Sunday, May 06, 2012

Just Downright Flighty: The Viola and the Crazy Gate Agent

I will stipulate at the outset that Susan Crawford, a former high-ranking Obama Administration telecom official, may be a nice person. And well-intentioned as well.
But her recent piece for Wired, "Be Very Afraid: The Cable-ization of Online Life Is Upon Us," is downright flighty.
And if it were to be taken seriously by policymakers, it would be downright frightful.
At its core Susan's piece is about a 9:00 P.M. flight from D.C. to Boston, "a particularly crazy gate agent," and Susan's viola.
To make a short story just a bit shorter, the gate agent that Susan identifies as "crazy" wouldn't let Susan store her viola in the closet used by first class passengers, or even in the overhead bin. Susan was traveling coach.
As an aside, Susan reports that the crazy gate agent even forced another passenger to remove a bag from the overhead bin that the agent thought shouldn't be there.
Anyway, rather than checking her fragile viola, Susan slept overnight at a friend's house. At the airport the next morning: "Same airline, same gate, different gate agent: No problem." Back to Boston in a jiffy, and all was well.
Now, you might be forgiven if, thinking ahead, you assume the point of Susan's piece is going to be a proposal for the government to crack down on crazy gate agents, or at least the airlines that employ them. I was anticipating a "crazy gate agent" rulemaking proposal!
But, alas, no.
What Susan took from the Viola Episode was this: She had confronted a "gatekeeper," a "single delivery network," that can make rules on the fly because the gatekeeper knows you have nowhere else to go. And, from this, she leaps to the assertion that Comcast is such a "gatekeeper," and that the company should be regulated as "an essential consumer utility." In other words, Comcast (and other broadband cable operators as well) should be subject to public utility-like regulation like the old Ma Bell telephone system prior to the 1990s.
As I said, this is not only flighty, but also frightful.
Susan does not suggest the airline market is not competitive, or that other travel alternatives to Boston were not available. They are, of course. Remember, the "gatekeeper" Susan confronted was a "crazy gate agent."
More to the point, Susan does not present any real market analysis purporting to show that cable operators possess market power akin to the old Ma Bell monopoly, or to other entities that are regulated as public utilities. They don't, of course. Susan rests her plea for government regulation of Comcast and other cable operators largely on analogizing them to her favorite crazy gate agent.
But there is this bit more in the way of assertion: Susan is displeased that Comcast does not exempt Netflix's over-the-top video streaming service from counting towards certain usage caps that may trigger higher rates if exceeded. She says that Netflix's CEO Reed Hastings doesn't want to be "shaken down by Comcast." And she is also displeased that the Al Jazeera network is carried by very few cable operators.
In Susan's view, Netflix's and Al Jazeera's supposed travails are attributable to the fact that "Comcast and the other major cable distributors get to decide who wins and who loses, and under what terms."
Of course, this is a superficial portrayal of the realities of the current broadband marketplace. Comcast and the other broadband cable companies compete at several different levels and in different forms with broadband services, including in the video market segment that concerns Susan. Competitors include "telephone companies" like Verizon and AT&T, satellite operators like DIRECTV and Dish Network, and a number of different wireless operators. I understand the services offered by these various competitors are not all exactly comparable. Some have more bandwidth than others; some may be more secure and reliable than others; some are more or less costly than others; and so forth. And, by the way, due to rapid technological advances, the composite of features and prices is constantly changing, not frozen in time. For example, viewing videos on smartphones is simply exploding as robust 4G wireless services become more ubiquitous.
I'll grant that, even though Comcast and other cable operators offer their subscribers hundreds of unaffiliated independent channels of incredibly diverse programming, Susan may nevertheless claim she is unable to get exactly the feature or program she prefers, say, the Al Jazeera channel or a movie streamed from Netflix, at exactly the price she would prefer to pay. In fact, I'll bet, like Netflix's Reed Hastings, she would prefer to pay less rather than more for whatever she gets!
But this misses the point, entirely. We know that consumers, increasingly, have choices among broadband providers, even if the choices offered over differing technological platforms are not perfect substitutes for one another in all respects. And, we know, based on the rapid build-out and ongoing upgrade of broadband facilities and the substantial take-up rate for subscriptions, that consumers largely are satisfied with the marketplace choices and the way the broadband environment is developing.
And here's what else we know.
It would be crazy to make communications policy based on Susan Crawford's unfortunate experience with her viola and a "crazy gate agent."
The public utility-type regulation that Susan long has advocated for broadband service providers – and which she advocates anew in her Wired piece – would require the government to regulate the providers' rates and to restrict differential treatment of users. In other words, under this regime, the government would fix the rate and terms and conditions of Comcast's carriage of Netflix's video streaming service, and it would decide whether Comcast must drop another channel and add Al Jazeera.
The regime Susan advocates surely risks stifling the investment and innovation that thus far has characterized the broadband marketplace. Last year, U.S. broadband providers invested approximately $65 billion dollars in private capital building out new broadband facilities. From 1996 – 2010, the amount of private capital invested totaled approximately $1.1 trillion. Absent flexibility to respond to consumers' evolving demands for different levels of usage and different features and terms of service, service providers will be reluctant to continue putting capital towards new investment and innovation.
You could fly hundreds, if not thousands, of violas "first class" back-and-forth between D.C. and Boston every day for the next hundred years for much less than the amount of private capital already invested by cable and satellite operators, telephone companies, and wireless firms in broadband networks.
These broadband providers should be allowed to continue to invest and innovate free from public utility regulation.
If we do that, you can deal with crazy gate agents however you please. I won't say a word. Promise.