Category Archives: Anti-Trust

Obama Using “Net Neutrality” to Obscure Federal Take-Over of Internet

fiber-optic-cable“The government will fuck the Internet up.”

So says Mark Cuban. Truer words were never spoken. Allowing the federal government to treat the Internet as a public utility, as President Obama is calling for, under the guise of “net neutrality,” is an abysmally bad idea.

To be clear, “net neutrality” and public utility regulation are two different but equally bad ideas. It appears Obama is using the former in a cynical bid to trick the electorate into accepting the latter. Neither is needed and both are undesirable.

“NET NEUTRALITY”

Net neutrality is the idea that, having paid for Internet service, consumers should have unfettered access to all content. It would prevent a whole host of business model experiments that Internet Service Providers (ISPs) might otherwise try:

  • Selling tiered data plans like cell phone companies do.
  • Developing their own content and then delivering that content at higher speeds than they deliver a competitor’s content.
  • Creating different “lanes” of Internet traffic and charging higher prices to content providers or users for access to the “fast lanes.”
  • Preferring certain content providers to others, likely depending on who pays.
  • Blocking users from using certain online content that takes up too much bandwidth and slows down the network for other customers.

I see none of this as frightening. We pay different rates based on the size and weight of the mail we send. We pay different rates for concert seats, cell phone plans, Netflix memberships, cable subscriptions and a whole host of other services.

The sun still rises.

What consumers who demand heavy content at low cost really want is to have other users overpay for light content while suffering the slow buffering speeds caused by the heavey users. As Casey Given, writing for Rare, observes:

Even if the FCC’s worst fears come to fruition and ISPs start charging cell phone-style “plans” for different levels of Internet access, online access would only become cheaper for low data users. As it is today, a grandmother who logs online once a day pays just as much as the tech-savvy teenager next door who regularly downloads gigabytes of data. As such, she is subsidizing his usage and could instead be paying a cheaper rate if her ISP offered varying plans.

In any case, ISPs own their technology and infrastructure. They invested in that property with the aim of making a profit. The idea that the public has some sort of claim against the property of ISPs reflects a sense of entitlement I cannot endorse. Rights are things we get to do—not things we get to have at others’ expense.

It is where we stand on this principle in the hard cases that defines us.

In addition to heavy content users, the other main beneficiaries of net neutrality are Internet giants like Facebook, Google and Netflix. These companies do not want to be charged by ISPs for the heavy traffic their users generate while slowing down buffering speeds for everyone else.

But is there any reason we should prefer the profit of big content providers over the profit of ISPs? Is there some principle that says Netflix should be allowed to earn whatever profit the market permits—but not the ISPs who deliver its content to consumers?

As Doug Mataconis wrote for TLP back in 2010:

It’s Comcast’s network, [it] should have the right to decide how it’s used and to take action to protect its property and its other customers.

PUBLIC UTILITY REGULATION

Obama’s plan to regulate the Internet is not the same as net neutrality. His plan is to treat it as a public utility, the “most draconian” level of regulation that could apply. It would require ISPs to provide universal service, i.e., “wire up every house.”

It would also allow them to charge the rates necessary to recoup that expenditure at a profit. In fact, public utility regulations allow the type of tiered pricing net neutrality advocates want to prevent:

What some critics of the Commission’s recent proposal may not realize is that even if the FCC agrees to impose the price, non-discrimination, and other forms of common carrier regulation on ISPs, Title II reclassification, would not necessarily ban paid prioritization. As former enforcement director at the Federal Trade Commission, David Balto, has pointed out, the title only prohibits “unjust and unreasonable” differences in services. Carriers regulated under Title II still “may offer different pricing (including volume and term discounts) … so long as they are ‘generally available to similarly situated customers.’”

In plain English, all this means that if some websites, like Netflix, want “faster lanes” on broadband networks, the providers of those networks can charge extra for that service even under Title II, so long as they stand ready to offer the same service to all similarly situated comers.

So Obama’s proposal presents a solution that does not fit the purported problem—which may not even exist.

In June 2006, there were two or more broadband providers in 92 percent of the nation’s zip codes, and four or more providers in 87 percent. A June 2014 study found at least two providers (wireline and wireless) for virtually all of the U.S., and at least two providers (cable and telephone) in nearly three quarters. Nick Gillespie reports at Time Magazine that 80% of households have at least two providers capable of delivering the Internet at 10Mbps or faster.

This access has been achieved even as prices have gone down:

President Obama’s call this week to regulate the Internet as a public utility is like pushing to replace the engine of a car that runs perfectly well. The U.S. data sector — including wired and wireless broadband — is the envy of the world, administering a powerful boost to consumer welfare, generating high-paying jobs and encouraging tens of billions of dollars in corporate investment. Indeed, the prices of data-related goods and services have dropped by almost 20 percent since 2007.

So what is really going on? Does Obama really think the future of the Internet requires the government to sort out squabbles between Netflix and Comast?

I doubt it.

Maybe it is intended to deliver to big donors. Maybe it is about the 16.1% tax on interstate revenues that would be paid by broadband consumers. Or maybe it is something more sinister. As Christopher Bowen wrote last week:

The problem with the government regulating the internet is that … when they get to determine the rules, the consequences turn sinister.

*     *     *

What about communications of interest to the government, such as anything with heavy encryption? Or Tor?

The government has a direct interest in controlling that kind of traffic—hello, Wikileaks/Edward Snowden/any other whistleblower—and if anyone thinks the federal government will look the other way on these things, they are naive.

This isn’t just a possibility, it’s the reality of current legislation on the books, as Chris Byrne pointed out in 2006. Every single packet, every communication, every image, would be captured and stored—by law—if common carrier became the letter of the law in regards to internet traffic, without a warrant, and it would take just a rubber stamp to get a warrant that would be used to punish anyone the government pleases…

REGULATION HURTS INVESTMENT IN INFRASTRUCTURE

For years, federal agencies themselves have resisted calls for regulation, on the states basis that forcing ISPs to treat content neutrally was not necessary, would impede the development of infrastructure, and would have an adverse effect on consumer welfare.

That is because developing the technology to respond to demands for bandwidth requires heavy investment. In fact, in 2013, telecom and cable companies topped the list of industries investing in the U.S., to the tune of $46 billion in investment.

Regulation cuts into the profits that encourage that level of investment.

This Cato Institute podcast, for example, covers the fact that Google Fiber does not provide Title II (public utility) services precisely to avoid the onerous regulations that come along with such endeavor. Another stark reminder of this basic fact came in the wake of the President’s message. On November 12, 2014, AT&T announced it would delay installing high-speed fiber-optic Internet infrastructure in 100 U.S. cities until the rules were clarified.

Perhaps this is why the American people oppose regulation. A November 2014 survey by Rasumussen Reports found that 61% oppose federal regulation of the Internet. Only 19% want more regulation than we already have. What is more, seventy-six percent like the quality of their Internet access.

Only 5% have complaints.

At best this is a solution in search of a problem. At worst, this is a Jonathan Gruber style misinformation campaign, designed to lull the public into complacency as the federal government assumes control of the Internet.

This time, let’s not fall for it.

Image via BandwithPlace.com

Sarah Baker is a libertarian, attorney and writer. She lives in Montana with her daughter and a house full of pets.
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There’s No Such Thing As An “eBook Monopoly”

First things first… I’ve spent a lot of time criticizing Kevin Drum over the years. Suffice to say that we don’t see eye to eye, and a reliable way to generate content here has often been “wait for Drum to say something ridiculous, then flog him for it.” It’s a well I’ve gone back to from time to time when thirsty, I’ll say that much. That said, he recently was diagnosed with cancer. All politics and blogging aside, best of luck to him in his treatment and recovery. It may be uncommon on the blogosphere to recognize that our ideological opponents are actual human beings, but he is and so I wish him the best.

With the niceties out of the way, Kevin fired off on the recent hot button of Amazon and its market power. Specifically, people question the extent to which Amazon is a monopoly. That’s a much wider topic, but I see something here that is a wrinkle that needs to be highlighted. Kevin says:

In theory, this is a great opportunity for an innovative startup. Startup costs are modest since there’s no physical inventory to worry about. Publishers are eager for new entrants. Maybe a smart startup could appeal to consumers with a great new e-reader concept. Or a better recommendation engine. Who knows? There are loads of possibilities. The problem is that no startup can possibly compete with a huge incumbent that’s willing to sell e-books at a loss. There’s no VC on the planet willing to fund a trench war like that.

So Amazon really does have a monopoly position in this market that it sustains via predatory pricing and heavy-handed business practices—against publishers both big and small—that might make John D. Rockefeller blush.

…snip…

So sure, leave Amazon alone in most of its business lines. But in e-books? Nope. They’re a monopoly in every sense of the word, and they use predatory practices to stay that way. They may offer cheap books, but in the long run it’s vibrant competition that truly benefits consumers. Regulating Amazon would hardly solve all our e-book problems—far from it—but it would be a start.

Now, I know marketing dweebs always love to slice-and-dice marketing data, torturing it until it shows that they’re the market leader in the critical “males age 24-27 in the Pacific Northwest who own cats” segment. It’s a way to claim that you’re a winner. As long as you cast the net narrowly enough.

But you can’t do this with monopolies. The Kindle doesn’t compete in the eBook market. It competes in the book market.

Trying to suss out a monopoly in only a single segment of the market reminds me of a debate I had with an old neighbor about the XM/Sirius merger several years ago. He said it should be blocked as it would create a monopoly. I said that it’s not a monopoly, because the market for mobile entertainment is much wider than just satellite radio:

What’s wrong with a monopoly in satellite radio? After all, look back a mere 6 years, when there was no such thing as satellite radio. At the time, people functioned. The world wasn’t falling apart because there were no blues stations in BFE. People lived without satellite radio, and yet people didn’t even know they were missing it.

…snip…

Thus, for a satellite radio provider, they cannot be a true monopoly. First, they’re offering a product that didn’t even exist 6 years ago, and currently has such a tiny number of subscribers that it’s not in any way a necessity. Second, they’re competing not only against other satellite radio companies, but against terrestrial radio, internet radio, CD’s, and portable music players. If they don’t offer a product worth paying for, people won’t pay for it.

Amazon Kindle Paperwhite eBook
Amazon basically created the eBook market. Yes, there were eReaders prior to the Kindle, but they didn’t have a good distribution platform for books. Amazon was able to leverage their distribution model and really popularize the segment. They’ve continued to invest in the segment and thus have maintained absolutely crushing market share. They’ve even enabled completely new models for books, like the $2.99 price point that allows people to write and sell books that don’t fit the 200+ page model, and even a revival of the serial novel*.

But that doesn’t make them a monopolist. Yes, if you cast the net to ONLY eBooks, you might be able to make that claim. But eBooks are a substitute for physical books. If eBooks disappeared tomorrow, we’d all go right back to buying paperbacks and hardcovers. You simply cannot separate the eBook market from the wider book market.

Now, that gets harder to say when you see many books (like those mentioned Kindle Singles or serialized fiction) released only in the eBook format. I happen to be working on something that would fit into the Single format and something for which I would never get a “book deal” and don’t particularly want to self-publish.

But along those lines, you can’t blame Amazon for creating a new genre for publishing any more than you can blame SiriusXM for creating comedy stations where they can play George Carlin’s “Seven Words You Can’t Say On TV” uncensored even though you could never play that on their primary competitor, terrestrial radio. It still doesn’t make either a monopoly.

Monopoly is a word thrown around a lot, and despite where you stand on the validity of anti-trust law, it’s important to distinguish where the word is and is not valid. Someone who has carved out a dominant position in one niche of a much wider market–a market with many ready substitutes–is quite simply not a monopolist.
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Quote Of The Day

From the Mises Econ Blog, regarding Obama’s two most recent FTC nominees:

For those keeping score, with Brill and Ramirez the FTC will now consist of two law firm partners specializing in antitrust, one former state assistant attorney general for antitrust, a law professor who specialized in antitrust, and a former staff lawyer for the Senate’s antitrust subcommittee. If that’s not diversity, I don’t know what is.

I wonder what the FTC will place their focus on under this administration?

Control Without Responsibility

At Cafe Hayek, a letter to the editor by Andy Morriss to the Wall Street Journal is posted:

Holman Jenkins asks “Does Obama Want to Own the Airlines?” (Business World, July 8). I am sure he does not. Rather than own them, the president and his congressional allies want to control the airlines — a crucial difference as ownership implies taking responsibility.

As Mr. Jenkins notes, the Justice Department’s belated intervention against Continental’s efforts to join the Star Alliance appears aimed at extorting concessions for the Democrats’ union allies. That is not the action of an owner of airline assets but of someone determined to redistribute wealth from airline passengers and shareholders to favored special interests.

One of the many benefits of free markets is that the people who own something are the ones who experience the benefits or losses accruing from their use of it. When considering how some property is going to be used, an owner and non-owner may have very strong opinions. The non-owner, who has less to lose, will be less careful and prudent in their decisionmaking. Moreover, often the non-owner will gain more from the misuse of the item than from its prudent use.

One does not have to look to hard to see this phenomenon in action. The attempt by GM to close dealerships, and thus reduce its losses was overridden by Congressmen interested in using GM’s wealth to buy votes by keeping the dealerships open. And that is one example of literally millions of instances that take place every year from all levels of government.

Obama, leading democrats and some very influential economists have repeatedly expressed the idea that increased government control of the medical industry would reduce costs without sacrificing quality. In their vision selfless government officials will ensure that people receive high quality treatment regardless of the cost, while the market power of government as a customer will ensure that costs will stay low. Against this charming vision stands a great body of evidence from public choice theory; government officials – or their private counterparts in the private-public partnerships in vogue today – will be able to exert control without any consequences. Just as medicare and medicaid administrators proved willing to authorize higher and higher treatment prices – to the point where it threatens the budget of the federal and nearly every state government – the administrators of any new government program will behave in similar uneconomic ways.

Control without responsibility is a very bad idea.

I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.

Note To Orrin Hatch — 13-0 May Be A Travesty, But It’s Not Congress’ Business

Orrin Hatch is undoubtedly merely responding to his constituents’ demands with this nonsense. The Utah Utes finished 13-0 last season, with notable wins over Michigan, Oregon State, ranked teams TCU and BYU, and a BCS bowl defeat of Alabama. It’s a pretty impressive resume. They were the only undefeated team in Div I-A (FBS). But they’re not the Champion. Florida, who finished 13-1 (with their sole loss being to Mississippi) is the Champion.

I understand the complaint. If a mid-major team like Utah can have the season they’ve had, beat the teams they beat, and still fall behind a one-loss school from a “major” conference, then no mid-major will ever be crowned Champion. Granted, Florida may have been the best team in college football (as the Patriots were the best team in the NFL in ’07-8 despite not winning Super Bowl XLII), but I don’t think the system for determining a Champion is very fair.

It’s not a system I like. It’s also not a system that Orrin Hatch likes, but he’s sticking the full power of the federal government into the debate:

Sen. Orrin Hatch, R-Utah, may be a skinny guy with a high voice. But he’s angrily setting out to tackle the biggest powers in college football, vowing to pound them until they reform the Bowl Championship Series.

He called them out Wednesday, as he and Sen. Herb Kohl, D-Wisc. — respectively the top Republican and Democrat on a Judiciary subcommittee on antitrust — released a list of topics that panel plans to consider this year.

A bit buried on Page 4 of an eight-page list, amid somewhat sleep-inducing reading on oil and railroad antitrust, is a nifty paragraph about the BCS.

“The BCS system leaves nearly half of all the teams in college football at a competitive disadvantage when it comes to qualifying for the millions of dollars paid out every year,” their joint statement says.

Then it drops its first unexpected bomb: “The subcommittee will hold hearings to investigate these issues.”

That is followed by a second: “Sen. Hatch will introduce legislation to rectify this situation.”

I realize that Congress believes it has purview over everything that occurs within our borders, but if their “fixes” for other problems are anywhere near as effective as this one will be, I’m not sure anyone will want to watch college football afterwards. I really wish they’d waste their time ruining something else, because I quite enjoy spending fall Saturdays watching one of the few worthwhile sports left.

Microsoft Attacked By EU For Same Practices That Apple/Linux Use

Back in the day, antitrust regulators decided that including a browser with an operating system was an unfair competitive measure. But to this day, they’ve only ever enforced this against Microsoft, and the EU is still pushing:

European antitrust regulators have told Microsoft Corp. that the company’s practice of including its Internet browser with its popular Windows operating system violates European competition law, Microsoft said Friday.

The Redmond, Wash.-based software giant (MSFT) said that it’s been presented with a statement of objections informing it that related remedies put in place by U.S. courts when Microsoft settled an antitrust case in this country in 2002 are not adequate for Europe, though a “final determination” hasn’t been made on the matter.

I’ve never really used Apple’s computers much, but I’m pretty sure you can’t buy an Apple PC without Safari pre-installed. I’ve installed a number of Linux distributions (Red Hat, Debian, ubuntu, and even a 50MB distro called DamnSmallLinux), and every single one of them has been bundled with a browser. Microsoft has argued that a browser is a critical part of an operating system, and thus — even though it sucks — it makes perfect sense for them to distribute IE with Windows.

In fact, it’s so pervasive, that I’ve never seen an OS that comes without a browser pre-installed. Is the EU going to go after each of OS distributors next? I didn’t think so.

Hat Tip: QandO