A Message for Susan: Dynamic Markets Make Predictions Hazardous

A Message for Susan: Dynamic Markets Make Predictions Hazardous
November 13, 2013

Randolph J. May

Randolph J. May is President of The Free State Foundation in Potomac, Md. (read full bio)

I was thinking of Susan and her book again this weekend. Yep, that would be Professor Susan Crawford of Benjamin Cardozo School of Law and her book Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age.

I was thinking of Susan because, in catching up on my stack of weekend reading, I came across this recent Wall Street Journal article, "Cutting the Cable Cord and Getting 'Phone TV'"[subscription required]. I'll get back to the article shortly, but first a word about Captive Audience.

As you may know, the whole premise of Professor Crawford's book is that Comcast especially, but other cable operators as well, are monopolies and that, therefore, they should be operated as public utilities. Just like the electric utilities - rate regulation, non-discrimination obligations, and all.

I have discussed Professor Crawford's book in more detail in earlier pieces, including this one,"Captive Audience's Captive Thinking." Please read the entire piece if you haven't done so. But, for my purpose here, I'll just reproduce the way I began the essay:

"Captive Audience" is flawed because Professor Crawford relies on an incorrect - indeed, a hypothesized - view of the communications and information services marketplace to construct the case for monopoly power. And then she offers anachronistic, legacy regulatory measures to remedy the supposed ills that exist in her hypothesized market. In my view, the book more appropriately might have been titled, "Captive Thinking: Viewing Today's Telecom Industry Through An Analog-Era Lens."

The book's central thesis is unmistakably clear: Comcast possesses monopoly power with respect both to the provision of broadband services and the provision of video programming. While less clear, at times it appears Professor Crawford may be making the same monopolistic power claim with regard to Time Warner Cable and other cable operators.

While it doesn't come until the very end of the book, the proposed remedy for this supposed monopolistic power is unmistakably clear as well: "America needs to move to a utility model."

I am confident that if you read, or event skim, Professor Crawford's book, you will see that I have fairly captured the essence of her views. Indeed, on the very first page, she calls Comcast "a monopoly provider of wired high-speed Internet access" and then on page 2 asserts that, as a result of its merger with NBCU, Comcast "would probably make content too expensive for any potential data distributor." By page 53, Professor Crawford has concluded, "cable's advantages eventually became unbeatable."

End of story!

Except of course, it is not the end of the story - because Professor Crawford fails to appreciate the ongoing dynamism of today's digital age communications marketplace, and the capacity of this marketplace to foster competition and consumer choice. Simply put, Professor Crawford'shypothesized view of her hypothesized market, dominated by Comcast and other cable operators, has turned out to be wrong, certainly at least for now and for the foreseeable future.

Recall that Professor Crawford suggests the Comcast - NBCU merger "would probably make content too expensive for any potential competing data distributor." Now back to the WSJ article,"Cutting the Cable Cord and Getting 'Phone TV,'" which begins: "The way things are going 'cable TV' may have to be replaced by 'phone TV.'" It contains lots of figures indicating the extent to which AT&T and Verizon are taking market share away from cable operators against whom they compete. For example, the article reports that, according to recent third quarter results, "[t]he top two cable providers, Comcast Corp. and Time Warner Cable, Inc., shed 435,000 video customers in the quarter, while AT&T and Verizon added 400,000."

According to analyst Craig Moffett, "[t]he third quarter results are a reminder that the biggest threat facing the cable industry is competition from phone companies...."

The article reports that cable executives and analysts contend Verizon and AT&T have largely won market share using discounted pricing and promotional packages. This sounds like marketplace competition to me, and competition that is benefiting consumers.

And AT&T CEO Randall Stephenson is quoted to this effect: "It's going to be a dogfight between us and cable for the next 20 years. They will invest, and they will step up. We will invest. It will go back and forth." This dogfight sounds like marketplace competition to me - indeed, vigorous competition - and competition that is benefiting consumers.

And by the way, in this competitive environment, "they will invest" and "we will invest" are not empty words, but proven reality. According to a recent study by the Progressive Policy Institute, AT&T, Verizon Communications, CenturyLink, Comcast, and Time Warner Cable all ranked in the top twenty of non-financial companies making capital investments in the U.S over the past year. All this investment is the result of marketplace competition, and it is benefiting not only consumers but the nation's economy as well.

Let me be perfectly clear. I don't have a dog in this competitive dogfight. And unlike Professor Crawford, I don't pretend I can predict ultimate winners and losers among the competitors in a dynamic marketplace, or know how the market structure will evolve in the years to come. In any event, it's not my business to predict winners or losers.

But what I do know is this: With the ongoing technological changes and evolving business models and experimentation, the marketplace in which Comcast and other cable providers presently operate is competitive. Of course, by definition, the same is true for the cable operators' competitors, AT&T, Verizon, and all the other broadband providers, including the various wireless and satellite operators.

So, I think it is seriously wrong for Professor Crawford to brand Comcast and other cable operators "monopolies." And it would be a mistake of huge proportions to heed her call to regulate broadband companies as utilities, just like electric power companies, which by and large continue to retain dominant market power. Imposing a utility-like regulatory straight jacket on broadband providers, say, to prohibit experimentation with various usage-based billing plans tailored to the needs of different customers' preferences, is a sure-fire recipe for stifling innovation that benefits consumers and investment that benefits the nation's economy.

I wish I could get Susan to agree that it's no time to let captive thinking premised on a hypothesized market trump the competitive realities of the broadband marketplace. If such thinking ever were to lead to regulating broadband providers as public utilities, rest assured that consumers would be the real losers.

[Originally published on the FSF Blog]

Randolph J. May

Randolph J. May is President of The Free State Foundation in Potomac, Md. (read full bio)