August 24, 2006

Net Neutrality Faces Biased FTC

FTC to the Rescue?

Monday the U.S. Federal Trade Commission (FTC Chairman, Deborah Platt Majoras, stated the FTC was going to look into the Net Neutrality issue. Her statement already shows the outcome based on her language and the tools they are going to use to investigate.

Chairman Majoras has formed an "Internet Access Task Force", which could be good, but depends on who is on the task force. Where things get troubling is the Chairman&'s preference for reliance on the markets to sort things out and using "cost benefit analysis" as their policy tool.

The "Market"

The Chairman's preference for the market to sort things out is very problematic as there is really no market. In economic terms the market normally applies to a "free market", which is setting where their is open competition and many players. With Net Nutrality we are talking about the telecom companies being the the providers of bandwidth that stands between the consumer and those with the content on the Internet. It is rather funny to call the telecom industry a market as their are now four players and possibly three soon (Verizon, ATT, and Qwest) for landlines. That is not a market but an oligopoly (a small number of providers). An oligopoly does not act like a free and open market, but much more like a monopoly. The prices do not very, there is very little differentiation between products. The consumer has little choice, well they get a different brand on their phone bill.

The "Tool"

The Chairman stated she was going to use a "cost benefit analysis" to determine what is happening. There was one very strong point that came out of graduate policy school, cost benefit analysis (CBA) is highly biased and really does not pass the laugh test (mention it in serious settings and you are not taken seriously or you are out right laughed at).

The problem with CBA is the variable you are investigated are weighted with nothing to back them up. Lets say you want to compare sheep and cows and figure out which is better. You can examine weight be market value divided by the cost to raise the animal. But, if you live in a cold climate you may value the wool of the sheep more, so you use CBA to give weight to the wool in the equation, which is fine until you go to assign value to the wool. Assigning values makes the CBA highly biased.

Two Wrongs Do Not Make a Good Decision

The Chairman said she prefers markets to sort things out, but a free market does not exist. She said she wants to use a heavily biased tool to sort things out. These are not the words of an open arbitrator, but somebody who has made up her mind. She is trusting a biased market to be good players (we broke that market up once before for similar tactics).

Whom Do We Trust

I have worked in the telecom industry a couple of times. In the early post Ma Bell break-up doing work for an alternate long distance carrier (one that barely served a whole area code in the California Central Valley) I put speed dialers into homes and businesses to help them deal with the many extra numbers needed to dial for the cheaper service. I also did analysis work for market entry for telecoms in the late 90s (including work for Bell South involving market assessment tools and visualizations of the data for policy work and decision making) mostly focussing on wireless and satellite broadband.

I did have some trust in the telecoms when they were in a free market, but they have not been playing fair as their numbers have dwindled. In the Net Neutrality debate they have taken a three legged argument (telecom, consumer, and content provider) and removed themselves from the argument. The telecoms want people to believe a lie that it is the content owners and the customers that are on opposite sides. But, in reality it is the telecoms that stand between the people and the content and the telecoms have threatened to extort money from the Google, Microsoft, Yahoo, and others. The telecoms fed the lies to Senator Ted Stevens to make him look like a bufoon talking about the "Internet are just tubes".

Do we trust Google, Microsoft, and Yahoo? Well the content providers are far more in number than those. Every web start-up is a content provider. MySpace, YouTube, Dabble, RocketBoom, Ze Frank, and every blog and videoblog are your content providers too. I do trust Google, Microsoft, and Yahoo with my content, but I also have trust and have faith in the small players.

The Real Market is Bottom-up Innovation in a Free Market

Who stands to lose if the FTC mangles its investigation (remember they have already claimed their bias)? It is the small players that will not be able to pay the extortionist pricing of the telecoms. Innovation often begins with the small players taking risks. Google started a few years ago as a small player in a free market. Companies like YouTube, Dabble, RocketBoom, etc. are the new Googles, but they need a free market, not one that is biased toward the oligopolies.


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