isen.blog

UPDATE: The Kahn comment disappeared for about a day, and now it is back, but with non-standard html characters that indicate it was revised using Word (or similar). I do not know the details of its revision because I did not save the original. Hmmmm.
-------

I've had the great good fortune to meet the man who guided the deregulation of the airlines and the trucking industry, Alfred Kahn, at the Silicon Flatirons Broadband Migration Conference last year and the year before. Thanking him for my $357 NYC-DEN-NYC plane ticket -- which included free first class upgrades in both directions -- was one of the highlights of my life.

Now Kahn has a long comment on Network Neutrality appended to Patrick Ross' otherwise predictable posting on Bill Kennard's recent op-ed on the Progress & Freedom Foundation blog.

Unfortunately, Kahn doesn't think much of Network Neutrality or its advocates. To open, he does a pretty good job of painting pro-NN people as kooks; in his first paragraph he's mustered up some of the most extreme hyperbole to form a "fair composite quote," on where he thinks the advocates of NN stand.

But Kahn is so distinguished, and he's created so much public good, that I am willing to suck in my pride and try hard to give him the benefit of the doubt. That said, I think he is confused on several key points. I observe that the airline and trucking industries that he deregulated were (a) well established industries in a very mature phase of development and (b) riding on public infrastructures, to wit, the airport and air-traffic-control systems and the roads, respectively.

Kahn begins by saying that competition, even duopolistic competition, works pretty well. He points out that 97 percent of the population has at least three providers competing for its business, and he is right as far as it goes -- he does not seem to distinguish between cable TV, landline telephony, mobile telephony and Internet service. Certainly 97 percent of the US public can give its money to as many as three companies at the same time for some kind of telecommunications service. Unfortunately, 97% of the US public does not have access to three broadband Internet access providers. That number, generously construed, is somewhere in the neighborhood of 30%. If we're talking Internet neutrality, then competition in Internet access should be the parameter we measure.

Then Kahn makes an interesting claim. He says

the most promising intensification of that competition is the tens of billions of dollars that the phone companies themselves are spending converting copper to fiber, which will enable them to offer video programming pervasively in direct competition with the cable companies.

Perhaps. But perhaps the investment in fiber might be simply for lowering operating expense. Remember Bell Atlantic CEO Ray Smith's early-1990s claim, "Fiber beats copper on truck-rolls alone." Or maybe the telcos' fiber push is anti-competitive, to ride the fiber-access exemption of the FCC's 2003 triennial order to exclude other Internet providers from their facilities. Or maybe, as one of my colleagues is fond of saying, what we're seeing is "Fiber to the Press Release." We shall see presently whether video programming competition develops. The Bells are notoriously bad at entering new businesses, and fiber by itself does not automatically mean cable TV competition.

Kahn emphatically points out that the FCC stepped in when Madison River Communications blocked Vonage VOIP service and says,

It is unthinkable that the regulatory or antitrust agencies would not strike down any other such discrimination by the telephone or cable companies against competing providers of content in favor of their own.

So what is Kahn's problem with a law prohibiting the unthinkable? After all, we're a nation of laws, not of humans. That's the theory, anyhow. I merely observe that the "unthinkable" of one FCC chairman can become standard operating procedure to another.

Then Kahn says

Newspapers charge advertisers for access to their readers—more for big ads than small ones— television and cable companies charge similarly for access to their audiences; and the charges vary widely depending upon the anticipated size of the audience. Why is that any different from the proposed additional fees for guarantees of the unusually rapid rates of transmission . . .

The difference lies in the fact that underneath the newspaper is an infrastructure of roads that allows the newspaper and other competitive newspapers to be delivered without discrimination. Undergirding television there is the public spectrum, and underneath the cable is the public right of way. These public infrastructures remain regulated for the public good. Indeed, when Kahn deregulated the airlines, the airports and the air traffic control system remained public. When Kahn deregulated trucking, the roads remained public. The Internet, that system of packet protocols that allows any network to inter-network with any other network, and the physical means that undergird it, are similar public infrastructures -- it should not be confused with the applications that ride upon it.

Another claim Kahn makes I heartily agree with. He writes:

If Google and eBay depend upon the telephone and cable companies for reaching their audiences, that dependence is mutual: what would happen to the willingness of subscribers to sign up for DSL or cable modem service if one or the other of those suppliers decided not to carry Google or eBay?

Bada-boom. Absolutely correct. If my cableco's Internet access didn't let me reach Google, I'd switch. No doubt. Unless, of course, my cableco was the only way I could get fast Internet access. Or maybe I'd have two providers of fast Internet access, one of which decided not to carry Google, while the other one didn't connect to Amazon and the New York Times -- then what would I choose?

Finally, with Kahn's long history of spurring competition in mature businesses, he does not once turn his commentary to the matter of innovative new business facing a discriminatory system of tiered prices. Indeed, Google and Verizon might agree that the two must have each other for either to succeed, but what about a nascent business with no market power and few demonstrable customers, a business like YouTube in early 2005, for example? Will Verizon (and every other Internet access provider in the world with customers that might want to sample the nascent business's wares) be free to demand a fee for these wares to be optimally rendered? I hope not.

I'm looking forward to meeting Alfred Kahn at next year's Broadband Migration Conference and asking him about all of this in person. He's a delightful person and an intellectual giant in his field, and I look forward to learning from him where I'm wrong.

Technorati Tags: Competition, Content-Conduit, Deregulation, NetworkNeutrality, SiliconFlatirons