By Seth Richardson
Imagine this: The Food and Drug administration issues new regulations that will supposedly protect citizens from the economic disaster of having only a McDonald’s hamburger stand in their community. These regulations require that in order to provide “fast-food neutrality” all McDonald’s chain stores are required by law to vend hamburgers delivered to it’s stores by Burger King.
Moreover, the regulations require that McDonald’s sell the Burger King burgers at the price that Burger King sets, not at the same price McDonald’s charges for their product.
Burger King can now close down all it’s stores and simply ship pre-made burgers to McDonald’s outlets. This will save Burger King billions in expenses for things like real estate, buildings, employees, et cetera. Instead, they can assemble burgers on a production line in Mexico or China and ship them in bulk in a fleet of trucks, which are way cheaper than building brick-and-mortar stores all over the country.
So, Burger King can then set the price for their burgers far below the price McDonald’s can sell them for, and McDonald’s will be forced to vend the burgers for Burger King.
Does anyone fail to understand the natural, though unintended consequences of burdening McDonald’s with vending Burger King products that Burger King can supply at a fraction of the cost because it need not create the parallel infrastructure of Burger King stores full of employees?
For those that might not get it, the result is that McDonald’s will soon go out of business because it cannot compete with a rival that not only gets to use McDonald’s pre-existing infrastructure investment to vend its product, but that does not have to build its own infrastructure in order to access consumers., and can sell it’s products at a much lower price. Pretty quickly, nobody has ANY hamburgers.
This fiction is exactly what “net neutrality” regulations promulgated by the FCC do to companies like Comcast. The regulations will require Comcast to accept and deliver content from competitors, like Netflix, at a much lower price than Comcast can charge for the very same movie.
Netflix sells movies. Comcast sells movies. That’s fair competition, or so people think. The problem is that Comcast has invested billions of dollars building the infrastructure to deliver it’s products to its customers. Real infrastructure consisting of millions of miles of cables, wires, optical fiber, computers, routers and all manner of durable installations that allow Comcast to deliver digital data to its subscribers. In order to make a profit, it has to price its products sufficiently high to recover the cost of that investment in infrastructure.
Netflix, on the other hand, hasn’t spent a dime on such “final mile” infrastructure, much less interstate and intercontinental data backbone infrastructure. Netflix just buys the right to market movies and owns a bunch of servers and storage connected to the Internet. Netflix doesn’t have the costs associated with building all that network infrastructure to pay for, so it can charge far less for its products than Comcast.
Those who support “net neutrality” (through the brute force expedient of FCC regulations) are demanding that Comcast (McDonald’s) deliver Netflix’s (Burger King’s) products, even though doing so damages Comcast’s ability to pay for the infrastructure it developed and installed, much less make a profit.
That’s not only grossly unfair, it’s flatly unconstitutional and bad business practice. Comcast has a right to restrict who uses their infrastructure to deliver competing products. If Netflix wants to deliver movies to its customers, then it should either build its own network infrastructure, at its own expense, or it should pay Comcast what Comcast asks for the use of its infrastructure.
By the same token, Comcast should be under no obligation to deliver a directly competing product merely because it has a dominant marketing position in any particular area, any more than McDonald’s should be required to vend Burger King products merely because Burger King has decided not to open a local outlet in a particular region.
What the FCC has done is to seize the private property rights of Comcast and other internet service providers for the ostensible benefit of consumers, which is a violation of the Fourth Amendment proscription on taking private property for public use without just compensation.
This “net neutrality” regulation must, and likely will be tossed out… again… by the Supreme Court. And it should be. Because if it’s not, Comcast and other similar companies will go out of business, and everyone’s Internet access will be degraded or eliminated.
Remember, Comcast has invested billions in creating “final mile” infrastructure. If they go out of business, tens of millions of people will instantly lose connectivity to the Internet entirely, because Comcast is under no obligation to let anyone else use their infrastructure, or even keep it maintained.
So, “net neutrality” supporters, be careful what you wish for, and give some serious consideration to the unintended consequences of your position.
© 2010 Altnews
j joshua beistle…
[...]FCC “net neutrality” regs are unconstitutional… and dangerous – The Broadside : Colorado Springs Gazette, CO[...]…
Mr. Richardson -
I agree completely with your analogy in hamburger distribution, but remain a little unsettled with the ability of large distribution systems to selectively route packets based on quality of service metrics, which I view as an argument against the monopolistic power of large infrastructure providers. I offer either King Soopers or Walmart as an analogous example. Both retail outlets (and distribution systems) limit the access to product by placement agreements with large suppliers/distributors. With these in place, it might be difficult to find boutique potato chips not provided by PepsiCo. Currently, I have the choice to go the my local health food store for the product of my choice without paying a toll for use of the road to get there (or not being restricted to driving on only dirt roads, or riding a bicycle).
I remain too ignorant of the current state of data routing (telco’s vs. strict packet switching) to weigh the level of infrastructure paid for by the public through telecom taxes over the last century, but I do know that at one time most of the internet traffic used infrastructure that I helped pay for (much like a road).
That being so, I would have issues paying a QOS premium to a service provider for access to the backbone that I helped fund (not by choice), BTW – I do choose to use ISP’s not associated with telco’s or Comcast, and paid for the hardware to get it. I would be interested in your opinion on achieving balance. Perhaps it’s better to write off the investment already made in favor of less intrusion now, and take it as a lesson learned.
I understand your concern, but cannot support the implicit logic. The fact that Wal-Mart does not carry your favorite brand of boutique chips is nobody’s problem but your own…and perhaps the boutique chip-maker’s. The free market deals with such issues quite nicely. If your boutique chips are good enough, they will become popular, and Wal-Mart will start carrying them. Or not.
None of which provides any rationale for the government to intrude and try to force Wal-Mart to carry your favorite kind of chips.
Mr. Richardson -
I agree with the availability of the products being my problem, and that a market based system would allow for this to self correct. However, my concern centers on the infrastructure itself. In my example, this would be the road used to reach my store – in the internet world, this would be the interconnected grid of carriers (both time-domain and packet) that I helped put in place.
I have no desire to force Walmart to carry anything – but I dang sure dont want to be forced to pay a QOS premium to Walmart to be allowed access to an alternative.
If the associated costs of network access are built in to a product, and can be seen and choice made – great. Looking at my current telephone bill (both cell and traditional telco), I am still being charged for providing access to services and capabilities I dont want, and probably will never need. These charges are unrelated to my use of the product – other than my connection to the network.
Tell me where we have unrestricted, market based commerce outside of perhaps the farmers’ market down the street?
Well, let’s use the transportation metaphor to analyze the issue. It’s a good one.
Net neutrality is pretty much identical to the government mandating that your boutique chips travel by the fastest available carrier/mode of transportation on the premise that it’s unfair that Lay’s Potato Chips, which sells millions more units than your preferred company does, has a faster, better, more efficient, less costly transportation and delivery network for it’s product.
Worse yet, it’s the government telling Lay’s that it is required to carry your boutique potato chips on their trucks and deliver the competing product as quickly and efficiently as they deliver their own product.
And when it comes to Wal-Mart, it’s the equivalent of the government demanding that Wal-Mart too carry an unprofitable niche brand of chips because the government has determined that Lay’s has “too much market share.”
Why on earth, in a free market, should you NOT be asked to pay a premium “access fee” to have your local Wal-Mart carry your favorite brand of chips? Your “access to an alternative” is not forced upon you, all you have to do is go to Walgreens or King Soopers to buy whichever brand of chips they offer.
Let’s extend the transportation analogy just a bit to bring it closer to the reality of internet service. Let’s suppose that the various department stores and grocery stores in your area offer home delivery service for your chips.
Is there any logical reason why your desire to order chips from Wal-Mart and have them deliver them should impose on Wal-Mart an obligation to transport goods from King Soopers? Shouldn’t you just contact King Soopers and have them deliver their products, and allow Wal-Mart to only deliver its products?
“Ah, but in my metaphor, Wal-Mart owns the street that leads to my door and will not let King Soopers use it for delivery without paying a fee!” you say.
Fair enough, it is true that Comcast owns the “final mile” of wire that leads into your house, and it wants to charge for the use of it’s wires to deliver Netflix (a competitor) products.
My answer is, “So what? It’s Comcast’s wire, or Wal-Mart’s road. They built it, they invested the money in installing the infrastructure of product delivery, and they have every right to charge someone for the use of it’s wires/roads to deliver competing products.”
It’s not Comcast’s fault that you prefer not to obtain DSL service from some other provider, or that you prefer not to install satellite-based or cell-phone based internet service.
You want to use their cables for your convenience. That’s fine, but when you use their cables, you get their products for the contract price. If you want to use their cables to deliver a competitor’s product, which is detrimental to Comcast’s financial interests, there is absolutely no reason you should not pay extra for that.
The alternative is that Comcast can, and should, completely block your access to anything that Comcast does not itself vend, in order to protect both their profitability and their wholly-owned infrastructure. That’s going backwards in network access, isn’t it?
What you want is something for nothing. You want Comcast to allow you to obtain competing digital products over it’s owned infrastructure without having to pay for it. But Comcast’s cables don’t belong to you, do they?
If you don’t like the conditions Comcast places on it’s infrastructure usage, then don’t use their infrastructure. Find another way to connect to the internet that better suits your needs. There are many.
You do NOT have a valid analogy. COMCAST is a legalized monopoly in the areas where it is at. If there was a law allowing McDonald’s to have stores in an area but preventing Burger King, then it would be very reasonable to have a fast food neutrality law. NETFLIX does not have the authority to lay cable lines across COMCAST’s lines to provide its service to every house (even though the land it is on is NOT owned by COMCAST, but the homeowners).
You have a point in areas where Comcast has a government exclusive franchise, but at the same time, that franchise also gives the local government the authority to control not just the rates, but the operating practices of Comcast. Usually these franchises are set up to prevent the proliferation of cables and wires on poles, which in the early days of telecommunications and electrical service resulted in webs of wires in the air over streets that blocked the sky, caused fires, and electrocuted people in places like New York City and Chicago.
But with improvements in underground installations, the nature of exclusive franchises has changed substantially in most places, and there are generally other options available.
Therefore, if you live in an area where Comcast has the franchise for cable-based internet, you can petition your government to control how Comcast controls access to their network, or you can find another portal method from a competitor. This is a reasonable compromise under such circumstances.
But, in fact, in most places Comcast does NOT have a “monopoly” or anything like it.
The fact is that while Comcast may have an exclusive cable franchise agreement, it does NOT control the availability of DSL service, or satellite-based internet service, or cell-phone based internet service.
So long as there are ANY alternatives available, Comcast does not have a monopoly.
So, while your statement has limited validity, it still does not impeach the fundamental free market principles I’ve been espousing.
But thank you for bringing it up, because I was wondering when someone would point this particular quirk out.
I think as a matter of policy, net neutrality is important. Is it unconstitutional? No. If free access to media outlets was a constitutional right, then talk radio would have a diversity of voices. On radio, it is ratings (i.e. $$$) that decides who speaks and who does not. Internet companies argue that they should be able to charge more for websites that use the most bandwith in order to finance upgrades to the internet. From a Conservative economic point of view, that’s reasonable. So how should internet improvements be financed? Government aid??
You are correct that on radio, it’s the AUDIENCE that decides the economic winners and losers. Air America had a perfectly “neutral” opportunity to find an audience, and instead it failed miserably. This was not because the government meddled to suppress the ability of Limbaugh to draw an audience, but because the message Air America was putting out did not attract customers. Free market economics at work.
Internet improvements should be financed by the free market, which is how it came to be what it is today.
I’m a bit confused now as to why you think net neutrality is “important,” and why you don’t think that taking the property of one and giving it to another without their consent is unconstitutional. Could you elucidate?
When I think of “free speech” I don’t think of user fee speech. The Founders, in their day, guaranteed freedom of expression to anyone who had the ability to print flyers, make posters, or speak above the crowd in a public place. The Net has become the modern-day equivalent of the park soapbox and all of the above. In fact, the Founders would find many blogs quite similar to the unsigned flyers that attacked them viciously in the early days of the Republic. Most of us cannot afford a radio station or a network of stations — as Air America found out (although individual liberal voices, like Ed Schultz and Rachel Maddow did quite well). Cheap and available to all, the internet serves as an important outlet for expression not just in the US, but in nations that would prefer to restrict the soapbox. In fact, the greatest chance for introducing democratic reform in places like Iran and China is the internet. Making the net available only to those who can afford it would chill freedom of expression everywhere. Then you will see that special interests will control internet access and limit how it can be used by the rest of us.
Dangerous. LOL. Bogeymen of your own mind, Seth.
Yup, dangerous. Allowing the FCC to take regulatory control of the Internet is extremely dangerous to First Amendment freedoms. Government always abuses its authority, particularly when it seizes that authority without any constitutional basis or congressional authority for doing so.
The short-sightedness of the “I want my Netflix” crowd is astonishing, and just goes to show how deluded and ignorant the dumbed-down, indoctrinated, propagandized proletarians are.
Sad, really.