Tag: "regulation"

Posted November 16, 2010 by Christopher Mitchell

In the world of essential infrastructure, thousands of years of history have taught us that entities, acting on their own narrow interest, cannot be trusted to build or govern the building blocks of commerce or transportation. The temptation to abuse that powerful position has always proved too much for those without accountability to the public.

For instance, if the only way to move goods is a canal, private canal owners will price at a high level or use their position to take a stake in all the industries using the canal. Such an arrangement is great for the canal owners but poor for the rest of society. Witness the history of canals and railroads.

Two options to dealing with this problem have historically been either regulation or public ownership of such infrastructure. Readers of this site are undoubtedly well aware of our preference for public ownership - a structural approach using coops, local government, or non-profits to ensure the interests of the public at large receive the highest priority.

This post explains one of the reasons a regulatory approach, whereby private companies still own the infrastructure (and often make key decisions) but must go through some form of public body that is supposed to prevent the natural interests of the private company from taking over and reducing the benefits to society at large.

Writing in the Financial Times, John Kay explains regulatory capture, the process by which the agency or commission supposed to regulate effectively begins to act more in the interests of those regulated rather than the public. An obvious example of this is the Minerals Management Agency that has long improperly overseen the extraction industry, leading to the BP Gulf Oil Hole.

As Kay rightly explains, there are multiple kinds of capture from outright corruption to something that leads some political science geeks bring up Gramsci and Hegemony...

But the most common form of capture is honest and may be characterised as intellectual capture. Every regulatory agency is dependent for information on the businesses it regulates. Many of the people who run regulated companies are agreeable, committed individuals who are properly affronted by any suggestion that their activities do not serve the public good. Few members of the public, by contrast, ever make contact with a regulatory agency...

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Posted October 15, 2010 by Christopher Mitchell

In all the talk of the need for competition in broadband (or in the mobile space), there is remarkably little attention paid to the difficulties in actually creating competition. A common refrain from the self-interested industry titans (and their many paid flacks) is: "keep the government out of it and let the market decide."

Unfortunately, an unregulated market in telecom tends toward consolidation at best, monopolization at worse. Practicioners of Chicago economics may dispute this, but their theories occur in reality about as frequently as unicorn observations. In our regulatory environment, big incumbents have nearly all the advantages, allowing them to use their advantages of scale to maintain market power (most notably the ability to use cross-subsidization from non-competitive markets to maintain predatory pricing wherever they face even the threat of competition).

The de-regulatory approach of telecom policy over the past 10 or more years has resulted in far less competition among ISPs, something Earthlink hopes to change with a condition of the seeming inevitable NBC-Comcast merger. Requiring incumbents to share their lines with independent ISPs is one policy that would greatly increase competition - but the FCC has refused to even entertain the notion because big companies like AT&T and Comcast are too intimidating for the current Administration to confront.

In the Midwest, Windstream is cutting 146 jobs as part of its acquisition of Iowa Telecom. When these companies consolidate, they can cut jobs to lower their costs... but do subscribers ever see the savings? Not hardly. The result is less competition, which leads to higher prices. Consider that Comcast is the largest cable company, but they are known better for their poor record of customer service than low prices enabled by economies of scale.

We need broadband networks that are structurally accountable to the community, not private shareholders located far outside the community. The solution is not more private companies owning broadband infrastructure, but more private companies offering competing services over next-generation infrastructure that is community owned by coops, non-profits, or local governments.

Photo by...

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Posted October 13, 2010 by Christopher Mitchell

In a TNR Review, Larry Lessig uses The Social Network to explain why we must maintain an open Internet. This fits exactly into our recurring theme on MuniNetworks.org that rules and structure matter greatly.

The full review is excellent and worth reading, but this is the key for our purposes (it comes toward the middle of the article):

Instead, what’s important here is that Zuckerberg’s [Founder of Facebook] genius could be embraced by half-a-billion people within six years of its first being launched, without (and here is the critical bit) asking permission of anyone. The real story is not the invention. It is the platform that makes the invention sing. Zuckerberg didn’t invent that platform. He was a hacker (a term of praise) who built for it. And as much as Zuckerberg deserves endless respect from every decent soul for his success, the real hero in this story doesn’t even get a credit.

Too few appreciate how revolutionary the Internet is because one does not have to ask permission to create content and distribute it via the Internet. However, there is a lot of money to be made and power to be had by forcing creators to ask permission -- this is what big companies like Comcast and AT&T want to do. They want more control over the Internet to further their interests.

The tragedy—small in the scale of things, no doubt—of this film is that practically everyone watching it will miss this point. Practically everyone walking out will think they understand genius on the Internet. But almost none will have seen the real genius here. And that is tragedy because just at the moment when we celebrate the product of these two wonders—Zuckerberg and the Internet—working together, policymakers are conspiring ferociously with old world powers to remove the conditions for this success. As “network neutrality” gets bargained away—to add insult to injury, by an administration that was elected with the promise to defend it—the opportunities for the Zuckerbergs of tomorrow will shrink. And as they do, we will return more to the world where success depends upon permission. And privilege. And insiders. And where fewer turn their souls to inventing the next great idea.

Prior to an important decision in 1968, one had to ask...

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Posted October 11, 2010 by Christopher Mitchell

David Rosen and Bruce Kushnick discuss the ways in which telephone companies have bilked Americans for over $300 billion - increasing their profits while failing to deliver the services they promised.

The scam was simple. Starting in 1991, Verizon, Qwest and what became AT&T offered each state -- in true "Godfather" style -- a deal they couldn't refuse: Deregulate us and we'll give you Al Gore's future. They argued that if state Public Utility Commission (PUCs) awarded them higher rates and stopped examining their books, they would upgrade the then-current telecommunications infrastructure, the analog Public Switched Telephone Network (PSTN) of aging copper wiring, into high-speed and two-way digital optical fiber networks.

State regulators, like state politicians, are seduced by the sound of empty promises -- especially when sizable campaign contributions and other perks come their way. Hey, what are a few extra bucks charged to the customer every month for pie-in-the-sky promises? And who cares about massive tax breaks, accelerated depreciation allowances and enormous tax write-offs? The promises sound good on election day and nobody, least of all the voter, reads the fine print.

Few have the expertise necessary to decipher the many scams these companies have pulled as ineffective public utilities commissions do little to safeguard the public interest. This is the larger problem with embracing regulation as a solution for ensuring essential infrastructure benefits the many rather than the few. PUCs are inevitably "captured" by the industries they are supposed to regulate (think BP Gulf Oil Spill). Public ownership is a structural solution that offers fewer opportunities for massive companies to game the system to their exclusive advantage.

The article offers some in depth examples of how this regulation system has failed.

New Jersey state law requires that by 2010, 100 percent of the state is to be rewired with 45-mbps, bi-directional service. To meet this goal, Verizon collected approximately $13 billion in approved rate increases, tax break and other incentives related to upgrading the Public Switched Telephone Networks. To cover its tracks, Verizon submitted false statements year after year, claiming that it was close to fulfilling its obligations. For example, in its 2000 Annual Report, it claimed that 52 percent of the state could receive "45-mbps in both...

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Posted October 5, 2010 by Christopher Mitchell

Tim Wu, a professor and long time champion of network neutrality, discusses why getting these policies right is so important.

Perhaps more interesting is the reaction from David Isenberg and Tim Wu's comment to that reaction.

The take-home lesson? Network neutrality is important, but is less of a permanent solution than networks that are structurally designed to work in the public interest rather than primarily manufacturing private profits.

This video is no longer available.

Posted October 4, 2010 by Christopher Mitchell

In an editorial for the October, 2010 issue, Scientific American explains "Why broadband service in the U.S. is so awful, and one step that could change it." This is an excellent shorthand explanation for the poor decisions of the FCC during the Bush Administration. Unfortunately, these decisions are being carried forward by the Obama Administration's FCC.

It was not always like this. A decade ago the U.S. ranked at or near the top of most studies of broadband price and performance. But that was before the FCC made a terrible mistake. In 2002 it reclassified broadband Internet service as an “information service” rather than a “telecommunications service.” In theory, this step implied that broadband was equivalent to a content provider (such as AOL or Yahoo!) and was not a means to communicate, such as a telephone line. In practice, it has stifled competition.

And the solution?

Yet, puzzlingly, the FCC wants to take only a half-step. Genachowski has said that although he regards the Internet as a telecommunications service, he does not want to bring in third-party competition. This move may have been intended to avoid criticism from policy makers, both Republican and Democrat, who have aligned themselves with large Internet providers such as AT&T and Comcast that stand to suffer when their local monopolies are broken. It is frustrating, however, to see Gena chowski acknowledge that the U.S. has fallen behind so many other countries in its communications infrastructure and then rule out the most effective way to reverse the decline. We call on the FCC to take this important step and free the Internet.

Well said. Read the whole the piece.

Posted September 29, 2010 by Christopher Mitchell

On August 19, 2010, I was one of hundreds of people telling the Federal Communications Commission to do its job and regulate in the public interest. My comments focused on the benefits of publicly owned broadband networks and the need for the FCC to ensure states cannot preempt local governments from building networks.

My comments:

I’ll start with the obvious.

Private companies are self-interested. They act on behalf of their shareholders and they have a responsibility to put profits ahead of the public interest.

A recent post from the Economist magazine’s technology blog picks up from there:

WHY, exactly, does America have regulators? … Regulators, in theory, are more expert than politicians, and less passionate. …They are imperfect; but that we have any regulators at all is a testament … to the idea that companies left to their own devices don't always act in the best interests of the market.

They go on to say

If companies always agreed with regulators' rules, there would be no need for regulators. The very point of a regulator is to do things that companies don't like, out of concern for the welfare of the market or the consumer.

When we talk about broadband, there is a definite gap between what is best for communities and what is best for private companies. Next generation networks are expensive investments that take many years to break even.

With that preface, I challenge the FCC to start regulating in the public interest.

The FCC does not need a consensus from big companies on network neutrality. It needs to respect the consensus of Americans that do not want our access to the Internet to look like our access to cable television.

But while Network Neutrality is necessary, it is not sufficient. The entire issue of Network Neutrality arises out of the failed de-regulation approach of the past decade. Such policies have allowed a few private companies to dominate broadband access, giving communities neither a true choice in...

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Posted August 31, 2010 by Christopher Mitchell

Last year, when the Berkman Study (pdf) by Harvard (commissioned by the FCC) revealed the secret behind impressive broadband gains in nearly every country over the past decade, we hoped the FCC would learn something from it. Maybe it did, and maybe it didn't -- what is clear is that it did not have the courage to embrace pro-competition policies.

Canada's telecom regulator, the Canadian Radio-television and Telecommunications Commission (CRTC) has shown more courage in confronting powerful interests that want to monopolize the future of communications.

They have decided to require the big telecom carriers share their network with independent ISPs in an open access type arrangement.

Until this decision, the established telecom companies could "throttle" third-party services, by slowing them down or limiting downloads.

In Canada, these huge companies also claim that such regulations will decrease their investment in next-generation networks, likely a hollow threat. Regardless, it is a strong argument for public ownership of essential infrastructure. How many communities should be denied next-generation communications because some massively profitable global company is having a snit with the regulator?

Far better for communities to be self-determined, by building their own networks. When networks are run as infrastructure, they are open to independent service providers, just as the roads are open to shipping companies on equal terms.

Canada's regulator has made a difficult decision - but as Karl Bode reminds us, let's wait to see if they actually enforce it.

Posted August 10, 2010 by Christopher Mitchell

If companies always agreed with regulators' rules, there would be no need for regulators. The very point of a regulator is to do things that companies don't like, out of concern for the welfare of the market or the consumer.

Posted July 21, 2010 by Christopher Mitchell

Last month, Mark Sullivan wrote a column expounding on the obvious: deregulation of broadband service providers has failed to produce the promised competition, Americans pay more for less than peers in other countries, and this is an area where smart government policy would benefit everyone.

When it comes to broadband, I’m a socialist. Why? Because broadband service in the United States is currently provided by a cableco/telco duopoly, and, as such, is slower and more expensive than in most of the developed world, studies show. Because I don't believe the FCC can fix that lack of competition within the current regulatory framework, despite the ambitious goals set forth in its National Broadband Plan. Because a reasonably-priced alternative to cable or telco broadband might be just the thing to bring competition to the industry and spur U.S. broadband cost and quality to world-class levels. Because our connectedness increasingly dictates our our economic standing in the world: Broadband is as important to us as the interstate highway system--a public works project--was to Eisenhower-era America.

Good column.

Notice that the commenters at the bottom pile on against the idea - though they clearly have little idea what they are talking about. There has been no discussion of the government taking over networks owned by the private sector and there is little reason to believe local government would be more likely to violate privacy than a company motivated solely by profits ... in fact, I would argue the private sector is considerably more likely to violate privacy than local governments.

As for Brett Glass, his comments long ago proved that he lives in a fantasy world. In his small town, there are 9 broadband competitors! Well, at least we know where the competition is - it surely is not present in my community.

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