Re: Should we oppose the Data Superhighway/NII?

Perry writes:
 
> Mike Godwin says:
> > But cable service would be far more valuable to me (and I'd pay more for
> > it) if I could, say, upload a video of my little girl taking her first
> > steps and send it to Tim. (Not that he'd necessarily pay for that
> > privilege, but you get the idea.)
> 
> Why do we need government for this?

We don't. We need private providers for this.

> Seems to me that bandwidth is
> going to be nearly free in both directions in a few years whether
> government intervenes or not.

I agree about the potential for it to be free, but, I gotta tell you, the
monopolists running the cable systems in this country have no inclination
to share that nearly free bandwidth with you, even if you're willing to
pay for access to it.

In order to get to a world in which free markets can meet our demand for
high-bandwidth connectivity, we have to dig ourselves out from the 
market-failure position we're in now. And because government is part of
the problem, changing government policy is part of the solution. So,
that's one of the major thrusts of EFF's NII policy. 


--Mike

Mike Godwin says:
> I agree about the potential for it to be free, but, I gotta tell you, the
> monopolists running the cable systems in this country have no inclination
> to share that nearly free bandwidth with you, even if you're willing to
> pay for access to it.

Wouldn't the solution then be to eliminate the capacity of local
municipalities to grant cable monopolies? Fiber is compact -- five or
even twenty cable companies could coexist happily in New York (where I
live) if the city didn't grant "franchises", which it charges
exhorbitantly for. With large scale competition between cable
companies, monopolies would no longer be a problem.

> In order to get to a world in which free markets can meet our demand for
> high-bandwidth connectivity, we have to dig ourselves out from the 
> market-failure position we're in now.

Isn't the problem in question the result of government granted,
rather than natural, monopolies? Isn't it thus wrong to call it a
"market failure"? Seems more like yet another government failure.

Perry

> Wouldn't the solution then be to eliminate the capacity of local
> municipalities to grant cable monopolies? Fiber is compact -- five or
> even twenty cable companies could coexist happily in New York (where I
> live) if the city didn't grant "franchises", which it charges
> exhorbitantly for. With large scale competition between cable
> companies, monopolies would no longer be a problem.

That's certainly part of it, though not part of the immediate EFF Open
Platform initiative, which is more national in scope.  This "franchise"
problem is a local matter, and would best be handled by local
organizations.  If you are really concerned with this, try contacting the
Society for Electronic Access (SEA), since you live in NYC.  They may
already be working on this, though I cannot of course vouch for them.
Mailing simona@sea.org or simona@panix.com should put you in touch with
them. 

> > In order to get to a world in which free markets can meet our demand for
> > high-bandwidth connectivity, we have to dig ourselves out from the 
> > market-failure position we're in now.
> 
> Isn't the problem in question the result of government granted,
> rather than natural, monopolies? Isn't it thus wrong to call it a
> "market failure"? Seems more like yet another government failure.

Why would a "natural monopoly" be any better?  This is a rather moot
point. The problem here is that such monopolistic entities, whatever their
provenance, don't give a rat's ass for whether or not you want a lot of
bandwidth for multimedia email, or whatever.  Left to their own devices,
they'll happly feed you 5000 channels of tv, plus perhaps some
oh-so-interactive teleshopping clubs and the like.

Part of the effort that must be made is to knock some sense into the
rapidly merging entertainment/information/telecom conglomerates, and try
to at very least keep a large section of the "data highway" (or whatever
one chooses to call it) an Internet-like many-to-many communications
medium, if not fused with Internet itself.  Convincing the govt. of this
is will also take some doing.  One certainly can't IGNORE the govt.  No
matter how much we may wish it'd just go away, it won't, and has to be
dealt with.

-- 
Stanton  McCandlish  mech@eff.org  1:109/1103   EFF  Online  Activist & SysOp
O P E N  P L A T F O R M   C R Y P T O P O L I C Y   O N L I N E  R I G H T S
N  E  T  W  O  R  K  I  N  G      V  I  R  T  U  A  L     C  U  L  T  U  R  E
I   N   F  O :  M   E   M   B   E   R   S   H   I   P  @  E  F  F  .  O  R  G

> Part of the effort that must be made is to knock some sense into the
> rapidly merging entertainment/information/telecom conglomerates, and try
> to at very least keep a large section of the "data highway" (or whatever
> one chooses to call it) an Internet-like many-to-many communications
> medium, if not fused with Internet itself.  Convincing the govt. of this
> is will also take some doing.  One certainly can't IGNORE the govt.  No
> matter how much we may wish it'd just go away, it won't, and has to be
> dealt with.

The beauty of cypherpunk technology is that it provides means to _avoid_
the tyranny of government, rather than trying to redirect that tyranny
on behalf of one's own ends.

Government gets its power from its hundred million clients.  To join
that clientele is not consistent with wanting government power to
whither away.

	John E. Kreznar		| Relations among people to be by
	jkreznar@ininx.com	| mutual consent, or not at all.

> Wouldn't the solution then be to eliminate the capacity of local
> municipalities to grant cable monopolies?

That might be one solution. It certainly will be part of the ultimate
solution.

> Fiber is compact -- five or
> even twenty cable companies could coexist happily in New York (where I
> live) if the city didn't grant "franchises", which it charges
> exhorbitantly for. With large scale competition between cable
> companies, monopolies would no longer be a problem.
 
Which cable company has to eat the cost of digging the original
groundwork? Or are you saying that every new cable entity will have 
to lay its own infrastructure? The capital costs of that create an
immense barrier to market entry, and ease of market entry is a
pre-requisite for free-market competition.

The only reason the first cable companies even invested in laying cable is
that they were guaranteed a local monopoly. Since government, in effect,
participated in the creation of that part of the infrastructure, there are
serious issues as to whether the first cable provider in a local area
should continue to profit from a government-granted incentive while new
potential providers are left high and dry.

These are the kinds of issues that need to be addressed as we move from
monopoly to free-market competition--how do we correct for the distortions
caused by the initial government intervention in the market?

> Isn't the problem in question the result of government granted,
> rather than natural, monopolies? Isn't it thus wrong to call it a
> "market failure"? Seems more like yet another government failure.

"Market failure" is a term of art. It refers to a condition, which
may in fact be caused by government, in which market mechanisms have been
prevented from ensuring competition.


--Mike

Mike Godwin says:
> > Fiber is compact -- five or
> > even twenty cable companies could coexist happily in New York (where I
> > live) if the city didn't grant "franchises", which it charges
> > exhorbitantly for. With large scale competition between cable
> > companies, monopolies would no longer be a problem.
>  
> Which cable company has to eat the cost of digging the original
> groundwork? Or are you saying that every new cable entity will have 
> to lay its own infrastructure?

Well, in NYC, the utility tunnels are municipal, so its a question of
leasing a slot from the city. (Frankly I wish the tunnels were
privately held, but thats another story.) In most rural and suburban
areas in the US utility poles are still used and its a question of
leasing slots from the owners of those (which is easy since fiber is
quite lightweight, is typically strong when kevlar reinforced, and
presents little or no lightning hazard.) In some areas it might mean
digging new infrastructure -- modern cable laying equipment has
dramatically reduced the cost of this, especially for buried fiber
optics.

In practice, none of this is a real problem. Many areas DO have two or
more cable companies because there is no local prohibition on
competition, and a few areas even have multiple electric companies
because there are enlightened governments that permit such heretical
violation of the "natural" (read, government granted) monopoly thesis.

> The capital costs of that create an immense barrier to market entry,
> and ease of market entry is a pre-requisite for free-market
> competition.

Its not a real barrier. Capital costs for such structures are
typically sunk via mortgage bonds -- its possible for most utilities
to raise vast amounts of money in the debt markets. If you wish, I can
direct you to people at the Cato Institute who can give you plenty of
good data on why there is no legitimate reason why two or more phone,
cable, electrical, or even gas and water companies couldn't operate in
most areas -- I mean hard data down to the costs involved and
potential profits and the way that competitive utilities have
functioned in areas permitting them. The reasonable conclusion the
data leads to is that the only reason such things don't happen much in
the U.S. is that in most places competition is prohibited by law.

> The only reason the first cable companies even invested in laying cable is
> that they were guaranteed a local monopoly.

Well, the fact that multiple cable companies do in fact exist in many
places gives lie to this premise. The fact that multiple phone
companies used to operate in the early days of the century before the
government put a legal end to that also tends to discount this thesis.

I've heard the argument given time and again about dozens of
industries that "The X industry requires a government monopoly to
operate" or "The Y industry needs subsidies or we would be left
without a Y industry" and the like. I've checked up on many such
claims, and have yet to see one where the numbers or the facts
actually backed up the claim. The practice of granting monopolies was
started in England under the Tudors as a way of earning money for the
crown (which it still is in many states if you look at franchise fees
and utility tax structures). There was initially no pretense about the
practice being needed to preserve certain businesses -- that, of
course, eventually arose as an excuse and is perpetually the
monopolists argument for why competition should not be permitted.

Ultimately, one must ask the hard question of the monopolists. "If
competition is impossible in this industry, or if competitors could
not raise money for infrastructure, why do you need legal protection
from competition? If competition it would render the business
unprofitable, why would people seek to compete with you?"

> These are the kinds of issues that need to be addressed as we move from
> monopoly to free-market competition--how do we correct for the distortions
> caused by the initial government intervention in the market?

Eliminate the intervention by stopping the monopoly?

Perry

> Well, in NYC, the utility tunnels are municipal, so its a question of
> leasing a slot from the city.

Is that true? How many slots are there? Is access to the slot unregulated?

> In some areas it might mean
> digging new infrastructure -- modern cable laying equipment has
> dramatically reduced the cost of this, especially for buried fiber
> optics.
 
The question is less one of creating new conduits than of seeing that the
conduits already in place (invariably under a government regulatory
regime, if not an outright monopoly) get used to their fullest potential.
Perry, you think that just letting things happen alone means that
someone's going to give you purchasable video uplink. I'm glad to hear it,
but I don't share you belief. Where we do agree, of course, is that access
to the cable part of the infrastructure (whether by building new conduits
or allocating sections of existing ones) shouldn't be subsidized by
government money, except of course to the extent that the government is
buying such services for itself.

> In practice, none of this is a real problem. Many areas DO have two or
> more cable companies because there is no local prohibition on
> competition ....

I wouldn't say this is accurate. Even in multiple-cable areas, I
understand, the cable companies have government licenses and operate under
government regulation.

In the Boston area, there are multiple cable companies, but you can't
choose which one your particular home will use if you subscribe to cable.

>, and a few areas even have multiple electric companies
> because there are enlightened governments that permit such heretical
> violation of the "natural" (read, government granted) monopoly thesis.

Do those electric companies each have different wires? So that if 
I move into the house where you used to live, and you bought power from
company X, I can call up company Y and say "You're supplying power here
now"? How is this implemented.

I don't think discussion of "natural monopolies" is relevant here, because
it doesn't matter whether the monopolies that exist are natural or not.
They're here in any case.

> > The capital costs of that create an immense barrier to market entry,
> > and ease of market entry is a pre-requisite for free-market
> > competition.
> 
> Its not a real barrier. Capital costs for such structures are
> typically sunk via mortgage bonds -- its possible for most utilities
> to raise vast amounts of money in the debt markets.

I disagree that it's possible for all cable utilities to do this. If
you're the second cable system in a duopoly, maybe. But I don't know of a
debt market that will buy the bonds of the tenth cable company to lay
cable in a certain area. If you know of one, let's start it together--lots
of money to be made in cable!

> If you wish, I can
> direct you to people at the Cato Institute who can give you plenty of
> good data on why there is no legitimate reason why two or more phone,
> cable, electrical, or even gas and water companies couldn't operate in
> most areas -- I mean hard data down to the costs involved and
> potential profits and the way that competitive utilities have
> functioned in areas permitting them.

I regularly read Cato Institute publications and white papers.

> > The only reason the first cable companies even invested in laying cable is
> > that they were guaranteed a local monopoly.
> 
> Well, the fact that multiple cable companies do in fact exist in many
> places gives lie to this premise.

I overgeneralized. But the scenario I mention here is the most common
one.

> The fact that multiple phone
> companies used to operate in the early days of the century before the
> government put a legal end to that also tends to discount this thesis.

They used the same wires, Perry.

> I've heard the argument given time and again about dozens of
> industries that "The X industry requires a government monopoly to
> operate" or "The Y industry needs subsidies or we would be left
> without a Y industry" and the like.

This seems to be a digression. No one around here is arguing for
government monopolies. At least not so far as I can tell.


--Mike

Mike Godwin says:
> > Well, in NYC, the utility tunnels are municipal, so its a question of
> > leasing a slot from the city.
> 
> Is that true? How many slots are there? Is access to the slot unregulated?

Well "slots" is a misnomer. There is space in the tunnels. They were
designed for holding lots of phone cable, much of which has dried up
since the copper has started to be replaced with fiber. Fiber takes up
extraordinarily little space, so unless hundreds of companies wanted
to use the same space there wouldn't be real trouble. The space is
both directly and indirectly owned by the city -- some of it is in the
form of subway tunnels and subway access tunnels that are officially
controlled by the MTA, but are de facto controlled by the city.

And no, they have to like you to let you use them.

> > In some areas it might mean
> > digging new infrastructure -- modern cable laying equipment has
> > dramatically reduced the cost of this, especially for buried fiber
> > optics.
>  
> The question is less one of creating new conduits than of seeing that the
> conduits already in place (invariably under a government regulatory
> regime, if not an outright monopoly) get used to their fullest potential.
> Perry, you think that just letting things happen alone means that
> someone's going to give you purchasable video uplink. I'm glad to hear it,
> but I don't share you belief.

I can buy one now. It expensive, but the price is falling. Lehman can
purchase lines from Nynex, Teleport, Metrofiber, and several other
vendors. Vendors WANT to be in the business -- it makes them money,
after all. Car companies don't conspire to avoid selling people cars,
and I doubt deregulated carriers would spend their days trying to find
ways looking for methods to avoid selling people services. What IS a
problem is that many of these carriers can't yet gain access to
customers because of regulations. Manhattan Cable has fiber to every
block in the city -- but was forbidden by the city from competing with
the phone companies for data transmission services.

Indeed, the only companies I ever see looking for ways to avoid having
to provide services are regulated monopolies.

> Where we do agree, of course, is that access to the cable part of
> the infrastructure (whether by building new conduits or allocating
> sections of existing ones) shouldn't be subsidized by government
> money, except of course to the extent that the government is buying
> such services for itself.

Yes.

> > In practice, none of this is a real problem. Many areas DO have two or
> > more cable companies because there is no local prohibition on
> > competition ....
> 
> I wouldn't say this is accurate. Even in multiple-cable areas, I
> understand, the cable companies have government licenses and operate under
> government regulation.
> 
> In the Boston area, there are multiple cable companies, but you can't
> choose which one your particular home will use if you subscribe to
> cable.

The same is true in New York, where there are multiple companies
serving distinct areas of the city.

This is not universally true, however. There are some areas where
multiple cable companies provide overlapping service areas.

> >, and a few areas even have multiple electric companies
> > because there are enlightened governments that permit such heretical
> > violation of the "natural" (read, government granted) monopoly thesis.
> 
> Do those electric companies each have different wires?

I believe so, since it would otherwise be difficult to meter the power
usage. If both companies shared a customer grid, how could you know
who's power was being used? (Power companies do have a grid for
transfering power between their generators, but thats another story.)

> So that if I move into the house where you used to live, and you
> bought power from company X, I can call up company Y and say "You're
> supplying power here now"?

Apparently.

> How is this implemented.

I imagine its much like the way one switches heating from oil to gas
-- someone comes to your house and does a bit of physical work,
usually leaving the old infrastructure in place.

> I don't think discussion of "natural monopolies" is relevant here, because
> it doesn't matter whether the monopolies that exist are natural or not.
> They're here in any case.

Ah, but it is important. If a monopoly is an artificial creature of
government, and not natural, that means that prices are being
artificially kept high BY THE GOVERNMENT. That also means that your
dream of universal access is being blocked.

> > > The capital costs of that create an immense barrier to market entry,
> > > and ease of market entry is a pre-requisite for free-market
> > > competition.
> > 
> > Its not a real barrier. Capital costs for such structures are
> > typically sunk via mortgage bonds -- its possible for most utilities
> > to raise vast amounts of money in the debt markets.
> 
> I disagree that it's possible for all cable utilities to do this. If
> you're the second cable system in a duopoly, maybe. But I don't know of a
> debt market that will buy the bonds of the tenth cable company to lay
> cable in a certain area.

You are certainly correct -- but thats part of the way the free market
works. When you can't get financing for your project it probably means
people don't believe there is a market any more. The first five cable
companies get business, and profits shrink as price wars occur, and
then few new players enter the market. I suspect the first several
players will get money, and thats all you need.

Hell, nothing is more expensive in capital costs than starting an
airline -- and yet people get financing for airlines all the time.

I'd leave the worries about how to finance these things to the
investors, who are after all the people who's money is at risk.

> > If you wish, I can
> > direct you to people at the Cato Institute who can give you plenty of
> > good data on why there is no legitimate reason why two or more phone,
> > cable, electrical, or even gas and water companies couldn't operate in
> > most areas -- I mean hard data down to the costs involved and
> > potential profits and the way that competitive utilities have
> > functioned in areas permitting them.
> 
> I regularly read Cato Institute publications and white papers.

Then I would suggest calling them up and asking them for something on
utility regulation.

> > The fact that multiple phone
> > companies used to operate in the early days of the century before the
> > government put a legal end to that also tends to discount this thesis.
> 
> They used the same wires, Perry.

Nope, they didn't. If necessary, we can dig up references.

> 
> > I've heard the argument given time and again about dozens of
> > industries that "The X industry requires a government monopoly to
> > operate" or "The Y industry needs subsidies or we would be left
> > without a Y industry" and the like.
> 
> This seems to be a digression. No one around here is arguing for
> government monopolies. At least not so far as I can tell.

Ah, but you have been arguing against the elimination of state granted
cable monopolies, haven't you? If not, please let me know because then
there is no reason for me to argue.

Perry

Perry Metzger writes:
 
> I imagine its much like the way one switches heating from oil to gas
> -- someone comes to your house and does a bit of physical work,
> usually leaving the old infrastructure in place.
 
This doesn't sound like a true free market to me--there are barriers other
than mere price to switching among power providers. It will be cheaper in
terms of opportunity costs to stay with the same provider.

Contrast this with long-distance services, where competition forces
providers to give you incentives to switch.

> Ah, but it is important. If a monopoly is an artificial creature of
> government, and not natural, that means that prices are being
> artificially kept high BY THE GOVERNMENT. That also means that your
> dream of universal access is being blocked.
 
I just don't see how whether we agree on the existence of natural
monopolies or not has to do with this discussion. We both think the
monopolies and government subsidies should end.

> > I disagree that it's possible for all cable utilities to do this. If
> > you're the second cable system in a duopoly, maybe. But I don't know of a
> > debt market that will buy the bonds of the tenth cable company to lay
> > cable in a certain area.
> 
> You are certainly correct -- but thats part of the way the free market
> works. When you can't get financing for your project it probably means
> people don't believe there is a market any more.

Okay, now let's look at Tim May's hypothetical case. Tim wants X-rated
cable. But the first nine cable companies don't want to provide it. And
the Metzger-Godwin Cable operation, which would provide it, can't get
financing. There's a market for it, but there's also a barrier to entry.
If the only way to reach that market is to invest independently in one's
own infrastructure, then that market simply goes unsatisfied--no
reasonable entrepreneur would bother.

I leave to your imagination what happens in the event that we *do* 
start the P-G Cable company, but content providers won't sell other
programming to us so Tim is forced to choose between only X-rated
cable--us--and cable services that provide other kinds of programming.
(Tim may have no problem with this, but lots of other people in our market
will want to watch CNN as well as X-rated videos.) 

And don't forget that the cable infrastructure we're talking about
duplicating here includes coax to the individual home. So, when Tim
decides to switch over to P-G, we've got to go out to his house and
install a brand-new cable and yank out the old one--we can't just
turn on the existing cable. This is the consequence of duplicating cable
infrastructure.

My understanding, by the way, is that cable in multi-provider areas is not
duplicated--that when a municipality awards a contract to a new cable
bidder, they don't yank out the old cable or add a whole new cable
infrasture. Instead, they turn the existing infrastructure over to a new
provider. 

> The first five cable
> companies get business, and profits shrink as price wars occur, and
> then few new players enter the market.

So, what happens when, in a system in which the only way one can enter as
a competitor is to invest in a whole new infrasture, and nobody will fund
it, and the existing cable companies won't carry your service? How does
the market, in a world that treats cable in the ground as somebody's
private conduit rather than as true infrastructure, provide Tim his
X-rated cable service?

Wouldn't it be better to live in a world in which the cable
infrastructure, like the telephone infrastructure, could be serviced by
competing providers, and at the individual level? We already have this
with long-distance--if I want, I can have Sprint, MCI, *and* AT&T accounts
and use them all from the same phone. Ultimately we'll have it in the
local loop.

In this world, Tim could contract with Warner Cable to get some of their
programming, and with P-G Cable to get that little something Xtra that
helps him get through the day. 

> Hell, nothing is more expensive in capital costs than starting an
> airline -- and yet people get financing for airlines all the time.
 
All this illustrates is the inadequacy of comparing air providers to
infrasture providers.

> > I regularly read Cato Institute publications and white papers.
> 
> Then I would suggest calling them up and asking them for something on
> utility regulation.
 
Why? I've already read their stuff. Reading is not the same thing as
agreeing.

> > > The fact that multiple phone
> > > companies used to operate in the early days of the century before the
> > > government put a legal end to that also tends to discount this thesis.
> > 
> > They used the same wires, Perry.
> 
> Nope, they didn't. If necessary, we can dig up references.
 
Oh, you're saying that one couldn't make a phone call from one local phone
company to another?

> > This seems to be a digression. No one around here is arguing for
> > government monopolies. At least not so far as I can tell.
> 
> Ah, but you have been arguing against the elimination of state granted
> cable monopolies, haven't you? If not, please let me know because then
> there is no reason for me to argue.

I'm not. I think they should be eliminated.


--Mike