Communications Technology 4 (commentary on FCC auction decision)

Before I finish filling in the details of my vision of communications, we should take a momentary detour to discuss the results of yesterday’s FCC auction announcement.

In my mind, and also for Google corporate, the announcement was definitely a disappointment. The FCC did choose to endorse “hardware interoperability”, but they did not endorse pure “network neutrality.”

As outline in CommTech 2, the loss here is that the website equality we currently enjoy will not be preserved. Website hosts with deeper pockets will be able to pay for access to faster download speeds and therefore preferred status. The result will be good for some high-definition media viewing, but it will really hurt new startup sites and the diversity of news sources. The usual info-tainment news sources (FOX, CNN, NBC…) will continue to enjoy a major access advantage to viewers.

Even for those of us who are fiscal-right-wingers, we should easily recognize that news and information are nearly pure public goods. That is, informing yourself about the situations in the world does not prevent others from doing the same. In fact, the more informed everyone is, the more everyone benefits. Therefore even fiscal-right-wingers would promote government intervention in the form of ensuring equality among news and information sources, ala net-neutrality and the internet.

Without information access equality, the news corporations with preferred status become even more preferred. As a timely example, note Rupert Murdoch’s latest media conquest; control of the Wall Street Journal. Now, even less diversity is readily available.

Fundamental economics tells us that when free-market failures exist (lack of competition, existence of public goods and externalities, information asymmetries, incomplete markets…) laissez faire competition will not lead to efficient resource allocations. Even if the poor continue to work and compete at their utmost, even if the whole pie gets larger, the poor will definitely get poorer. These are necessary situations for government intervention. It is the government’s role to enforce market corrections (in a minimalist fashion if you are fiscally right wing, or in an authoritative fashion if you are left wing).

Information is like national defense. Citizens benefit from their personal contribution to national defense, but they also benefit from everyone else’s contributions. Citizens benefit from their decision to become informed, but ultimately also benefit from their neighbors decision to become informed. Because of these indirect (un-internalized effects), left to their own device, normal citizens would acquire insufficient and suboptimal amounts of that good, the information. Therefore, in this case there should exist a governing body to step in and provide for those untapped benefits. In this particular case, citizens benefit from their availability to diverse news sources, but they also benefit from their neighbors becoming informed from diverse news sources. The way for the government to step in and provide for those untapped benefits is for them to support the availability of those diverse news sources; ie support network neutrality.

How did this happen? With altruistic economic reasons and Google’s money, why was their motion for network neutrality unsuccessful?

Perhaps hubris. If Google seemed to think that by playing according to the rules (building good products, generating sizeable profits, and then putting their money on the table) they would be able to effect policy, they were mistaken. The reality appears to be that the money under (and around) the table is what is important. What do I mean?

Google had a pretty strong lobby at ~$4.6 Billion, but that is really not that much compared to the lobby of AT&T. A telecom giant in existence for over 100 years with major subsidiaries employing politicians’ constituents in tens of states and contributing large amounts of money to finance those politicians campaigns.
http://blogs.zdnet.com/ip-telephony/?p=913&part=rss&tag=feed&subj=zdblog

$4.6B might seem like a lot to the FCC, but getting reelected and while still expected to bring $15B from the entire auction speaks more loudly. Google participates in campaign finance too, but just not as well as AT&T. The role of campaign finance is another story for another day. Does campaign finance reform infringe on freedom of speech as the Supreme Court says it does? Even if it does, is it fair for citizens’ constitution-granted vote to be distorted by the economic inequalities of the day?

Overall, the FCC’s policy on the auction does not spell death for Google. As outlined in CommTech 3, it definitely does make it harder and more costly for them to maintain their preeminence in the internet application market. They will have to pay the profit-extracting fast-access tolls to maybe hold on to their market share.

Yes, the FCC decision means more business competition for Google, but it’s competition from the wrong end. Rather than perpetually competing with entrepreneurial web innovators for their market share, Google will be competing against the already supremely-rich and dominating Murdoch and company media empires.
http://www.freepress.net/press/release.php?id=261
http://www.forbes.com/feeds/ap/2007/08/01/ap3978338.html
http://www.techcrunch.com/2007/07/22/the-fcc-needs-to-listen-to-google/