Social Costs of the “Looming Cable Monopoly”

At the end of an earlier post, I suggested that:

combining elements of New Growth Theory and Modern Monetary Theory [can] provide a rationale for increased federal investment in neutral, very-high-capacity broadband networks.

In this post I’ll continue that discussion, focusing on how New Growth Theory provides a framework for understanding the opportunity costs associated with what law professor and open-Internet advocate Susan Crawford has dubbed “the looming cable monopoly.”  In future posts I’ll consider how Modern Monetary Theory can be combined with New Growth Theory to largely eliminate these costs, and allow our nation’s citizens to reap the abundant economic, political and social benefits of ubiquitous, affordable, neutral, symmetrical high-capacity broadband networks.

I’ll start by revisiting a paper written by Crawford, which focused on New Growth Theory as applied to the Internet and communication policy. I discussed that paper at length in my earlier post.  A central point of Crawford’s paper was that:

The key organizing principle for communications law must be to support the emergence of diverse new ideas online because that is where economic growth for society as a whole will come from. This form of diversity support is not the same as the kind of quota-driven artificial “diversity” that has been used to force broadcast content regulation to reflect minority viewpoints. Rather, this kind of online diversity stems from allowing the end-to-end, content-neutral, layer-independent functions of the internet to flourish and allowing groups and human attention to pick and choose from among the bad ideas presented online, enabling good ideas to persist and replicate…

In a more recent paper, Crawford raised a related issue, which she described as the “looming cable monopoly.”

Now or very soon, most Americans in metropolitan areas will have only a single provider of wired high-speed data (at data rates that people around the world increasingly demand)…thus, in each metropolitan area, wired access to information, entertainment, news, and communication will be controlled by a single actor.  That actor, the local cable monopoly, is, at the moment, unconstrained by real competition or oversight and benefits from overwhelming economies of scale. At the same time, 26 million Americans outside metropolitan areas have no access to high-speed Internet access at all and a third of Americans don’t subscribe—mostly because it’s too expensive.

As Crawford explains, the factors driving this “looming cable monopoly” include the much higher data speeds available via cable networks compared to DSL, and the decision by the nation’s largest telcos (notably AT&T and Verizon) to cede most of the wireline very-high-speed Internet market to cable operators (with the notable exception of the roughly 15% of American homes served by Verizon’s FiOS all-fiber network) and, instead, to focus on wireless, which will never compete directly with cable in terms of speed and price.  And the lack of any high-speed Internet service in a still-significant portion of the country reflects the fact that both cablecos and telcos view these areas as insufficiently profitable to serve, given their target rates of financial return.  To make matters worse for the nation’s underserved areas, incumbent telcos and cablecos typically do everything in their power to put legal, financial and operational roadblocks in the way of local efforts to deploy community-owned networks–even as they refuse to provide high-quality broadband service themselves.

Another way to evaluate the state of U.S. broadband availability, speed and affordability is to compare these metrics between countries.  As a number of studies show, the U.S. doesn’t fare especially well in these international comparisons (see here, here and here, and/or dig into the details of OECD comparative data here).

The Internet or an “Internet Protocol” version of Cable TV?

Since a ubiquitous high-capacity, affordable neutral Internet can powerfully enable economic growth and bottoms-up economic, political and social empowerment, a key role of communication policy should be to ensure that these industry dynamics and the “looming cable monopoly” do not interfere with this enabling process.

Unfortunately (from the perspective of virtually everyone except cable operators and their investors), cable operators (understandably so, from their perspective) are much more concerned with leveraging their growing market power to expand their cash flow than with enabling economic growth and political and social empowerment.  In fact, as Crawford notes, there are already clear signs that the Internet is at risk of becoming submerged within the not-much-loved “cable TV” business model that has brought us increasingly expensive bundles of hundreds of channels, most of which we don’t want or watch, but still have to pay for.

When there is only one pipe to most American homes, and when the pipe provider is essentially unconstrained in its power to label, price, slice, dice, monetize, and prioritize services, Internet access across that pipe becomes little more than an amusing alleyway in a giant well-planned theme park.

As Crawford notes, cable operators (and telcos) are using a range of tools to migrate customer usage from the open Internet to their preferred “cable-TV-like” models.  These include usage-based pricing, data caps, “deep packet inspection” and prioritizing their own content and services (e.g., “TV Everywhere”) over content and services provided by web-based competitors.

In her earlier paper, Crawford explains why this is important:

Surely there will be vast amounts of digitized material to absorb online. Why should it matter whether some of it is prioritized?  The reason this prioritization matters is that we do not know what new forms of group-oriented collaborative interactions (social, commercial, or cultural), or what kinds of new ideas, will emerge from this network of networks.

Prioritization will make a difference because network providers will cease to be commodity transport-providers and will instead become gatekeepers, pickers-of-winners, and controllers-of-experiences on a massive scale.  The diversity of online experiences, and thus the range of freedom of human connection, human relationships, and the diverse generation of new ideas will diminish.

Neutrality of symmetric high speed access is important for a host of reasons:  it will enable diverse new applications to emerge that are not controlled by network providers; it will cause new forms of interaction to grow, even apart from the introduction of applications; and it will enable diversity in various real-time communications that otherwise will be controlled and monetized by the network providers.  All of this diversity has great potential to be positively associated with economic growth…

To summarize the key points covered in this post:

  1. The open and non-discriminatory Internet is and will increasingly be a powerful driver of economic growth, along with economic, political and social empowerment for those with access to it.
  2. In the U.S., industry dynamics coupled with government policies are enabling cable operators to become unregulated monopolists in the provision of high-capacity Internet access to the majority of the nation.
  3. Cable operators have a demonstrated preference for a cable-TV-like business model in which they closely tie monopoly access to their own “prioritized” services, and use their market power to discriminate against competing content and service providers, and/or capture increasingly large shares of the latter’s revenue streams.  This business model is in direct conflict with the open-Internet model that has shown itself to be a powerful driver of economic growth and political and social empowerment, as noted in #1 above.
  4. As unregulated high-speed access monopolists, cable operators will, over time, be able to impose their preferred business model on the Internet ecosystem, including content, service and technology providers, as well as end-users/customers.

While this scenario may be preferred by cable operators and their investors, it’s far from optimal for the rest of society (let’s say the 99.9%).  Given the Internet’s massive value and potential to help address our economic, political and social challenges, this presents a big and important problem.

In follow-up posts I’ll be discussing ways we can address this problem, and how insights gleaned from Modern Monetary Theory can help us do so.  Though I won’t be ignoring the perspective and welfare of incumbent service providers and their investors, my focus will be on what’s best for “the rest of society” (a.k.a., the 99.9%).

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