on speed, cost, and reliability. It is perfectly reasonable to hold that the federal government should enforce network neutrality while letting network providers compete freely and openly.
Summing up: Net Neutrality, equivalent to the phone netrality we've had for years, prevents network providers from stifling innovation and competition, raising consumer costs, and adding an additional charge for access to a network, even though both web site operators and consuemrs already pay for access. Discriminatory networks hurt pretty much everyone so that AT&T and similar companies can pump up their profits. It's crap.
"Summing up: Net Neutrality, equivalent to the phone netrality we've had for years, prevents network providers from stifling innovation and competition, raising consumer costs, and adding an additional charge for access to a network, even though both web site operators and consuemrs already pay for access. Discriminatory networks hurt pretty much everyone so that AT&T and similar companies can pump up their profits. It's crap."
Actually, what prevents them from doing all the things you worry about it competition. Providers and networks could very easily block content and raise rates right now if they wanted to. The fact is that an open network is probably on of the best features that anyone looks for when it comes to content. Which company will want to be known as the one that offers less content than their competitors? Certain websites charge for content right now and nobody complains that access is being limited by greedy corporations. I think that the onus is on net neutrality supporters to explain the incentives for corporations to do all the terrible things they think they will do. How exactly will it be different than it is right now when it comes to costs and content?
Isaac
@Isaac: Ideally free and open competition in the marketplace would prevent such actions, but it these prectices are not so obvious when they happen. For instance, AT&T will not announce that customers can't use Vonage on their network. Instead they will lower the quality of service for Vonage calls so that nobody wants to use Vonage and uses AT&T for VoIP instead. Customers will blame Vonage for poor service when in fact it is the network provided that is intentionally dropping Vonage data packets in favor of their own VoIP service. (Note that this sort of situation is not hypothetical, it has already happened and the FCC has fined network providers for doing this)
There is not enough transparency or technincal savvy among consumers for the market to control this.
Additionally, there is often little to no choice in broadband access for consumers. If you're lucky you have DSL and Cable access. Rarely will a customer have a choice between 2 or more cable or DSL companies. There is simply to little commpetiton in each area for the market forces to keep network providers honest.
As for the incentive to do the terrible things I think that you'll find that AT&T and other network providers have stated openly that they would love to start adding additional charges to web site operators whose traffic goes through the last mile to customers on thier networks. They are not hiding this fact in the media or from lawmakers. Their incentive is getting lots of money form everyone around them without the hassle of providing good service or dealing with competition for their services, obviously, and since they lack sufficient competition they can be as greedy as they like and get away with it. AT&T, Comcast, and other netowrk providers would love to control the content on their networks the way that cell companies do with your phone. That control on cell networks is why you pay $1.99 for a 15-second ring tone from a song that is $0.99 on iTunes in its entirety.