Sen. Byron Dorgan
Senator Byron Dorgan (D-ND) reintroduced last year’s unsuccessful net neutrality bill, the Internet Freedom Preservation Act. The new bill is numbered S. 215 and it was introduced on Jan. 9th. The list of cosponsors reads like a who’s who of potential Democratic presidential candidates: Obama, Clinton, Kerry … Oh yeah, it includes a single Republican, too.
Sen. Dorgan, an MBA by training, observed we wouldn’t need net neutrality regulation if the broadband market was competitive,
Now perhaps if we had a competitive broadband market we would not need to be concerned about the discriminatory intentions of some providers. In a market with many competitors, there is a reasonable chance that market forces would discipline bad behavior.
But this is not the case today: FCC statistics on broadband show that the local cable and telephone companies have a 98 percent share of the national broadband residential access market.
For those that say, the market will take care of competition, and ensure that those that own the broadband networks won’t discriminate, that cannot be so when at best consumers have a choice of two providers.
But Dorgan should know better than to automatically equate duopoly with consumer harm. If a market is open to intrusion by would-be producers of the same product, Schumpeter teaches that the “position of a single seller [in this case, we are talking about two] can in general be conquered … only on the condition that he does not behave like a monopolist.” What he means is, if duopolists harm consumers, they provide an oppportunity for competitors to profitably offer better terms and capture market share. Duopoly “buttressed by public authority” could be a problem because it would allow duopolists to leverage their privileged positions, according to Schumpeter. He’s referring to legislated advantages which block intrusion by would-be producers, like patents and franchises.
The long-distance market, which Dorgan tried to protect in the mid 1990s, was buttressed by public authority: a court decree prohibited the most formidable potential competitors to the old AT&T, MCI and Sprint (the Baby Bells) from entering the market. The broadband market is just the opposite. No public authority impedes competitors — other than local video franchises.
Commerce Secretary Gutierrez
In the mid 1990s, Dorgan and others failed to perceive that wireless (and the Internet) would decimate the wireline local monopoly. They’re making the same mistake again, now that wireless is gearing up to provide broadband Internet access. Fortunately, this development isn’t lost on the Bush Administration. This week, at the Consumer Electronics Show in Las Vegas, Commerce Secretary Carlos Gutierrez observed,
Wireless providers are capturing an ever-growing share of the broadband internet market. And they are competing for voice and television services as well.
In fact, on the show floor you can see wireless devices that incorporate high speed internet, voice connections and possibility for TV and video services.
The point is this: these changes in the market aren’t just being enabled by new technology, they are being driven by enormous competitive pressures. We no longer live in a world where consumers are limited to buying discreet services from monopoly providers. Consumers increasingly choose from multiple service providers based on price, performance, mobility and associated services.
In the face of this new competitive market place we in government need to continue to remove legacy economic regulations that can stand as a barrier to continued innovation and investment.
Dorgan made another significant point,
In addition, we have proof that it can be done- nondiscrimination rules and Internet freedom can co-exist with profitable business plans. Recently AT&T accepted as a condition of its merger with BellSouth a net neutrality provision written by the FCC. Wall Street immediately reported that it expected no impact on AT&T’s bottom line by the acceptance of these conditions, and AT&T is forging ahead, while at the same time having committed to protecting Internet freedom.
It is clear that an open and neutral Internet can co-exist and thrive along with competitive and profitable business models.
That may be a unwarranted conclusion. AT&T had a shotgun pointed at its head. The commitment it made expires in two years. And press reports indicate its immediate focus will be on experimenting with advertising on its Cingular unit in any event. Ony AT&T knows for sure, but the carrier may have felt it can bide its time. Dorgan, as an MBA, should know that investors demand a market return on their investment. Otherwise, they go somewhere else and the U.S. slips further behind South Korea, Japan and other countries in broadband deployment.