Research: The Internet “Public Option”?
The Free State Foundation
Reject The Internet “Public Option”
Randolph J. May
February 16, 2010
May writes that the push for a health-care public option and what he calls the “Internet public option” share similar threads. The similarities are not the issues themselves, but May finds similarities in the thought process behind the two public options. “[B]oth are grounded in an almost unshakeable faith that government should play a central role in regulating certain services provided by the private sector,” he writes
To define the rationale, May explains that groups in favor of network neutrality regulations or Internet regulation in general are lobbying the FCC persistently to change the classification of Internet oversight from Title I to Title II. Title II would characterize the Internet as a “common carrier” and allow for more regulatory control by the FCC.
May says that moving to Title II will create new problems for consumers. He quotes Federal Communications Commissioner Robert McDowell: “[I]f every consumer is to be treated the same regardless of usage, then all prices must rise to compensate for the costs imposed by heavy users.”
To read more of May’s thoughts on the “Internet public option,” click here.
Unless, of course, the marginal cost per user (even per heavy user) is already absurdly low so that it is covered by the general subscription cost.
The notion that “heavy” users impose additional costs on the system is not merely unproven, it is counter to what we should expect given the economic nature of networks (e.g., marked by high sunk cost and low marginal cost). Heavy users, of course, also generally pay more because they buy the fastest packages. And, perhaps most tellingly, the provider is the one setting the terms of service and charging based on speed rather than capacity.
Allow me to diffuse the straw man. Network neutrality folks have generally shrugged on capacity caps — provided they apply equally to all content and are not set so artificially low as to be obviously anticompetitive (e.g., Time Warner’s capacity cap was condemned as a rather transparent effort to prevent people from “cutting the chord,” as opposed to Cox’s capacity cap which has raised nary an objection).
Economic arguments should, ideally, be grounded in empirical data. Alas, because no one actually collects empirical data on deployment cost, we are reduced to competing theories of what the cost structure should be. Given that, however, it is useful to pay attention to the general economics of networks.
There has been a serious over use of the phrase “straw man” today in the various comments. That’s not to mention it’s out of context. It’s just the guys opinion. He’s not misrepresenting some position of “the other side”.
I just don’t get it Harold. You’re asking for empirical evidence but at the same time are not providing any evidence that “heavy” users are not imposing additional costs on the network. What’s actually hysterical about this is that you complained about a straw man argument being present in May’s paper that wasn’t really there while you simultaneously set up your own straw man. I mean that is classic material!
But maybe I’m just not following you. Possibly if you re-phrased it in that thing you say about putting stuff in buckets?
Harold Feld said: “Unless, of course, the marginal cost per user (even per heavy user) is already absurdly low so that it is covered by the general subscription cost.”
So Harold, the only costs that a Telco has to worry about is marginal costs? What about total costs? Is this why AT&T has to spend $19 billion in 2010 on upgrading their wireless network? Is this why the communications industry spent $67 billion in 2007 upgrading the infrastructure?
Your portrayal of economics is shockingly simplistic and flawed.
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