Saturday, October 18, 2014

Yet another argument for regulating internet access as a utility

On Monday, a man with a name that most of us have never heard of was awarded the Nobel Prize for his work on regulation. His work has been cited more than 80,000 times by other scientists. His work spans decades and might have helped us to find real competition in the internet access market. But it was ignored by US regulators over the last decade. His name? Jean Tirole. Yeah, another frenchman, like Thomas Piketty.

For years, I've been reading articles that promote the idea of regulating internet access providers like utilities. I've been promoting that idea, too. But for some reason, I didn't see any of that in US policy discussion until recently. Finally, we have someone who wins a Nobel Prize for pointing that out. Not only are his ideas recognized, they have been tested in other countries that now enjoy cheaper internet access with better quality of service than we have.

The reason is that at the federal level, internet access has not been treated as a utility or common carrier industry. The reason for this is that we have lived with conservative leaders who believe that the market will regulate itself. This is true when there is more than one or two providers. Multiple providers of any service or product will compete for customers either on price or service level.

Unfortunately, for most of us, when we look at our options, we have one or two internet access providers. No sane economist will tell us that we have a truly competitive market for internet access here in the US. But in other countries like Japan, Australia and many countries in Europe, there is real competition among many competitors. Their internet access costs less and provides higher speeds than we see here in the US.

Tirole has done research to show that when the market is left to themselves, they tend to find ways to remove competition from the market. Sometimes they do this by cooperation, other times, they do this by systematically removing competitors, through consolidation, price competition, or even government regulation that hurts other competitors.

It is a complex problem that requires consistent attention and action, but one thing is for sure, regulating internet access as a common carrier or utility can help to remove or eliminate parasitic behavior on the part of internet access providers.

This is why I promote community broadband. Community broadband works because its reason for being is to serve customers first, generate profits later. When profits are generated, they tend to be shared with the consumer in the form of upgrades to service rather than diverted to CEO salaries. Community broadband must respond to political forces where private internet access providers, in the form of large corporations like Comcast, seek insulation from political and competitive forces.

Tirole has shown us how the market is inefficient and that it can fail. If your choices for internet access are one or two service providers, the market has failed. If you only have Comcast as your service provider, one of the most hated companies in the US, your local market hasn't just failed. It's cratered.
Post a Comment