One of the upcoming issues in the forthcoming Obama\McCain presidential race will be Net Neutrality. The big ISPs want to find all different kinds of ways to profit (read restrict use) of the Internet
John McCain said “When you control the pipe you should be able to get profit from your investment.’” Hey, I’m all for getting profits when you lay down an investment and are taking risks. This argument reminds me of a day in one of my History classes at NIU. The subject was Teddy Roosevelt, Elihu Root, and the busting of Trusts (or monopolies).
My memory (keep in mind that this is a long time in the past) is that there was some dissension on exactly what should and should not be regulated. At the time, the Steel, Oil and RailRoad industries were all largely controlled by monopolies of one kind or another. This led to all kinds of bad things for the consumers and competitors.
But are all monopolies bad? No, of course not. ComEd for the most part is a monopoly. Why is that ok, but Oil needed to be busted up? It has to do with the cost of competition. Take the railroads as an example.
Let’s say Khyle Railways is the first to lay a line down between Chicago and St. Louis. I now have a defacto monpoloy on all the traffic that needs to travel between those cities. I can charge whatever I want, give away free trips on the line to my buddies, and partners in other industries if I want to. But, surely someone will step up and become a competitor right? As it turns out, probably not.
The cost of laying the railroad down is pretty hefty. Plus, the profit the new competitor would derive would be limited (unless the demand is so high that both lines are near capacity). So really, the economics of the situation are against competition. So the economic theory presented that day in class was that if the proportion of upfront capital investment was so out of whack with the possible return, then regulation or a monopoly makes sense.
It’s the same thing with the ISPs. It’s expensive (at least today, who knows with WiMax and other technologies) to get a pipe to the mass of the residential markets. The providers are making decent profits, but really, they want to (ab)use their power by charging more, or by limiting bandwidth for applications they don’t like (or that potnentially compete with some of their higher margin offerings).
Te me at least, this doesn’t make any sense. As consumers, we are largely without choice. Sure, you could get a satellite connection, or maybe you have both DSL or cable available. But really, it all comes down to a few players controlling the entire ISP market. So my stance is that until the capital investment in residential ISP services comes down, regulation is needed.
On a final note, this is another example where big companies are fighting to keep their old advantages and are slow to capture the new economics of the situation. The CEO of the company I work for, IfByPhone had an excellent post that captures this issue in the Voice 2.0 area. The Telcos are currently still trying to cut costs, and as of yet have not fully embraced the Voice 2.0 concepts that are on the horizon. The basic message is that as the cost of calls goes down, it becomes more and more important to do something interesting and engaging on top providing the actual transport of the call.
At least ISPs have more control over their fate. Their services are a little more sticky than the telephony market. But both are going to have to find way to use their advantages as the transport to open up more and new services for their end customers.