The Cable Industry Needs Less Regulation and More Freedom

May 18, 2012

David Williams
Taxpayer Protection Alliance

Fortunately, the free market doesn’t work like group projects in grade school where one poor performer could bring down the grade of the entire group. When one company fails or does not adequately meet customer demands, it may go under – but usually this does not lead to the failure of an entire industry. And that particular company’s shortcomings don’t typically have negative repercussions on the industry or hold the future of the industry back. That is unless – or until – the government regulates that industry. There has been a concerted push to regulate the broadband industry and make it into a quasi-public utility and the repercussions could be disastrous.

Another thing left back in grade school is a teacher to go cry to when things don’t go one’s way. But that hasn’t stopped Netflix from pouting over a new specialized service Comcast is offering. The service allows Comcast’s Xbox 360 customers to stream thousands of movies and shows from XFINITY On Demand without counting against the data usage threshold that applies to broadband internet access services. (And it should be exempt from such a data cap because the service in question is a cable service, which would render the rules governing Internet streaming inapplicable).

Even though Comcast customers are thrilled to be offered this service, not everyone is as enthusiastic. In addition to Netflix’s displeasure, Susan Crawford is not happy. In her recent piece, “Be Very Afraid: The Cable-ization of Online Life Is Upon Us,” Ms. Crawford shares an airport adventure involving a so-called crazed gate agent who had different travel accommodations in mind for Crawford’s stringed instrument – transit plans that Crawford vehemently opposed. And if picturing this scene hasn’t already made you laugh, the argument she makes in the piece surely will. Crawford contends that Comcast’s behavior in the broadband industry is as egregious as the behavior of the gate agent. If this seems like a leap in logic, it is.

Nevertheless, here’s how she explains it, “Comcast here is playing the role of the gate agent: Video that Comcast directs down particular channels to particular devices won’t trigger the cap…Comcast and the other major cable distributors get to decide who wins and who loses, and under what terms.” In short, Crawford is perturbed that the “open Internet protections” the Federal Communications Commission adopted in 2010 do not curtail specialized services like the one in question from Comcast.

Crawford’s beef extends beyond Comcast; she wants to see broadband become a government-controlled public utility. Her piece explains why:

“Just imagine trying to run a business that is utterly dependent on a single delivery network — a gatekeeper — that can make up the rules on the fly and knows you have nowhere else to go. To get the predictability you need to stay solvent, you’ll be told to pay a ‘first class’ premium to reach your customers. From your perspective, the whole situation will feel like you’re being shaken down: It’s arbitrary, unfair, and coercive. Netflix CEO Reed Hastings is feeling just this way.”

Ironically, that’s exactly what the government gatekeeper solution that Crawford seeks would look like.

The trouble with Crawford’s description is that it does not accurately depict our current free market system; the reality is that the current broadband market is working just fine. As technology expert Hance Haney explained in a recent blog post, “The fact is that cable, telephone and mobile wireless providers all compete to offer similar broadband Internet access services…There is no gatekeeper problem, only a desire on the part of some firms to seek political favors instead of undertaking the difficult and uncertain task of creating real consumer value.”

Whether Crawford likes it or not, our free market system allows companies to compete for customers, and of course like everything else, this means some companies are more successful at attracting customers. Comcast, and others like it, have a strong incentive to create the best product for the lowest price. Some companies more than others are willing to take risks and make great investments in order to do this. For example, Comcast and its investors spent a lot of money to develop this prioritized access product. And the investment has shown to be worth it, consumers are buying the product. But companies who did not take a similar risk (and have not seen a similar reward) are upset and falsely claim that Comcast is showing an unfair preference to its own service over competitors. Some, like Crawford, think the only way to stop Comcast’s success is to make broadband a government-controlled utility. This would not only leave consumers in the dust with inferior products, it would harm an entire industry by stunting its ability to grow and innovate.

Onerous government regulations threaten the dynamic, thriving industry that consumers benefit from today. Regulations squash ingenuity that the free market incubates. Currently, the private sector has a strong incentive to use its profits to turn around and invest more with the result being greater consumer choice. But if the government were to regulate broadband as a public utility, the money that companies would previously have spent to create innovative products would go instead to paying increased taxes because of the new regulations.

Consider the sort of precedent that sets for a company’s future plans. If Crawford thinks it’s a problem that Comcast currently does not offer Al Jazeera TV, think of all the disservices that will result if companies were afraid to innovate for fear of unwarranted retribution from the government. Additionally, nothing in the current system traps Crawford into sticking with a particular network service if she’s not happy with it. If Crawford were to get her wish and broadband were to become regulated like a public utility, then she’d really learn what having a gatekeeper who did not allow other options would look like.

Crawford concludes her piece with one more stab at Comcast; this time by contending that “its motives just don’t necessarily align with the greater good.” The real “greater good” is when a company is meeting its consumers’ needs in the most innovative, efficient and inexpensive way possible. That’s certainly a good thing for the economy, investors, and consumers.

If Crawford wants to achieve universal broadband access, let the private sector work. Crawford will be playing a different tune when the government gate keepers decide what is in the public interest and starts censoring the Internet.

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