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RE: What do we mean when we say "competition?" (was: Re: [Latest draft of Internet regulation bill])

  • From: David Schwartz
  • Date: Wed Nov 16 02:05:15 2005

> --On November 15, 2005 8:14:38 PM -0800 David Schwartz
> <[email protected]> wrote:

> >> --On November 15, 2005 6:28:21 AM -0800 David Barak
> >> <[email protected]> wrote:

> >> OK... Let me try this again... True competition requires
> >> that it be PRACTICAL for multiple providers to enter the
> >> market, including the creation of new providers to seize
> >> opportunities being ignored by the existing ones.

> > 	The worse the existing provider it is, the more practical it is to
> > compete with them. If they are providing what people want at a
> > reasonable
> > price, there is no need for competition. If they are not, then the it
> > becomes practical for multiple providers to enter the market. If you
> > assume that the cost to develop existing infrastructure is not insanely
> > less than the cost to develop new infrastructure, the isolation from
> > competition comes directly from the investment.

> 1.	The existing infrastructure is usually all that is needed for
> 	many of the services in question.  Laying parallel copper
> 	as a CLEC is not only prohibitively expensive, in most
> 	areas, it's actually illegal.  Usually, municipalities
> 	have granted franchise rights of access to right of
> 	way to particular companies on an exclusive basis.  That
> 	makes it pretty hard for a competitor to enter the market
> 	if they can't get wholesale access to the existing copper.

	For now this may be true. But you'll set up another generation of the same
problem if you continue to advocate subsidized infrastructure. At some point
that infrastructure will be inadequate, and you will have done nothing to
make it easier to build competitive new infrastructure. If munipalities
granting monopolies is a problem, then stop such monopolies -- don't
advocate them!

> 2.	The existing copper was actually deployed (at least in most
> 	of the united States) using public subsidies.  The taxpayers
> 	actually paid for the network.  The physical infrastructure
> 	should be the property of the people.  The ownership claim
> 	of the telephone companies is almost as baseless as the
> 	Verisign clame that they own the data in whois.

	It doesn't much matter and it can't be fixed. The static value of the
infrastructure is basically depreciated to zero by now. The profits have
been reaped. Don't justify future bad decisions on past inquities that can't
be fixed anyway. Just start right from now on.

> > 	For example, if Bill Gates took a few billion dollars out
> > of his pocket
> > and launched 80 satellites to provide wireless Internet access, it would
> > be damn hard to compete with him if he wasn't trying to recover
> > those few
> > billion dollars. But if you spend a few billion, you get a few billion
> > worth. Anyone else can spend the same amount and get the same advantage.

> 3.	Except when you consider that there are only so many orbital
> 	slots that can be maintained.  (see 1 above as well).  If Bill
> 	manages to launch N satellites and N leaves N/2 orbital slots
> 	available for other uses, then, it's pretty hard to launch
> 	another N satellites at any cost.

	The present infrastructure in no way impedes the construction of future
infrastructure. If it did, this would be a valid point. At best this just
shows that the my analogy is not so good.

> > 	If he already has the satellites and is providing the service other
> > people want at a low price, then other competitors will lose.
> > But so what?
> > Consumers win. And competition doesn't exist to benefit the competitors.

> 4.	But, what tends to happen instead is that Bill charges whatever
> 	he can get to recoup his billions until someone else launches
> 	their satellites (has expended the capital).  Then, when they
> 	start to go after revenue, Bill drops his prices to something
> 	they can't sustain because they don't have his bankroll and
> 	have to recoup their costs.  They go out of business and Bill
> 	either buys their satellites, or, they become space-junk.
> 	Bill brings his prices back up to previous levels, and,
> 	consumers lose and the competition loses too.

	This doesn't work in practice. It only does in theory. There are many, many
reasons why. One is that service is often contracted for on a long term.
Another is that spot competitors can compete in small areas when prices drop
and you can't locally vary your prices forever because it's hard

	As soon as the prices go back up, the competitors come back. And the
screwed customers don't.

> 	Even if Bill doesn't actually do this, the knowledge that he could
> 	causes investors to view the new satellite company as a bad risk,
> 	so, Bill's monopoly position prevents investment into competitive
> 	entry into the market.

	Right, and this is appropriate. Large investments in infrastructure should
*not* be made if there's already adequate service. Better to invest in
places where there isn't.

> 	Finally, since Bill doesn't have to worry about anyone else being
> 	actually able to launch competing satellites, Bill has no reason
> 	to innovate unless Bill can see a much higher profit margin
> 	at the end of said innovation. (look at today's Telco as a prime
> 	example of this form of complacency.  Actually, telco's are
> 	very innovative, but, they focus on regulatory innovation instead
> 	of technical innovation).

	If this happens, eventually there will be enough of an innovation gap that
the superior products and services competitors could produce overcome the
infrastructure advantage the incombent has. The better the incumbents prices
and service, the less chance anyone will bother to compete with him. Virtual
competition has the same effects as real competition.

> > 	If he already has the satellites but is not providing the
> service other
> > people want or isn't charging a reasonable price, or both, then anyone
> > else can make the same infrastructure investment for a comparable cost.
> > If he's not satisfying demand, the demand is still there, and he's just
> > losing some of the benefits his infrastructure could be giving him.
> 5.	But, if you want this analogy to match the current copper plant
> 	in the ground in most of the US, then, you have to also account
> 	for the fact that Bill received 30-45 of his 60 billion in
> 	investment in the form of public subsidies.  Are you going to
> 	give all comers the same public subsidy (blank check)?  Instead,
> 	you end up with exactly what we have today in the telcos.
> 	Semi-regulated monopolies that think they own an infrastructure
> 	built with taxpayer money. (see also 2 above)

	I would write off the money badly spent as just that and stop using it to
justify repeating the same errors over and over. This is much better than
repeating the same error so that 50 years from now we have the same problem
with a new generation of inadequate publicly-financed infrastructure.

	The government can't do a good job of picking winners and losers, so stop
letting it.

> >> No... Actually, the lack of market forces in the beginning
> >> is what allows the incumbent providers to have an advantage.
> >
> > 	There is only a lack of market forces if the incumbent is
> meeting the
> > needs of the consumers. And if they are, there is no need for a
> > competitor.
> Nope.  There is a lack of market forces for several other reasons.
> +	Lack of access to right of way
> +	Burdensome regulatory environment requiring huge up-front
> 	overhead -- you can bet that AT&T didn't start with 5
> 	full time lawyers.  It's pretty hard to run a CLEC
> 	in most states with anything less today.  Even if you
> 	only want to serve your neighborhood.

	Yes, but these are hardly arguments for more public subsidy or control of

> +	Public subsidies for the ILEC's initial (and in some cases
> 	subsequent) buildout which is not available to CLECs.

	Yes, so stop the subsidies. More subsidies to fix the past subsidies won't
work. "Fair" subsidies won't work because you can't subsidize everything.

> The list goes on, but, believe me when I tell you that there are
> plenty of consumers in California that do not feel that SBC
> is meeting their needs, but, they don't have access to a real

	Oh, I know that story, believe me.

> >> Nope... What I want is LESS subsidy to incumbents and
> >> a recognition that infrastructure built with public funds
> >> belongs to the public.  Said infrastructure should be equally
> >> open to all service providers on equal terms, regardless
> >> of who holds the contract to maintain it.
> >>
> >> Imagine instead of today's scenarios, an environment where
> >> SBC didn't think they OWNed the pipes, but, instead, the
> >> city's owned the copper in the street and contracted with
> >> <entity that doesn't sell direct end-services> to maintain said
> >> infrastructure for the city.  Then, all RBOCs/ILECs/CLECs
> >> paid the same price to the City through said entity for
> >> the same services, whether dry copper connection, dark
> >> fiber, OC-X, etc.  The city would have a term to the contract
> >> and would put it up for rebid periodically.
> >>
> >> That would be market forces at work and not MORE regulation.

> > 	How would governments owning the infrastructure and setting
> the rules not
> > be more regulation? And how would designing a system that favors one set
> > of business models and effectively prohibits others that would otherwise
> > be viable not be more regulation?

> Huh?  How does this favor one set of business models?  What it
> does is take
> the portion of the infrastructure that was built with taxpayer money and
> put it back in the hands of the taxpayer so that whatever carrier the
> tax payer wants to buy service from has equal access to the
> infrastructure.

	And what about a carrier that needs different infrastructure to provide the
type of service it wants to provide?

> The current bill actually has a pretty good chance of levelling
> this playing
> field by giving not only access to infrastructure, but, also access to
> right of way to all comers on a non-discriminatory basis.  I think that's
> a good thing.

	And repeating the same problem 50 years from now when innovative services
can't compete with the maintained subsidized infrastructure.

> If the people have control over the "last-mile" infrastructure and it is
> operated in a carrier neutral fashion, that creates a level playing field
> for innovation in everything outside of "last-mile" infrastructure.

	That's not enough. The last mile infrastructure is as important as every
other part. It may even be more so.

	The present system was made by subisidizing infrastructure that was felt to
be good enough at the time it was designed. This is what created all the
flaws in it that bother you.

> If the people also make sure that right-of-way is managed in a
> carrier-neutral fashion (no more exclusive franchises to single
> carriers), that creates a level playing field for innovation in
> infrastructure.  All providers have the same difficulty getting
> stuff into the right-of-way and the same inherent costs.  No
> carrier gets favorable treatment over another.

	The same would be true without subsidized or government owned last miles,
wouldn't it?

> Today, nobody can put CATV infrastructure anywhere in San Jose
> if their name isn't Comcast.  Period.  The city sold us out to
> an exclusive franchise deal.  The current bill proposed eliminates
> that.  That's a good thing.

	No, it does not. It does precisely what you are complaining about -- it
grants the city a monopoly on the last mile! And still nobody can build
infrastructure if there name isn't San Jose.

> > 	Competition in business models, infrastructure technology,
> > and the like
> > is just as important (if not more so) as competition in price
> > and services
> > within a given model.

> Yes... By taking away the subsidized monopoly infrastructure from the ILEC
> and making them compete on a level field with other LECs, they can do just
> that.  The existing infrastructure was built with taxpayer money and
> should be equally accessible to all service providers.

	Just write it off. In 50 years it will be worthless anyway. Let's set the
rules for the future rather than trying to fix the past. I don't want a 20
year solution that screws us over for 100 years. That's what we have now,
and that's what you're proposing.

> > 	What happens if the government builds a copper
> > infrastructure and someone
> > else wants to build fiber? How can they compete with the subsidized
> > infrastructure you propose (what else can you mean when you say the
> > "city's owned the copper")?

> My point is that the subsidized copper infrastructure already exists.
> It's already in the ground and has already been subsidized (actually
> outright paid for in most cases).  Unless you think we can get that
> money back from all the ILECs (i.e. they will buy the current
> infrastructure from the government at the current value of the
> subsidies at the time paid), the ILECs already have exactly
> that.  OTOH, if you put that infrastructure into a pool where
> any provider that wants can use it on the same terms as the ILEC,
> that's a different scenario.

	You can't fix the past that way, it won't work. That infrastructure has
been used and maintained and has value only in the medium term.

> Sure, FFTH is another roll-out.  One way that could happen is when
> a new provider comes along and wants FFTH to provide their service,
> they are asked to provide a quote for the roll-out cost.  Then, after
> roll-out, if another provider wants access, the people have the option
> of buying said infrastructure and rolling it into the existing management
> system for the price quoted.  That way, the provider didn't pay for
> infrastructure being used by someone else and the people aren't
> forced to pay for infrastructure they don't want.  Market forces
> still dictate which infrastructures get deployed, but, there's
> no early-deployment monopoly as a result.

	The problem is, the early-deployment monopoly may be what justifies the
cost of the rollout. Take that away, and you just don't get the new
technology. So long as there is equal access to do a roll out, there is no
problem. Yet your plan *reduces* such access.

> >> What we have today is an attempt to reduce regulation without
> >> recognizing the need to correct the damage already done
> >> by regulation.

> > 	You can't "correct" the damage. It's not possible. All you
> > can do is pick
> > winners and losers *again*. The previous chosen winners and losers don't
> > really exist anymore in their previous form -- all you can do is more
> > damage.

> Actually, once AT&T and SBC merge, it will be pretty close to the original
> form of AT&T prior to Judge Greene's decision.  Sure, there will always be
> winners and losers.  The question is the selection method.  Today, the
> selection method is the government selecting the incumbent carriers as
> winners and the ratepayers are the losers.  Under the proposed bill,
> that changes and I think the ratepayers at least get more input into
> the selection process.

	But it helps innovation not one bit and does nothing to ensure competition
in the future. It's another small step to preserve what's here at the cost
of what could be.