Wireline Access Tends Toward Monopoly

When we consider questions related to Internet access policy (as I’ve been doing lately on this blog), it’s useful to have a sense of both the economics and historical trends in this key sector of the economy.  In this post I’m going to provide some of this, using excerpts from a paper I wrote awhile back.  Some of it may be a bit wonky, but I hope it will be useful for anyone wanting some additional background.

One of the key implications of this post’s analysis is that facilities-based wireline competition tends to be economically inefficient and, over time, wireline (and, to a somewhat lesser degree, wireless) access markets tend toward increasingly monopolistic industry structures (often referred to as “natural monopoly.”)

And even when there are already two wireline network operators in place (as in much of the U.S.), the same migration-to-monopoly economics are at work.

For example, AT&T and Verizon, the nation’s two largest telcos, have been experiencing accelerating customer losses in the markets in which they offer only DSL broadband (which account for roughly half of their holdings, if you include mainly-DSL markets recently sold off by Verizon).  Yet, in spite of these accelerating competitive losses, they have decided not to upgrade these markets with fiber optics, which would allow them to compete much more effectively with cable.

The primary reasons for this are:

1) telco DSL networks are fundamentally inferior to cable networks in terms of broadband capabilities, but are expensive to upgrade to the kind of fiber optic-based network that can compete with cable (as Verizon’s is doing quite successfully in the areas where it has upgraded to a fiber-to-the-home network.)

2) the two giant telcos don’t see enough financial payback from upgrading their remaining DSL-only (or dial-up only) markets and, instead, are focusing mainly on wireless, where they are the ones with dominant market power, but which does not provide real competition for cable-delivered broadband (due to speed, reliability, price and other factors).

Thus, as Susan Crawford has pointed out, in much of the nation, high-speed Internet access is migrating to an unregulated “cable monopoly.”  

If we’re serious about Internet policy, we need to understand and deal with this reality.   Hopefully the following will help a little with that understanding:

Continue reading

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From Extraction to Empowerment: A Tiny Tax with Big (Broadband) Benefits

The other day I read a post by economist Dean Baker that got me thinking about an intriguing “what if.”

Baker made the point that “[a] very small tax on trades of stocks, options, credit default swaps and other derivative instruments could raise a vast amount of money.”  More specifically:

The Joint Tax Committee of Congress estimated that a tax of just 0.03 percent on each trade…would raise more than $350 billion over the first nine years that it is in place. 

“The great thing about this sort of tax, said Baker, “is that it would be born almost exclusively by the Wall Street crew,” or as I’d call them, “the great extractors” of wealth from the productive economy.  And it might also slow or even reverse the growth of some of Wall Street’s more pathological practices, including the ultra-high frequency trading that generates profits on thin margins applied to huge trading volumes, and tends to destabilize markets and accelerate the pace of wealth extraction.

As it turns out….the $350 billion figure cited by Baker is roughly what it might cost to bring extremely high-speed all-fiber networks to all or at least the vast majority of American homes and businesses, and to supplement the network deployment with training and application support to help maximize the networks’ economic benefits.

What this means is that a tiny .03 percent financial transaction tax, in addition to  tapping on the brakes of Wall Street’s out-of-control financial extraction machine, could turbocharge REAL economic growth by linking and empowering all Americans via ultra-fast symmetrical broadband networks.

A tiny tax with big, broad-based, broadband-powered benefits.  Makes a lot of sense to me….

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Wireless carriers: “the biggest threat to innovation”

As it’s title suggests, the central theme of Nilay Patel’s post at The Verge is that “Five years after the iPhone, carriers are the biggest threat to innovation.”  In concluding the post, Patel describes the wireless market as “a market that is driving players big and small away from mobile broadband as the carriers tighten their grip.”  

I’d highly recommend reading the full post, whose sobering message reminds me of my post yesterday.  In it, I briefly responded to Verizon’s recent FCC filing claiming broadband networks are carriers’ “modern-day microphones” by which they “engage in First Amendment speech.”

Patel’s post provides a sense of how Verizon’s “it’s my microphone” perspective is impacting end-users and device-makers, and the original vision of the Internet as an “open mic” platform empowering free speech for ALL of us, not just the giant carriers that have an exclusive lock on most of the nation’s usable spectrum (and/or wield unregulated and near-monopolistic control over our wired connections).

Here are some excerpts from Patel’s post, which I’d strongly recommend reading  in its entirety, since it fleshes out the picture much more fully than I do here, and with reference to and quotes from specific companies (bolding is mine). Continue reading

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Is the Internet Verizon’s microphone?

In a recent filing with the DC Circuit Court of Appeals, Verizon claimed that the FCC’s network neutrality rules violate its First Amendment rights and those of other Internet access providers.

As reported by Timothy Lee at Ars Technica, Verizon argued that “Broadband Networks are the modern-day microphone by which their owners [e.g., Verizon] engage in First Amendment speech.”  The company also claimed that the FCC’s rules are violations of the Fifth Amendment, since they amount to “government compulsion to turn over [network owners’] private property for use by others without compensation.”

Verizon’s argument, especially the First Amendment component, is a clear expression of one side of the fundamental conflict between the “cable TV” and “Internet” models, which I discussed in a recent post.

If you combine Verizon’s legal argument with the reality that dominant ISPs are spending lots of money to push for state legislation banning community broadband networks (or at least to ensure they’re not economically viable), it’s hard not to understand the dominant ISPs’ message to the rest of us as “we intend to control how you get access to and use the Internet, and we’re going to use our political and financial muscle to make sure you can’t build your own open-access, higher-quality Internet access network.”

Hearing about Verizon’s legal filing brings to mind the questions I asked in two earlier posts:  “Which kind of Internet do ‘we the people’ want?” and “Do we want an unregulated monopolist with a conflict of interest to meter our web use?

Or, as I put it in another post, do we want Internet access in American communities to be controlled by entities whose primary purpose is maximizing “financial extraction” from these communities?  Or would we instead like our Internet access to be available from entities with a “generative” purpose, such as providing households, businesses and public service organizations (e.g., schools, healthcare providers, public safety, etc.) with affordable, reliable, high-capacity broadband connectivity and related services, to support their ability to prosper and thrive in an increasingly competitive and knowledge-based global economy?

It seems pretty clear what Verizon and the other dominant publicly-traded ISPs want from the Internet.  They want to control it as much as possible, and eliminate the threat of real competition as much as possible, so they can extract as much profit from that control as possible.

As Verizon stated quite clearly in its legal filing, it views Internet access networks as its “microphone.”

After roughly 80 years in which large corporations (e.g., broadcasters, cable companies and now broadband network operators) have controlled our nation’s most powerful First Amendment microphones, I think it’s time that the rest of us get a chance to also have a robust First Amendment microphone, rather than rely on the good graces of financially-extractive ISPs to rent us limited access to their microphone, in the form of closely-monitored bitstreams on terms they set for us as vertically-integrated monopolists or duopolists.

Thanks to the Internet, this “open-mic” communication environment is possible, as long as the Internet continues to operate on the model that’s worked so well up to this point, not the “cable TV model” that makes financial extraction so much easier and more lucrative for the dominant ISPs.

So, my request to Verizon and other large ISPs is, if you’re not willing to accept the Internet as a First Amendment “open mic” we all get to use, then at least stop using your financial and political muscle to buy legislation and/or costly litigation-driven delays to stop us, as citizens, from building our own high-capacity open mic platform.

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Owning our Networks: Applying Generative Ownership Design to Internet Access

In an earlier post I discussed Marjorie Kelly’s new book “Owning our Future,” which contrasts “extractive” ownership with “generative” ownership. I want to follow up on that post here, with a focus on Internet access, which I’ve been discussing in a series of recent posts (see here, here, here and here).

In an email exchange the other day, I asked Kelly about her perspective on community-owned broadband networks. Her response was (bolding is mine):

As for my thoughts on community owned broadband: I’m for it. It’s an important piece of locally controlled ownership, where we can begin to have more control over the necessities of our economy. Much better to own it than to try to regulate it, which is usually thwarted.

I agree with her, and in this post I’m going to take an initial stab at applying the analytical framework in Kelly’s book to Internet access. Specifically, I’m going to compare community-owned broadband networks to networks owned by incumbent cablecos and telcos, in particular the large, publicly-traded companies that serve the majority of American homes and businesses.

To do this, I’m going to refer to the five key elements of generative ownership, as described by Kelly in “Owning our Future.” Continue reading

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From “Extractive” to “Generative” Ownership

I recently read a new book by Marjorie Kelly entitled “Owning Our Future: The Emerging Ownership Revolution.  As it’s extended title indicates, the book allows readers to join Kelly on what she describes as  Journeys to a Generative Economy.  I’d highly recommend it to anyone interested in solutions to the growing imbalances and distortions in our increasingly crisis-prone economy.  You can start with an extended excerpt here.

To a large extent, Kelly’s new book builds on her first book, “The Divine Right of Capital: Dethroning the Corporate Aristocracy,” which was published roughly a decade ago (you can purchase it here and/or read its introduction here).

Drawing an apt and powerful parallel to the divine right of kings, Kelly’s first book does a masterful job of opening readers’ minds to the arbitrary and distorting nature of the ownership model embodied in today’s publicly-traded corporations.  In Owning our Future,  she does an equally impressive job helping readers understand the range of alternative ownership structures emerging across the economy.  

But she doesn’t just describe these alternative ownership designs.  She also:

1)  identifies the core underlying components that make them “a family of generative ownership designs;”

2)  explains how “generative” ownership addresses problems associated with the overly-financialized and “extractive” model of capitalism that remains dominant today,  and is increasingly associated with global-scale problems, including the 2008 financial crisis (and its still-unresolved aftermath) and global warming.

In future posts I hope to discuss Kelly’s new book in more detail, including how the principles of generative ownership relate to Internet policy and some of the other conceptual threads I’ve been trying to develop on this blog.

But for now, let me share a few excerpts from a May 17 speech Kelly made at the 2012 annual conference of the Business Alliance for Local Living Economies (BALLE), held in Ann Arbor, MI. Continue reading

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Which Kind of Internet Do “We the People” Want?

I believe we’re at a key crossroads in the evolution of the Internet, our economy and society as a whole. And, as I’ve discussed, I believe a combination of New Growth Theory and Modern Monetary Theory can help us choose the fork in the road that leads to increased human freedom and prosperity.

But I also believe that, in order to realize this brighter future, we must address an unfortunate but very real and fundamental clash of values and business models in our communication sector. So, before I go any further in discussing my policy proposals, I want to briefly review the nature and significance of this conflict.

On one side of the conflict are the relatively small number of dominant vertically-integrated local access providers, with cable operators like Comcast and Time Warner gaining increased dominance on the wireline side, while AT&T and Verizon do the same in wireless. On the other side of this values-conflict are the many individuals and organizations that rely increasingly on the Internet to communicate and exchange an ever-expanding range of goods, services and other forms of value. Continue reading

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