October 20, 2006 · Lessig
HOTI points to Scott Cleland of the respected “The Precursor Blog” who has posted a reply to my FT article. My “thin rule,” Cleland says, is just “thin gruel” (by which I take it he means he doesn’t like my rule; I personally find the best gruel to be thin gruel, and in fact, in the increasingly cold Berlin mornings, I think gruel is a very good start to the day. I wish people would stop picking on gruel, thin or fat.)
The thrust of Cleland’s one pager is that I’ve been “loose with the facts.” Let’s review the charges: (Cleland’s words are bolded below):
Loose Fact #1:
Lessig asserts: “In the U.S. at least, broadband competition is dying.”
Anybody who cares to check, will find that broadband prices are falling, broadband speeds are increasing, consumer choices are increasing steadily, broadband investment and deployment are strong, and innovation is vibrant.
This is Dick Cheney on the war. (Indeed, let’s give it a name: to Chenify): Put the prices issue aside till the next sentence: Are you kidding, Scott? Relative to every nation who should be considered to be competitive to us in this, we are worse off today than we were four years ago. When Bush said “10th is 10 spots too low” he was right (well, sort of. It’s actually 9 spots too low), and yet now the US is 16th in broadband deployment. The worse things go, the more a certain set simply denies reality.
Why can’t an anti-neutrality advocate begin with what everyone knows is true: US broadband sucks — it is too slow, it is too expensive, and it is too unavailable. The only question is what we are going to do about it.
For those who care to go more in depth on this subject, I have produced two useful one pagers to prove this point: “Debunking the Broadband Market Failure Myth” and “Debunking the Broadband Competition Can’t Work Myth.”
So here’s where I was worried. Though this is an issue I’ve been studying “in depth,” I hadn’t read Cleland’s “one-pagers” before. (I hate the word “debunking”. Sounds way too Marxist for my taste). So I took a deep breath and clicked on the one pagers, expecting to find a refutation of the data upon which I had based my understanding that in fact, prices have not fallen.
That data, again summarized well in Broadband Reality Check, suggests that first, cable prices have increased slightly, and second, while NOMINAL DSL prices have fallen, the $/MB has gone up, since the speed of the offering for the cheapy deals is significantly slower.
Here’s Cleland’s “debunking”:
Real DSL prices have fallen ~50% as speeds have roughly doubled over the last 2 years; introductory DSL prices have fallen ~70%in ~3 years; average monthly DSL prices fell ~15% from 2004-2005.
Every fact stated here could be consistent with the conclusion that the $/MB has gone up. (Well, almost: You’d have to be a bit charitable in interpreting “as speeds have roughly doubled over the last 2 years” — that’s plainly not true, as the “introductory” packages he points to offer less than 1 MB speeds). So where’s the beef, Scott? Where is the data to debunk “Broadband Reality Check”? I’d be happy (in the academic sense of that term) to be proven wrong about relying upon the data I relied upon. I’d be even really happy to learn that average $/MB prices for DSL have gone down. But notice the critical fact Cleland didn’t try to “debunk”: That prices in the US range from 6x (France) to 12x (Japan) the $/MB of the US. But don’t worry, every-thing’s great. The war’s great. Broadband in the US is great. The deficit is great. It’s just the best of all possible worlds…
For those who want to get the FCC’s analysis of broadband competition click here; or for the FCC’s analysis of Wireless competition click here.
I love the way anti-regulation types hate everything the government does, except data that supports their argument. Talk about “debunking”: The FCC’s analysis has been the subject of extensive criticism, including by the GAO. The problem is the FCC’s method for counting penetration with in a zip-code: They conclude that if 1 person within the zipcode has a broadband choice, the whole zip-code has broadband choice. As the GAO concluded about this obvious fudge: “the number of providers reported in the ZIP code overstates the level of competition to individual households.”
For those who don’t want to be bothered with facts and analysis, but just want anti-business assertions about what imminent peril our way of life faces from continued free and open competition on the Internet click here for SavetheInternet.com, of which Professor Lessig is a Charter Member.
This is the part of this debate that drives me nuts: As if this is a battle between “anti-business” sorts, and pro-business sorts. I understand how it’s easy to believe that if you spend your life thinking about other things, and spend 30 seconds thinking about this issue. But for anyone inside this debate, this claim is the most bogus sort of rhetoric there is.
This is not a pro vs. anti-business debate at all. The whole point of the Network Neutrality argument I’ve advanced (for almost 8 years now) is about what conditions produce the greatest growth in applications and content. The aim is to maximize wealth for the economy as a whole, and not just for the network owners. The whole argument is that a neutral network incentivizes more competition in applications and content than a network controlled by network owners. Think the cell phone network vs the Internet: This is not a battle between pro and anti-business sorts, it is a battle between cell-heads and net-heads.
There are those who continue to function normally in the world who believe, all facts to the contrary, that this is a debate about regulation vs. no regulation. I’ve spilled too many bits over that canard to believe wasting more space here makes any sense. But I wish those anti-regulation sorts would spend some of their effort getting the FCC out of the business of regulating (through property) spectrum.
Loose Fact #2
Professor Lessig asserts: “There are fewer competitors offering broadband connectivity today than there were just six years ago. The median consumer has a choice between just two broadband providers. Four companies account for a majority of all consumer broadband; 10 companies account for 83 percent of the market.”
What Professor Lessig fails to explain was that six years ago we basically had NO broadband competition, because we had a de facto monopoly for wholesale Internet access called dialup, which had lots of resellers of the underlying monopoly service, which Mr. Lessig likes to call competitors.
Yea, I’m old enough to remember those days. Many many businesses would try to get me to switch to their service by offering me lower prices and higher quality. I confess, I call that competition. But whatever you call it, we need more of it today.
Over the last six plus years, the free and open Internet that has been unfettered by regulation has created a steady increase in real inter-modal broadband competitors/choices for consumers.
What Mr. Lessig really laments is the decrease in the faux/artificial regulatory-favored Internet Access resellers that basically competed on brand; and the increase in REAL inter-modal competitors that can truly compete on price, speed, innovative features, and mobility among other differentiators that consumers value about competition.
What I “lament” is that the speed of broadband sucks in the US, and the prices are too high. Again, if the policies of the last 6 years had really produced the kind of prices and quality that other competitive nations around the world have, I’d be the first to admit I was wrong. But if you turn off the Cheney channel, and looks at the sorry (and increasingly sorry) state of broadband in the US, at some point someone has got to ask whether this policy is a mistake? Call me a cut-and-runner, Scott. Because I definitely want to cut-and-run from the FCC’s policy.
What Mr. Lessig conveniently omits from his assertion that “broadband competition is dying” is the pesky little truth that real broadband prices have fallen by over half over the last three years and that competitive supply is vibrantly increasing.
But then again, there’s the problem of those “pesky” data necessary to support the ultimate claim that needs to be made: That the DSL $/MB have fallen “by 50%.” Show me the data, Scott, not the made-for-TV-soundbites.
Maybe Professor Lessig should take some more classes in economics and antitrust to bone up on the fact that competitiveness of markets are truly measured by effective pricing, by the trend of competitive entry and by the amount of innovation. Only undergrad courses covering antitrust would consider it sufficient to count the number of competitors in a market and then declare a market not competitive. Responsible scholars of competition understand that the competitive facts can vary widely in various markets, and that the number of competitors alone is insufficient data to determine the competiveness of a market. I am sure there are any number of attorneys with “real world” experience in analyzing competition at the DOJ Antitrust Division or at the FTC who would be happy to give Professor Lessig a little tutorial on this before he opines on this topic again on the world stage.
This is no doubt true. A submission to the FCC or to a court about market power with the substance of an 800 word op-ed would be absurd. And indeed, to show fully whether competition is improving or getting worse, you would need to go much more “in depth” than even Cleland’s nippy one-pagers. But really, Scott. This is an op-ed. They don’t allow footnotes.
Loose Fact #3:
Lessig said: “Network owners now want to change this by charging companies different rates to get access to a ‘premium Internet.’” [bold added for emphasis]
This is the way the Internet has operated since it was commercialized in 1995. There have long been been three Internet backbone tiers of service. And companies have long paid for a “premium” Internet since they upgraded from dialup to broadband!
So at a debate with George Gilder, Peter Huber made this same move. Look, no one is arguing about the backbone. No one is arguing for regulation of the backbone. This is a debate about last mile broadband, and the effect certain business models for the last mile will have on competition.
What planet has Mr. Lessig been on that he didn’t notice that companies pay for a “premium” Internet every day? Has he ever heard of the Akamai “premium” service which has been used by most all the biggest online companies to get “premium” Internet service?
And of course this is exactly the criticism I was trying to preempt by my original post on this matter. Obviously, companies do whatever they can to make their content on the net run well as it can. Google must spend millions around the world on caching servers. Everyone spends what they can to get the fastest servers they can.
But again, this is exactly the sort of competition we should celebrate — businesses spending money to add real capacity and functionality to the network, by going to a (relatively) competitive market to add that capacity.
My complaint is not against that. My complaint is about (relatively) uncompetitive markets, and about the consequence of them exercising power over the next YouTubes of the world. No doubt, as they extract rents from these businesses, they make Wall Street happier about them. But as my focus is not the net wealth of a handful of companies, but instead, the wealth of the economy as a whole, what’s good for them is not the end of the matter.
Indeed, this is exactly why my position on Network Neutrality is not as extreme as some. As I testified, for example, I’m all for “consumer tiering” by network providers — where network providers offer higher quality to consumers for more money. That again is the sort of business model that creates an incentive to increase capacity.
“Access tiering” doesn’t. Or at least, I’m looking for the economic analysis to show it does. What I’ve seen so far is that in an relative uncompetitive market, “access tiering” creates an obvious (and perverse) incentive: with relatively limited competition, if you can charge a premium for a “fast internet,” you don’t have much incentive to make the rest of the Internet very fast at all.