A ‘Competitive’ Alliance in Name Only
The language in the policy debate over the future of broadband ranges from the imprecise to the Orwellian. An “open” Internet, for example, means to some an uncensored one, to others one that allows effortless connectivity, and to others one in which all users pay the same tolls whether they’re the data equivalent of a Mini Cooper (your email) or an 18 wheeler full of tacks and broken glass (Netflix videos).
One purpose of this debate is to straighten out these differences. But the recent announcement of a new Alliance for Broadband Competition (“Alliance”) — a group formed in opposition to a proposed deal in which Verizon and a group of cable companies that cross-market their products and, perhaps more importantly, let Verizon buy scarce spectrum from the cable guys to improve the wireless infrastructure consumers value — moves to the Orwellian end of the language spectrum, in that its constituent members neither support competition nor, in my view, would know it when they see it.
First, this disclosure: Verizon is one of my clients, and the Alliance has been. But they didn’t write this, I did, and if you think that means my views have no integrity, then go read about something else — the Kardashians are always interesting. Nothing I can say or do will convince you.
Now, on to substance. The second point first — would the Alliance know competition if it bit them on the neck? Look at the speed, reliability, and burgeoning diversity of services and apps on both the wireline and wireless broadband Internet. They’re incredible — not even the Alliance would deny that. But if that doesn’t tell you that people somewhere are knocking themselves out to improve what the consumer gets, then what will? And it’s happening at a reasonable price — increases in product and service quality mean that consumers are now getting steak for the price they once paid for hamburger.
The competitive dynamic in broadband is both strong and multidimensional. Access providers improve their signal, which allows device manufacturers to offer exciting new stuff (one example is Siri, which requires truckloads of signal to communicate constantly with computers in the cloud — you didn’t think that voice came from your handheld, did you?). This leads application and service providers to offer more new stuff, which forces signal providers to improve, lest they lose their customers to others who can support the new devices and services. All this stuff doesn’t come from the Innovation Fairy — it comes from real companies investing real money and making real decisions.
But the Orwellian aspect of the Alliance is that none of its members seem interested in competition. In fact, each of its most important constituent groups — beleaguered wireless carrier T-Mobile, the Rural Cellular Association, and the advocacy group Public Knowledge — has opposed or tried to undermine competition in their own way.
T-Mobile is a starting point — it lost over half a million customers last quarter and its German parent, Deutsche Telecomm, sees it as a low priority. AT&T didn’t want T-Mobile for its technology or organization, but its customer base and its scarce electromagnetic spectrum, the ethereal real estate on which wireless is built. Nor does T-Mobile affect mobile service prices; it can do little more than price just below its competitors in the hope of scavenging some market share — it doesn’t discipline the other carriers, it lives under their umbrella. Far from embracing competition, T-Mobile is one anti-trust decision away from being a memory.
The second member of the “Competitive” Alliance is the Rural Cellular Association (RCA), a group of small and often uncompetitive carriers who want the FCC to keep them afloat by giving them the right to roam AT&T and Verizon’s high-speed data networks at a price determined by the government. They already can roam on other companies’ networks for phone service, because the law enshrines telephony going back generations. But data services? Image, video, or other data transfers? When did those become the subject of price regulation? Actually, many of them have 3G data roaming — they just want mandated access to their competitors’ newer, better, and pricey 4G networks at a price determined by regulators. As their president said, “This really is getting to be a matter of survival for many of our companies out there.” But survival is the result of competition, and competition means making the investments that allow your survival. Instead, like the woolgathering barnyard animals who sought to live off the Little Red Hen, the RCA wants regulators to appropriate the investment of others for the RCA’s members’ use.
The third leg of the Alliance stool is Public Knowledge, an advocacy group for “neutrality” on the broadband space. Like “open,” “neutral” means different things to different people. But the common denominator is that, in a “neutral” world, everything on the Internet travels at the same speed and pays the same toll. That sounds democratic, but it’s not about democracy — it’s about cold-hearted profit and loss, dollars and sense. We don’t need “neutrality” to keep the Internet uncensored and diverse — that’s why customers pay to have the Internet, to see all the stuff. What the neutral “one size for all” policy really means is that video streaming, which taxes the system’s capacity and creates congestion for others, doesn’t have to pay for the costs it imposes on the system — it’s like charging the same toll for Minis and 18-wheelers. That’s why two of the most important, if not central, backers of “neutrality” are Netflix and Google (YouTube), the largest trucks on the broadband road — video is now half the Internet or more, and Netflix alone uses more bandwidth than the entire Internet of less than a decade ago. No wonder they want to pay the same rate as your email to a friend or your on-line shopping.
Advocates such as Public Knowledge don’t think that the preferences of consumers are shaping the broadband Internet, both wired and wireless. But they’re wrong, as witnessed by the ever-improving offerings of the companies striving to win those customers’ allegiance. They’d like to see more than a handful of companies in the mix, but ignore the billions of investment dollars it takes to play in this space — dollars that build high fixed-cost systems that depend on big subscriber bases to break even, meaning competition. In one sense, Public Knowledge is the most heavy-handed opponent of competition among the Alliance roster, because it would substitute its own views of how the Internet should work for those that resulted from competition among signal, device, and service providers who succeeded at meeting consumers’ needs.
The debate over broadband policy — should it be “one-speed,” should we impose access for some companies to the investments other companies make, should we disallow trading spectrum or cross-marketing agreements? — requires that we think through what constitutes “competition.” To me, the proof of competition is in the pudding — innovation, growth, jobs, dissemination and access. Having a thousand Mom-and-Pop DSL providers doesn’t mean having effective competition, let alone innovation. There are analysts doing interesting work on defining and measuring competition — many of them knee-jerk liberals such as myself — that will help us move the debate forward. But what doesn’t help us is the Orwellian appropriation of the word “competition” by companies and groups who want to disrupt or deny competition when it serves their interest.