Monday, April 27, 2009

The "Common Carrier" Free Press

In the face of opposition led by Free Press, Time Warner Cable recently withdrew, for now, its announced plans to conduct a trial of consumption-based billing (CBB) in four cities. I explained in my April 16 piece, "The 'Free Lunch' Free Press," why the trial should have been welcomed. Ultimately, the investment in broadband facilities must be recovered from the body of the provider's subscribers. In other words, there is no free lunch.

You should read the entire piece, but the core point is this: For reasons of fairness and economic efficiency, "it is not necessarily best for consumers -- for overall consumer welfare in an economic sense -- for all subscribers to be charged the same flat rate for service, regardless of the amount of their own usage."

There is an additional point that should be made as I read some of the Free Press' post-withdrawal statements as the organization continues to press its case against consumption-based billing. Free Press risks becoming "The 'Common Carrier' Free Press" in addition to the "Free Lunch" Free Press. As I have said countless times during the past five years or so, all net neutrality-like mandates -- and, make no mistake, a prohibition on CBB is a net neutrality mandate -- in effect constitute common carrier-like regulation of broadband providers not dissimilar from the common carrier regime to which AT&T was subject in the twentieth century's monopolistic communications era.

The core elements of common carrier regulation are a non-discrimination mandate and/or some form of rate regulation. Of course, most net neutrality mandates proponents routinely claim that "prohibiting discrimination" is a chief aim. Less often do they say – at least openly – that they also advocate rate regulation. But rate regulation almost always lurks, is inherent really, in broadband restrictions sounding in net neutrality.

Free Press claims that its opposition to TWC's proposal was based on the notion that TWC's prices are too high. Thus, in its initial press release announcing it was organizing a nationwide protest, Free Press referred to TWC's allegedly "healthy broadband profit margins." In its April 16 press release issued celebrating its victory after TWC withdrew the planned trial, Free Press charged TWC with a "price gouging scheme" and "unfair price hikes."

Most recently, in an April 22, 2009 letter to Congress calling for an investigation of all CBB trials by any broadband provider, the rate regulation agenda of Free Press becomes even more apparent. Free Press first says that "no provider has disclosed useful cost information." You might think this would mean Free Press is poised to retract its days-earlier claims concerning healthy profit margins, unfair price hikes, and the like. But no. It is just an opportunity for Free Press to suggest that "the usage fees are well above the marginal cost of providing Internet service." And to suggest that the prices for Internet service "bear little or no relation to costs." And to suggest that the prices may be "arbitrarily above costs."

The point should be obvious, and you don't have to be a brain surgeon, or even a public utility lawyer or an economist, to get it: The only way we really would ever know whether a broadband provider's prices are above marginal or average costs (or any other variation of these two, and there are others), or whether rates are "fair" or "arbitrary," would be to conduct a full-blown rate case. But wait. If you have ever tried, or otherwise participated in any way in a public utility rate case, or even witnessed one, then you know that, ultimately, the determination and assignment of "costs", especially with respect to operators engaged in providing multiple products over the same network facilities, approaches the metaphysical.

Although I know the exponential growth of Internet traffic, spurred by video, poses non-frivolous network management challenges for broadband providers in light of capacity constraints, I am in no position to offer firm opinions on the "marginal" or "average" costs of TWC or other broadband providers. But I am strongly of the opinion it would be a serious mistake for policymakers or regulators to start down the road towards undertaking the nearly impossible task of trying to determine those costs, and, in effect, imposing a rate regulatory regime on broadband Internet providers. It is far preferable, given the extent of already-existing broadband competition, with the prospect of more to come, to rely on marketplace competition to protect consumers. As I said in my April 16 piece: "It would be foolish for TWC to adopt offerings, whether consumption-based pricing or otherwise, which do not meet consumers' marketplace expectations."

We don't need rate regulation of Internet broadband services, or anything roughly resembling rate regulation. What we need, instead, is for the "Free Lunch" Free Press and the "Common Carrier" Free Press to step back and consider whether all consumers won't be much better off if we don't impose a 20th Century common carrier regulatory regime on the competitive 21st Century broadband Internet marketplace.