Dana Blankenhorn

The Duopoly Destroying American Competitiveness

For the third time in almost as many years a lightning strike knocked out my Internet service the other day.

It killed the modem, my router, and even destroyed the Ethernet connection inside my PC. Third time in three years.

If I had a real choice I'd dump Comcast in a heartbeat. Would have done it after the last two strikes too.

But like most Americans, I can't. The Bush Administration's FCC and Justice Department have succeeded in turning Internet access into a duopoly, phone and cable. Independent ISPs are gone. This is precisely the opposite of what the Telecommunications Act of 1996 intended. In fact, that act was voided by GOP fiat. This, to my mind, is one of the worst of a litany of crimes for which this Administration will pay at the bar of history, and for which the rest of us will pay for the rest of our lives.

While other nations have competitive Internet markets, a wide choice of providers, and the right of consumers to vote with their mice for the best possible price and conditions, American Internet users have been Sovietized. And it's getting worse. The monopolists are now trying to limit the amount of traffic you can move, and the government (of course) is seeking to monitor what we say online a la China.

But it's the practical aspects of all this which really drive me crazy.

Ending the Duopoly

One interesting fact, told on CNBC this morning, is that while most people are very pessimistic about the current economy most think things will get better in the next year or so.

They will. That's because the present trends are pretty easy to reverse, and once reversed should stay that way. Simply placing a priority on the War Against Oil should enable U.S. demand to fall fairly dramatically. Insulation, grid improvements, and smaller cars driven somewhat less will force oil prices down in the fairly near term, if we are serious about it.

The same is true for the other big economic problem we have, the one no one really talks about. The telecom duopoly. Throughout this decade, just as the Bush Junta has given oil producers a stranglehold over our economy, so he has allowed telecom monopolists to be given the same stranglehold. This was done deliberately, to gain more control over the American people. With "one throat to choke" it's easy to get your demands for data satisfied, assuming you pay the bills. So a policy of fewer Internet providers was in the authoritarians' best interest.

It has been good for the telecoms'. As I've noted here many times, the price of "broadband" has remained stable for a decade, and its definition has not stretched one bit. This despite the improvements in equipment and technology of Moore's Law -- we now have efficient fiber switches, and fibers which can handle hundreds of streams of data at once.

The new way the monopolists seek to screw us is with bandwidth "caps," which have come into effect on all the major networks -- Comcast, Cox, and AT&T, in amazingly short order. This is indeed designed, as Om Malik notes, to force you into keeping your cable TV. While the nominal cost of cable broadband is $50/month it's only available with a viewing package in most areas, and that can come to $80/month or more, even if you're not using pay per view or a service like HBO. The phone company does the same thing. Their broadband also costs $50/month, but they nick you for another $50 (or more) for the phone line, and then add a long distance plan.

The result is that Americans are now paying about $120-150/month for 1.5 Mbps downloads which can only get video clips, while Europeans and Asians pay a fraction of that for lines which can do far more. Innovation is being throttled. It's hard to telecommute on such slow lines, especially if you're in a business where the movement of large files is commonplace. So winning the war against the telecom duopoly is a component in winning the War Against Oil.

Now, here's how we win it.

A Reason to Produce

Think of this as Volume 11, Number 21 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.

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All the economic problems of our time have a single root cause. (Cartoon by Thomas Nast, for Harper's Weekly.)

Whether we're talking about the Internet, about wireless technology, or about energy, the cause is a lack of reason to produce more.

Consider oil, only because it's top of mind. Why should OPEC produce more? Why should any other major producer? Why should these suppliers lift a finger to halt the thefts and corruption which keep oil from the market?

Will they make more money by doing this? No, they won't. Oil is at $130 per barrel and going higher. Add more supply and the price will go down.

The same is true for Internet service and wireless service. Why should the companies which control Internet broadband allow the creation of a "new pipe" in wireless? It would compete with their shared monopoly. Having kept prices for basic broadband at $50/month and higher, these monopolists are now moving to actually raise prices by limiting the number of bits they deliver under those contracts, and preventing the spread of competing technologies.

Why shouldn't they? What is their incentive for investing in their networks to increase the number of bits they deliver? Will they earn more money as a result? No, they won't.

The problem in all these cases is the same. Shared monopolies, or oligopolies. The free competition of capitalism naturally moves markets toward this climax state. Think Coke and Pepsi, or Bud and Miller, or WalMart and Target. A very small number of companies in each market control the bulk of supply, and are thus in a position to set prices. Why do you think it costs over $1 for a can of fizzy water?

While proclaiming the benefits of capitalism and competition, the United States government has been endorsing this principle of oligopoly for most of the last century, and that trend has accelerated during this decade. All that has really happened is that the oil producing nations of the world have figured this out and taken advantage.

So the answer to our economic doldrums is simple. We need to switch from giving people reasons to withhold product from the market and give them reasons to supply it.

The Buried Lede in the McCain-Lobbyist Story

I don't care if he shtupped her. I don't care if he saw her socially. I don't care about the why concerning anything he did. (Find the lobbyist on the page where this picture came from.)

This should not be about John McCain. It should not be about The New York Times.

This should be about us, all of us. Did John McCain serve us well, or serve us poorly?

The buried lede is John McCain's record, as chair of the Senate Commerce Committee, regarding telecommunications issues and media consolidation. The fact is he endorsed monopolization, every step of the way.

Why do you see no more local programming on your TeeVee? Why are all your radio stations canned and controlled in Corpus Christi? Why do you have, at most, two choices for Internet access? Why are your bills going up instead of down?

Media consolidation. And John McCain has endorsed it, enabled it, for a decade now. The why or how is really immaterial.

It's 1938 Over Here

I often decry the call of "Munich" on foreign policy. It's not 1938. Our foreign enemies are not Hitler. They don't have his kind of power, and don't pose his kind of threat.

But domestically, it has been 1938 in this country for a long time, and most Democrats have been Neville Chamberlain before it.

They constantly assume goodwill toward democracy, and to the basic rights of a free society, which Bush, Cheney, and their whole crowd do not share. The Administration uses this assumption of goodwill against them in ways large and small, in their ruthless campaign for absolute power -- not just political power, but personal power, financial power, and judicial power.

It's only the DFHs of the Netroots, the ones called "extreme" by the mainstream press, who are playing Churchill here. They seem easy to dismiss. In the short run, they are. If these people had realized earlier this year they were, in fact, the majority, as they claimed they were, they wouldn't be in this mess.

But let me leave the financial scandals, the power grabs, the planetary destruction and the sick foreign policy for a moment. Let's talk about this in terms of something I know well, the Internet.

The Last Big Endorsement

The fall has been a series of non-endorsements, sort of like the college football season:

• The Netroots primary delivered no endorsement. Edwards leads, but his lead over Barack Obama is so small as to be meaningless.
• Al Gore never made an endorsement. His embrace of Wall Street and Silicon Valley has been so complete he's practically a Republican.

There is one very important endorsement that still might happen, and which could prove decisive.

  The Google Endorsement.

I'm not talking here of some appearance by Eric Schmidt, who has hosted the company's talks with candidates at the company offices. (Ron Paul's interview drew the most interest.) I'm talking about an endorsement by founders Larry Page and/or Sergey Brin.

Such an endorsement would be powerful far beyond the money involved. Because it would be based on Internet Values.

This Week's Clue: Liberate Moore's Law

Following is the essay you can designate as Volume 10, Number 48 of This Week's Clue, based on the e-mail newsletter I have produced since March, 1997. It would be the issue of December 3.

Enjoy.

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When this newsletter launched in 1997 it was called A Clue...to Internet Commerce.

As Internet Commerce became commerce, and as the process of doing business online became standardized, I began looking at other areas to cover and settled upon Moore's Law.

At the start of this decade Moore's Law was racing along on every front, and it seemed there was no way to stop it. So I wrote in my 2002 book. (That's it to the right. The beard is whiter now, but I still have the suit and it fits.)
 

I was wrong. There was a force that could stop many elements of Moore's Law in their tracks.

Politics.

All the People, All the Time

You of course know that famous Abraham Lincoln quote:

"You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time."

To this we must add the George W. Bush corollary:

"If you fool half of the people once in a while that's good enough."

Bush didn't really give us that second quote. That's just the lesson his Administration taught us. And it's a lesson the Right has been systematically teaching for decades now. It's the dark heart of the Nixon Thesis.

Reporters are actually easy to fool. If it's a thick report with a cover page we'll generally repeat what's on the cover page. Easier still, if the boss says "do it this way" that's how it's done. Or they'll find someone else.

The policy debates of this entire last generation were turned into kabuki dances this way. Corporate-funded think tanks replaced independent universities informing Congress. The whole game is so institutionalized now no one even remarks upon it. In fact one of the main goals of the Netroots is to get "our own" think tanks, which will say what we want to hear.

The result is everything becomes Astroturf, and no one really knows anything. The think tanks do as they're told, the policy makers do as the think tanks tell them, and the people funding it all may just be acting on rank prejudice -- or self-interest.

It's the last which is most dangerous to the medium you're now reading, because this process has been adopted by major corporations, and by no corporation so much as the new AT&T.

Google and Microsoft Need Each Other

Google and Microsoft are fierce competitors. Everyone knows that.

Google is out to eat Microsoft's lunch, steal its Office revenue by putting applications online. Microsoft is out to eat Google's lunch, putting Office online, and continuing to grow its own search business.

But these two companies need one another right now. Badly. They need to ally. Now.

The reason for that is power. Political power. Microsoft, Google, Apple and every other tech company is being locked-out of the wireless market by AT&T and Verizon. Those two companies are working hard to extend the same control they exert on wireless to the Internet.

If they win the "net neutrality" fight, the Bell monopolists, who also control most of the Internet backbone,  will do just that. Already, AT&T and Verizon are hoarding bandwidth which Google, Microsoft, Apple and the rest could use to make a ton of money -- far more money than AT&T or Verizon could ever make with it. They're defining huge swaths of their bandwidth as off-limits, defining it as "services" -- video services and phone services which could easily ride on the Internet instead, and would give people dirt-cheap voice service and infinite video choices.

AT&T and Verizon are standing there with a bandwidth hose and kinking it, just like you'd kink a garden hose, so only a trickle of bandwidth comes out to the market. Then they're charging all of us out the wazoo for that trickle, because we need it, because we don't have any choice. It's digital water -- AT&T and Verizon have a monopoly on digital water.

AT&T has already posted new "terms of service" which forbid business customers from even criticizing the company. It's reminiscent of the worst Microsoft abuses from back in the day, but everyone can choose another operating system, a Mac or Linux. Most businesses can't choose another phone company -- they're captives.

The Biggest Lie in Technology

It's a lie that makes my blood boil every time I read it. (This cartoon, by Thomas Nast, is over 110 years old.)

The lie is that the U.S. telecommunications market is competitive, even hyper-competitive.

That lie was told again this week, by the Walt Disney Internet Group, when it announced its MVNO, a re-sale agreement with Sprint, would be closing. (The idiot in charge was engaging in some serious ass-covering.)

This followed similar announcements by Amp'D Mobile and by ESPN, another Disney unit. The only successful MVNO in the U.S. is Virgin Mobile, which is trying to go public in order to pay down its bills.

The plain fact is that the U.S. communications market, wired and wireless, phone, cable and Internet, is an oligopoly with very few participants, and that U.S. consumers have either few or no choices.