Cell Phone Paternalism

by on April 9, 2011 at 11:39 am in Economics, Web/Tech | Permalink

Believe it or not, a group of civil rights activists is lobbying the FCC to investigate MetroPCS for violating “net neutrality” because they offer cell phone service with and without things like streaming video. According to these groups such plans are a “gross inequity” that is “un-American.”

Here is an excellent response in the Huffington Post by (self-described) lefty David Honig, co-founder of the Minority Media and Telecommunications Council (MMTC):

Do you have a cell phone? How would you like it if the FCC required you to pay an extra $20 a month to get movie downloads, whether you want them not, or to allow your kids to access violent video games or adult content, whether you want them to or not, just so everyone would get what the government considers to be “the full Internet experience?” What if you’re low income, and you’d rather spend that $20 on books? Or warm clothes? Or food?

My friend Malkia Cyril of the Center for Media Justice doesn’t want low income people to have that choice. She says it’s “un-American to give low-income communities substandard Internet service that creates barriers to economic opportunity and democratic engagement.”…

Cyril is making a common mistake among us lefties when it comes to low income people — she is being paternalistic. Those poor poor people. They can’t think for themselves, so the government has to make decisions for them. In this case, Cyril argues, the FCC should outlaw Plan A (and maybe Plan B) and require every carrier to offer only full-menu service like Plan C. All this in the name of “net neutrality.”

If I’ve learned anything from my 45 years working with low income folks, it’s this: they’re intelligent and they’re resourceful. They have to be in order to survive. They don’t appreciate condescension or sloganeering in their name. And they have sense enough to know whether they’d rather use an extra $20 a month for movie downloads or for movie tickets — and would rather get discounts for services they do not want or need.

…What the FCC doesn’t need to do is increase costs for those who can least afford it. As long as there’s full transparency, low income people ought to be able to choose Plan A, B or C. Low income people — the underserved — don’t need the FCC to decide, for them, how they can spend their money.

Bravo. We need more lefties like this.

Addendum: More from Tom Hazlett.

1 John April 9, 2011 at 11:48 am

This doesn’t make sense though. There is nothing objectively different about a streaming video website and accessing the new york times website, except that one requires more data. What happens when someone starts charging $5 dollars a month to go to google?
The point is that you should be able to access any part of the internet equally. If you want people to people to choose the services they want, it should be by the amount of data used, not the specific part of the internet they go to.
Though I do agree that this has nothing to do with being unamerican.

2 Jim April 9, 2011 at 12:52 pm

Data for video on demand is also objectively different from data for newspaper sites, because the former data can be very sensitive to small delays, whereas those delays do not really matter when loading the NY times website. More data and faster data require resources to be provided, so decisions have to be made regarding bandwith of infrastrucutre. What is the socially optimal level of bandwith and infrastructure? It f course depends on preferences of consumers, which may be very heterogeneous. There is no good reason that somebody should pay for bandwith that is mainly used by others.
When your internet provider starts charging 5$ to visit google, you can switch your internet provider to another one with a pricing scheme more aligned to your interests. Competition between providers ensures that users ultimately get pricing, bandwith and speed they want. As long as nondiscriminatory access conditions to the local telephone cables is guaranteed by regulation, the internet providers will ultimately offer that which consumers desire.

3 John April 9, 2011 at 1:06 pm

People aren’t paying for bandwidth that is mainly used by others if they are charged by the amount of data used. If I am paying for a video streaming, and you are restricted to newspapers, we are still using the same network with the same technical specifications. Why should one pay more for the type of site, rather than just the amount of data? Instead, you would pay for 500 mb of data, and I, the video user, would pay for 5 gbs (or whatever amount).
This applies even if there are different networks (ie 2g and 3g). If you only read newspapers on the internet, you could go with the slower 2g network. But this shouldn’t preclude you from using video sites on the 2g network (though it would be abysmally slow). You would just be charged more for having used more data.

4 Cliff April 9, 2011 at 2:04 pm

What does it matter? Let them set up the plans however they want.

5 Jim April 9, 2011 at 2:44 pm

The same telecommunications cables being used by consumers with different preferences regarding bandwith is the source of the problem. Infrastructure provision has high fixed costs, while the marginal cost of serving a costumer is low. The optimal size of the network jointly depends on the quantities demanded by all groups of consumers. However, and this is important, there is no clear rule for allocating the fixed costs of network infrastructure between different consumers. This is because of a) differences in willingness to pay, and b) falling average costs of infrastructure. Regarding willignness to pay, both the willingness to pay for a certain portion of bandwith as well as the willingness to pay for a marginal increase in one’s portion of bandwith are relevant parameters and will differ amongst different groups of consumers.

How to allocate the costs of infrastructure provision amongst heterogeneous consumers is a problem of socially optimal pricing.
Socially optimal pricing schemes do not deter the marginal consumers with low utility from using additional data bandwith, while still covering the costs of the provision of a large network size for those who have the willingess to pay for it. That a price strictly proportional to quantity will be socially optimal seems unlikely, since it fails to take into account user characteristics which are connected to the individual willingness to pay. That we are different people with different preferences is a relevant fact for the economic problem of providing data bandwith and allocating its costs.

If the initial investment decision regarding the size of the network is mainly driven by the consumers with high willingness to pay for large quantities of data, it may or may not be optimal to allocate most of the fixed cost of infrastructure provision to the demanders of high quantities, and offer demanders of low quantities a price nearer to the marginal cost of data supply. Be it as it may, the optimal price differentiation for groups of users with different preferences is a thing which must be discovered by entrepreneurs in the competitive process. If you do not like the pricing scheme your provider offers you, switch providers and give a signal to the competitive process that it is doing something wrong.

6 Ken Rhodes April 9, 2011 at 2:53 pm

Jim, you wrote “The same telecommunications cables being used by consumers with different preferences regarding bandwith is the source of the problem. Infrastructure provision has high fixed costs, while the marginal cost of serving a costumer is low.”

But Jim, that’s not what this topic is about. It’s about cell phones, where the infrastructure is already in place and the bandwidth is the resource in question.

7 Ben April 10, 2011 at 8:12 pm

> When your internet provider starts charging 5$ to visit google, you can switch your internet provider to another one with a pricing scheme more aligned to your interests.

No, you can’t. You apparently aren’t familiar with the way the Internet is structured. There are 7 so-called Tier-1 ISPs. All other ISPs have to pay the Tier-1 ISPs to connect to their networks. So if the Tier-1s decide they want to charge the smaller ISPs $5 for every person who accesses Google from their network, they have no choice but to pass that on to you. That’s what happened in Canada before the government stepped in. It may seem like you have a lot of choice, but you maybe have 3 independent ISPs in the area.

8 q April 9, 2011 at 1:33 pm

“There is nothing objectively different about a streaming video website and accessing the new york times website, except that one requires more data.”

There’s nothing objectively different between you and I except that we’re different people. Now, the problem with your approach of charging people based on the amount of data used is that this is likely to raise more ire.

9 Slocum April 9, 2011 at 8:29 pm

But people who stream video have much heavier usage patterns than people who don’t. So a company can afford to offer unlimited data plans that don’t include video for less than ones that do. Nothing mysterious about that. And even in the case where the plan isn’t unlimited but has a 3G or 5G cap, still, the streaming video user will tend to consume more of his monthly allotment so, again, you can offer a no-video data plan cheaper.

10 Yancey Ward April 9, 2011 at 11:49 am

Ah, but would he be willing to extend this basic principle into other areas of commerce? For some reason, I doubt it.

11 Tomasz Wegrzanowski April 9, 2011 at 12:11 pm

You don’t get it at all.

It doesn’t cost the ISP anything extra, they just do this to discriminate against some people.

12 Hasdrubal April 9, 2011 at 5:26 pm

How sure are you of the technology? Remember that this is 2G cellular technology, it’s low speed shared media, designed only to carry voice.

As I network engineer I have to deal with trying to get streaming voice, video, bulk data and time sensitive data across the network. It’s hard enough to get these to play together across a corporate WAN. Trying to get Internet connectivity, including streaming video, to run across a cell network at a fraction of the speed is not trivial. I don’t deal with cellular technology, but they’re under much tighter constraints I am and there’s no way I would blithely say adding an entire new class of application to my network would be feasible or costless.

Furthermore, it’s shared media, like old ethernet hubs: When one device is talking, no others are able to talk on that channel. Their hardware is almost certainly designed to support voice traffic, if you start adding heavy Internet traffic you’re probably going to run into situations where the primary product, phone service, is degraded. Quality of service cannot prevent collisions.

All this can certainly add significant monetary costs, there is a reason why data plans are more expensive than voice only plans. Then there are the reputation costs from people thinking you offer a bad service because you’ve pushed your network beyond what you designed it to do.

13 David Welker April 9, 2011 at 12:17 pm

I don’t know what “lefties” are. But I assume they are Democrats or liberals.

However, I do know this. The vast majority of Democrats and liberals would not support forcing people to sign up for more expensive cell phone service than they want or need.

I think the fact that Alex Tabarrok’s suggestion that we need more “lefties” like David Honig proves that he in fact knows very little about the real priorities of liberals and Democrats. We are not stupid, okay?

Do liberals believe people need regulation in order to protect them from being taken advantage of in extremely complex contracts? Yes. Do liberals believe they need regulation so that they are forced to by services that they can’t afford and don’t need? No. Do liberals believe that the government has a role in expanding internet access to underserved communities and also encouraging the development of even faster internet for everyone? Yes.

If you want to criticize liberals, then you should at least actually understand their policy preferences and what sorts of views are mainstream among liberals and which sort are not. That Alex Tabarrok thinks there is a shortage of Democrats and liberals who would disagree with the idea of forcing people to buy internet service they cannot afford and do not need shows that he has a high level of ignorance about what typical Democrats and liberals actually believe.

14 Rich Berger April 9, 2011 at 4:14 pm

Alex

Didn’t you get the message? The lefties are good. They are progressive, therefore anything they believe or advocate is right and good. Don’t criticize them.

15 David Welker April 9, 2011 at 4:41 pm

Actually, the message is not to pick people who have ridiculous ideas (and forcing people to select a more expensive cell phone service than they want or need is a ridiculous idea) and then label them as “lefty” and wish there were more “lefties” out there who would disagree with the idea.

The equivalent would be a liberal who says:
“Alex Tabarrok is against coercive sex trafficking. We need more libertarians like this.”

Well, actually, the vast majority of libertarians ARE against coercive sex trafficking. Libertarians may tend to be unrealistic and excessively idealistic, but they usually are not evil. Making a statement that implies a shortage of non-evil libertarians would show a lack of understanding of what actual libertarians believe.

16 Slocum April 9, 2011 at 8:38 pm

We don’t seem to have had to look to far for lefties who think the government should regulate the cheaper, restricted MetroPCS data plans out of existence. They showed up an expressed that view on their own.

17 John April 10, 2011 at 10:09 am

David, are you saying David Honig doesn’t have the required credentials for criticizing Malkia Cyril’s proposal or that he’s misrepresenting her proposal?

18 Brian G. April 10, 2011 at 9:50 pm

Yes, liberals do believe in making people pay for things they don’t need. What do you think Obamacare is? What do you think mandatory insurance requirements are?

Did you not read any of the comments on the Huffpo piece?

19 Komori April 9, 2011 at 12:25 pm

As John says, bits are bits. It doesn’t cost MetroPCS any more to deliver video bits than web page or music or whatever bits. The only reason to charge more for one than the other is to allow MetroPCS to pad their revenue stream (charging more for delivering more bits is fine, though, since there is a non-zero cost to providing more).

As a libertarian, I’m not particularly fond of saying the government should be allowed to tell companies how to run their businesses. However, in this case, as well as with wired internet providers, government rules have guaranteed a small oligopoly of providers. They’ve long used this market control to push prices up and services down in a way they wouldn’t be able to do in a realm of real competition. It’s only gotten worse as they’ve branched out in to other content providing areas like video, and they’ve started to make moves to charge more for other people’s video bits than other bits to push people into using their bundled services. Given the above, I’m very much in favor of network neutrality, which is simply that providers have to treat all bits equally, and I’m highly disappointed by the rhetoric the Republicans have been spouting on the issue.

20 Ken Rhodes April 9, 2011 at 3:01 pm

“As John says, bits are bits. It doesn’t cost MetroPCS any more to deliver video bits than web page or music or whatever bits.”

Wrong. Video delivered in stacatto bursts interspersed with blank spaces is unwatchable. Website page loads (and downloads) are just fine having to share bandwidth. PCS is not fiber optic cable. A continuous stream has to be packetized, broadcasted, received, and reassembled. It’s much more expensive for the provider to guarantee a smooth stream at a high rate.

21 Liye Zhang April 9, 2011 at 3:38 pm

Buffering is hardly new technology.

22 Dan Weber April 11, 2011 at 6:07 pm

But there are still limits to how much lag a video can get before it breaks.

Two extremes are downloading an ISO and using VOIP. The former can easily handle many gaps and pauses without any affect on user experience, and uses a lot of bits. The latter needs a very short latency, but doesn’t need that much bandwidth.

If you say “bits and bits” you are screwing over VOIP, which uses much less bandwidth but might need priority on busy pipes.

23 Ben April 10, 2011 at 8:14 pm

So is the plan that includes video guaranteed lower-latency or higher bandwidth than the cheaper plan? Or is it the same exact speed with the same exact latency except that they want to charge you more for it?

24 apostate April 9, 2011 at 12:31 pm

Where do people get this idea? Of course it costs them more. Streaming video takes up more bandwidth. If you use more of a product don’t you expect to have to pay for it?

25 david April 9, 2011 at 12:47 pm

MetroPCS wants to price-discriminate over the type of media, not merely the bandwidth used.

Net neutrality is essentially just opposition to a certain kind price discrimination; this matters because network effects make or break advancements on the web.

26 Jim April 9, 2011 at 1:14 pm

Because of falling average costs of telcom infrastructure provision, price differentiation may actually benefit consumers (as long as competition is guaranteed). Suppose there was a uniform price for internet access which didn’t depend on data quantity or other variables: because the marginal costs of infrastructure provision are lower than the uniform access price, some consumers which could be served at a price above the marginal cost of provision will not be served. There is a dead weight loss, too little internet is provided. Price differentiation allows the quantity provided to be expanded, because additional consumers who derive low marginal utility from internet access can be served at a lower than average marginal price, while still satisfying the preferences of consumers with a high willingness to pay for large bandwith.

Such price differentiation can be made through many different ways: by multipart tariffs dependent on quantity, or by differentiation between different user groups with different income or marginal utility from internet access. As long as there is actual or potential competition between internet providers, such price differentiation is not harmful to consumers. Consumers who do not like a certain pricing scheme can switch providers, and providers are driven by competitive pressures to discover the best way to allocate the fixed costs of infrastructure which causes the least dead-weight loss (i.e. does not deter the marginal consumer while allowing to supply the consumers preferences for lots of bandwith and a high willingness to pay).

The key problem is guaranteeing openness to actual and potential competition in the market of internet provision. There only is a monopoly problem in the local cable network, it is a monopolistic bottleneck with falling average costs and large sunk costs of investment. By regulating nondiscriminatory access of competitors to a company’s local cable network, competition can be guaranteed. Competition is the best safeguard against unwarranted discrimination. It guarantees that where price discrimination does occur, it will reflect the diverse preferences of consumers.

27 david April 10, 2011 at 9:02 am

Price discrimination over bandwidth is fine, for the reasons you mention. Price discrimination over destination (or media type as a proxy for destination) is not; it doesn’t impose any different costs on the provider. Its use in an open market is itself evidence of monopolistic pricing (possibly natural or regulatory monopoly, but monopoly regardless).

28 Anna April 9, 2011 at 3:43 pm

Then for heaven’s sake don’t use MetroPCS and go with a competitor. If a company provides a product no one wants or is disagreeable for whatever reason, then another company is likely to step in to fill the void. People are also free to take the product or not. That’s the market in action. I certainly don’t want the government “fixing” this for me.

29 david April 10, 2011 at 8:59 am

Network effects mean that someone else using an ISP violating net neutrality, makes the Internet worse for me, too.

30 adam April 9, 2011 at 12:33 pm

Repeating what John said, you are paying the company for bandwidth. Why does it matter to the provider which site the bandwidth goes to? It’s just a method of extracting rents from high-value sites. Contra the response, this is making it HARDER for the poor to access the internet as a whole.

31 Hasdrubal April 9, 2011 at 4:57 pm

No, actually, you are buying phone-related services from MetroPCS, not bandwidth. You buy bandwidth from an ISP, you buy phone services from a cell phone company. In order to make their phone services more attractive to customers, MetroPCS kludged (well, convinced Google to do so) together an extra service and added it without charge.

This is identical to a bank offering you a toaster for opening a checking account. The Center for Media Justice is effectively complaining that the bank is only offering Black and Decker toasters, insisting that they either offer customers a choice from every brand of toaster out there or no toaster at all. This isn’t going to end with the bank offering every brand of toaster ever made to customers who open checking accounts, this is going to mean banks just won’t offer toasters.

MetroPCS isn’t going to open up their 2G services to the full Internet, they’re going to take away the free YouTube if the FCC considers it a violation of net neutrality. (For one thing, opening up such a small pipe to the full Internet will mean slow downloads, which will just give them a bad reputation for providing poor service. Secondly, bandwidth is not bandwidth is not bandwidth, there are reasons we took so many years to get from 2G to 3G and ubiquitous Internet connections on phones.) This is literally complaining about getting something free. It’s asinine.

On a side note, you could also file YouTube on a 2G cell phone under “There is no great stagnation.” =)

32 Dan Weber April 11, 2011 at 6:10 pm

What site you are connecting to should be irrelevant. (Although there are weird boundary conditions here — if YouTube pays for bigger pipes, you will seem to get to them faster.)

What kind of traffic you are using does matter. Latency matters a lot for some applications.

33 Stuart April 9, 2011 at 12:48 pm

Read Malkia Cyrils’s comments she believes full internet access on a cell phone is a human right.

“In this new digital era, full Internet access is needed to participate adequately in both our democracy and our economy, so lowering the baseline standard of what is considered minimum Internet access threatens democratic and human rights, and its just plain wrong.”

34 Zach April 9, 2011 at 1:01 pm

Does the license that MetroPCS bought from the FCC mandate that they follow FCC regulations? Does the FCC mandate that carriers adhere to net neutrality? Does this violate the FCC mandate?

These are pretty straightforward questions and not outrageous or believe-it-or-not-worthy. The EM spectrum’s a public good and the FCC can regulate its use as it sees fit. Obviously, there’s a cost to doing so and you can argue whether net neutrality is worthwhile. I’m on the fence on charging the end user for accessing different types of content; obviously it’d be less controversial to just meter bandwidth but I don’t think users have a very good intuition as to how much bandwidth they’re using… look at how the market for other cellular products (voice, text) has migrated from a per-minute/per-text basis to all-you-can-eat plans, and “sending this text will cost me a dime” is a lot more intuitive than “reading CNN.com is worth 2% of a youtube video.”

Seeing as how we’re saturating the spectrum in major cities today (although this could be forestalled by more efficient use), there’s eventually going to be a mechanism that incentives reduced bandwidth consumption. There’s an easy middle ground here: the FCC could permit carriers to discriminate based on the type of content, but not allow them to charge content providers.

35 Emanuele April 9, 2011 at 1:06 pm

Economists should really understand that, sometimes, it’s not all about “free market”.
Net neutrality doesn’t mean “Everyone should have the same connection”. It means that ISP shouldn’t check what I’m looking at. If I transfer 1 thousand bits, you can make me pay for those 1 thousand bits. Wherever I got them. Both if they are 1s and 0s.

If you want to make a contract such that I don’t have enough bandwith to check Youtube, it’s ok. If you want to make a contract in which I can’t go to Youtube, it’s not. In the first case, it’s not distorting the underlying market, in the second it is. And both contracts solve the problem quoted in your post.

If you really want to see it as an economic problem, it’s an easy case of vertical monopoly, considering the connections between ISPs and Websites it’s obviously wellfare reducing to allow such possibility. But it’s not only an economic problem, it’s about standing up against private control of communications. Would you accept a phone contract such that you can’t speak about football? And a contract in which you can speak about football, but not about Patriots?

I would like a minute per day in which all economists repeat out loud that in the real world there are also non economic stuffs.

36 Flop April 9, 2011 at 1:28 pm

Emanuele–

anything that is scarce–whether naturally or artificially–is “economic stuffs” because there isn’t enough of this scarce stuff to give to every person as much as he or she wants. Thus we need to decide how to allocate the scarce stuff, and this is something where economists can make a contribution.

I’d be happy to sign a phone contract that is $x cheaper than the full fledged contract that does not permit me to speak about football–simply because I don’t care about football. If I did, then I would (a) pony up the additional $x, (b) look for an alternative phone carrier, or (c) use an alternative mode of communication where I can discuss football at no additional charge.

The issue is not whether the contract without a particular feature should be cheaper, but whether people are willing to pay more for the contract that includes the particular feature. If they do and if it does not cost the contract carrier anything to supply the extra feature, then the contract carrier receives economic rent. And economists have plenty to say about that.

37 Emanuele April 9, 2011 at 1:51 pm

I think your post is the perfect image of what I’m saying: you are willing to have a private company to make a contract in which you pay less if you don’t speak of an argument, on economic ground.

Without considering that this would mean censorship, it would mean a private control of communication and idea flow. Is a phone company operating below operative costs to be able to move opinions wellfare maximizing? Have you computed the value of being ruled by an oligopoly? The effects on different markets of having a company influencing the government? Have you done all the computations? No, you have said “Well, it’s $x cheaper!”. Brilliant.

You are totally missing the point, it’s not that a contract with one feature should cost more or less. It’s the fact that you have to avoid price discrimination with respect to ideas and needs. You can have the same price discrimination you are saying, fixing a bandwith or fixing a download limit per day.

Btw, I haven’t ever said that economists shouldn’t give an opinion on this: I’m an economist too. What I’ve said, is that there aren’t ONLY economic problems connected with the communication market, there are ALSO political issues. Television is already a mess, deeply intertwined with politics and power. The Net neutrality movement is asking to governments to avoid that Internet goes in the same direction.

38 Cliff April 9, 2011 at 2:10 pm

Are you suggesting it would be illegal for a phone company to offer the plan you discuss? I don’t see why it would be. There is absolutely nothing wrong with a private party restricting communication, since it is 100% voluntary.

39 Emanuele April 9, 2011 at 3:48 pm

On an unrelated news, I now have a worse opinion of my fellow economists. Do you agree also with voluntary slavery? With voluntary organ-selling? I hadn’t a nice opinion to start with, but this conversation amazed me nonetheless.

Just to clarify, I’m not the kind of person saying “It’s not just math, where are human emotions?”. Not at all. I have a PhD in economics, but as a master student I was a Physicist. I’m just pointing to you that this is BAD science: to consider an extreme simplification of the world as the real world and to use a mixture of ideology and cognitive consonance* to pass those results as normative laws, isn’t meaningful science. To believe it is, is just gullibility.

* I think that almost all economic discussions are born just to avoid cognitive dissonance.

40 Flop April 9, 2011 at 3:24 pm

Emanuele–

I think that Alex and Tyler–as well as many readers of this blog–are well aware that politics play a major role in most decisions. That’s why there is the field public choice.

If you are concerned about access to communication, then find a majority consensus for the government to provide a public channel where such communication can take place and that operates in addition to the private channels. If we are willing to finance such a public channel through our taxes, then I don’t see anything wrong with it.

If instead you use government power to interfere with content, then you are likely to see the kind of distortion that Alex emphasizes with this post. If you use government power to set prices, then you are likely to see the kind of distortions that are commonplace in socialist countries, precisely because in general we don’t know exactly how much it actually costs to provide a particular good. If you use government power to provide the good and outlaw private provision, then you make it impossible to check whether the government officials in charge of supply operate efficiently.

If you are concerned that cell-phone carriers have an oligopoly that permits them to extract rents, then make it easier for additional suppliers to enter the market. The additional competition will help to bring down the price of communication to its actual marginal cost.

41 Jamie_NYC April 9, 2011 at 9:51 pm

Emanuele, you are an economist? Wow! This blew my mind.

42 Flop April 10, 2011 at 11:04 am

Emanuele–

I think that Alex and Tyler–as well as many readers of this blog–are well aware that politics play a major role in most decisions. That’s why there is the field public choice.

If you are concerned about access to communication, then find a majority consensus for the government to provide a public channel where such communication can take place and that operates in addition to the private channels. If we are willing to finance such a public channel through our taxes, then I don’t see anything wrong with it.

If instead you use government power to interfere with content, then you are likely to see the kind of distortion that Alex emphasizes with this post. If you use government power to set prices, then you are likely to see the kind of distortions that are commonplace in socialist countries, precisely because in general we don’t know exactly how much it actually costs to provide a particular good. If you use government power to provide the good and outlaw private provision, then you make it impossible to check whether the government officials in charge of supply operate efficiently.

If you are concerned that cell-phone carriers have an oligopoly that permits them to extract rents, then make it easier for additional suppliers to enter the market. The additional competition will help to bring down the price of communication to its actual marginal cost.

43 johndburger April 11, 2011 at 8:00 am

“this would mean censorship”

Wrong. Censorship is when the government does it, private parties can control the content of conversation all they want. For instance, if I said “this blog sucks” they could delete comment.

Re slavery and organ selling, instead of offering up ridiculous exiles with no real argument, how about if you explain why the “no football” contract is illegal?

44 crossofcrimson April 11, 2011 at 1:04 pm

“It means that ISP shouldn’t check what I’m looking at. If I transfer 1 thousand bits, you can make me pay for those 1 thousand bits.”

Curiously, do you think it’s a “discriminatory” practice (in the moral sense) for Taco Bell to offer Pepsi products and not Coca-Cola products? Does that violate your rights?

45 quadrupole April 9, 2011 at 1:23 pm

If they really want to sell cheaper cell phones to low income folks, let them not buy a data plan, or buy a data plan with a cap that stops after hitting it. No net neutrality advocate I’m aware of would object to either.

My preferred solution is this:

1) The network owner has full property rights to their network, and should be able to discriminate against traffic as they please.
2) Network owners who discriminate against traffic are not behaving as common carriers, and loose their common carrier status.

This preserves property rights. But it makes network owners legally responsible for what their network is carrying if they choose to discriminate against traffic. Balance.

46 Dan Weber April 11, 2011 at 6:15 pm

On one hand, I want carriers to be able to discriminate against traffic, because I want to be able to make VOIP calls even if three of my neighbors start BitTorrent.

On the other hand, I don’t want carriers to be able to discriminate against traffic, because I don’t want Time Warner to somehow price VOIP traffic so bad that I need to use their digital telephone service.

47 Anon. April 9, 2011 at 1:54 pm

These are government granted monopolies or oligopolies, often with gigantic subsidies on top of that. They should have the shit regulated out of them. As many above said, bits are bits. This sort of market failure is government-generated, easy to identify, and easy to rectify. You don’t have to be a leftie to think that it should be rectified.

48 Cliff April 9, 2011 at 2:12 pm

How is it a market failure? It doesn’t take a genius to see that capping bits and regulating content received are not the same thing and do not solve the same problem equally. What if you want someone to have unlimited access, but not to use streaming video because that would cause the bandwidth use to go way up? Can’t solve that with a bandwidth cap, can you?

49 Anotherphil April 9, 2011 at 1:56 pm

Cyril is making a common mistake among us lefties when it comes to low income people — she is being paternalistic.

Don’t confuse paternalistic with tyrannical.

50 Lord April 9, 2011 at 3:05 pm

There is a common misconception that the average American consumer spends foolishly with reckless abandon, presumably used to emphasize the speakers frugality and wisdom, but if you actually look at the Fed’s Consumer Expenditure Survey on how people actually do spend their money, they really seems eminently reasonable. I might disagree on how people keep unnecessary debt balances, but lavish gamblers and spenders are notable because of their rarity.

51 Sean P. April 9, 2011 at 3:20 pm

Near as I can tell, MetroPCS’s Internet service plans are the opposite of every other provider’s: instead of letting you do whatever you want but restricting your bandwidth, they let you have all the bandwidth you want but restrict what you can do with it. The result is effectively the same, since the differentiation is still generally based on the total data you use each month. Anyone objecting to this is either ignorant of how the plans work or being purposefully obtuse.

52 andy April 9, 2011 at 3:43 pm

Of course it is discrimination. That’s the only thing you do if you have infrastructure-type goods. But…why do you care? You could always buy the more expensive type of connection that won’t have the content-chack. And, as usually, the ‘more expensive’ type of connection will probably be same price as today, the ‘with-content-check’ is usually meant as discount.

Classical situation – the producer is trying to discriminatory marginal pricing and the government is trying to stop him. The result? Very likely the demand for ‘full-service’ is inelastic, so the producer keeps the higher-priced ‘full-service’.

The article is right: FCC wants to cheap service to poor people – because it ‘doesn’t like discrimination’ and ‘likes net neutrality’. Now that’s an excuse….

53 rluser April 9, 2011 at 3:55 pm

Not all bits are created equal. As Jim points out above, not only does the quantity of bits matter, but the timeliness of the bits matters. The timeliness matters not only in how quickly they are received, but also in the dispersion of their arrival times. Sometimes it doesn’t matter if a few bits never arrive, and other times it matters a great deal.

It is absurd to expect any network to be content agnostic. Consider for a moment messages emanating from a node stating ‘this node is overloaded, find another way.’ These messages need some priority. The FCC recognizes this and provides carve out in its rules for ‘network management.’ This traffic shaping discriminates against types of traffic.

Does it seem unreasonable to shape traffic on a network such that voice over ip (such as skype) is impractical, but downloading and playback of video (such as youtube) is workable? Should another higher price point permit the latter? Does that limit consumer choice?

It seems some think the FCC should prevent an ip provider from entering into an agreement with a content provider to reduce costs and improve service offerings (perhaps a mechanism for one to cache popular content of the other). That stifles innovation.

54 Dan Weber April 11, 2011 at 6:18 pm

It seems some think the FCC should prevent an ip provider from entering into an agreement with a content provider to reduce costs and improve service offerings

How do you differentiate the stifling of innovation between
1) YouTube pays ISPs to upgrade their pipes, and in exchange gets priority, and
2) YouTube builds their own private network so their data centers are close to customers?

55 Steve Crowley April 9, 2011 at 4:54 pm

Ken Rhodes is correct. It costs the operator more to provide 1GB of video streaming than it does 1GB of email. Bits are not bits.

56 Slocum April 9, 2011 at 8:40 pm

Mostly it’s that somebody’s who’s allotted 1G/month for general web browsing and email is unlikely to come close to the limit, while somebody allotted 1G including video is likely to use much more of that 1G per month. From MetroPCS’s perspective, it’s the average usage that matters.

57 Jim April 9, 2011 at 5:42 pm

On the poor:

“They don’t appreciate condescension or sloganeering in their name.”

Damn right. Just hand them money and SHUT THE HELL UP.

Likewise, Egypt.

58 David Backus April 9, 2011 at 8:29 pm

Ask him about healthcare mandates. Obvious analogy, same solution?

59 TGGP April 9, 2011 at 9:27 pm

Cue Robin Hanson on statusful regulation.

60 Neildsmith April 9, 2011 at 9:45 pm

I believe they call lefties like that concern trolls. It’s a shame because we really do need someone to call out such silliness, but alas, it is not well received.

61 Schisma Tism April 9, 2011 at 10:28 pm

A couple of notes:

The cellphone infrastructure as we have it right now, because of the artificial scarcity in available communication bands (the government’s fault), is a completely different animal than the landline infrastructure we have, which is FAR more sufficient for current bandwidth needs. We have more bandwidth potential in landlines than the US is capable of taking advantage of right now with just a few investments from the telecom industry. The thirst for internet consumption in the US shows that they want the internt companies to make it happen.

Using the cellphone industry to explain how net neutrality is a universally bad idea is simply being a bit dishonest. Why?

“Because of falling average costs of telcom infrastructure provision, price differentiation may actually benefit consumers (as long as competition is guaranteed).”

It’s not guaranteed. As a matter of fact, American telecom laws specifically avoid competition in most areas, leaving just one single choice for broadband providers, if at all. Until competition is guaranteed, you have to throw out generalities out the window. Instead of being able to choose the better competitor, you have just one choice, and it’s going to suck.

Even then, this whole issue is being set up completely wrong by Alex Tabarrok and David Honig. There is hardly any competition in most of the US. Considering that, how does one explain or justify a local monopolized ISP doing what Canadian ISP, Rogers, throttling World of Warcraft users? Is that really any benefit to their consumers? It isn’t as if there were any tiers Rogers was offering to avoid this; and it was an honest mistake by Rogers for overzealous attacks against P2P data transmissions. Nevertheless, what you have here is an example of how a lack of net neutrality rules can suppress delivery of a better product by third parties (Blizzard’s use of P2P delivery mechanisms for game upgrades is far superior to the traditional download mechanisms).

It seems like the entire lot of you above keep having this conversation as if we have any semblance of competition in this country. We don’t. If I could simply pick up and choose a different ISP that didn’t throttle my chosen online activity, that’d be one thing. What we have here, instead, if a bunch of economic types talking about their ideal worlds instead of speaking about reality.

62 Flop April 10, 2011 at 1:57 pm

So wouldn’t it seem more promising to end the artificial scarcity in communication bands rather than regulate pricing?

63 Schisma Tism April 11, 2011 at 11:37 am

You go ahead and propose that happens and come back and tell everyone how it goes.

64 mulp April 10, 2011 at 12:30 am

Data is data.

MetroPCS selling manual typewriters would be offering typewriters without the novel writing option, and for a higher price, typewriters with the right to write novels..

65 Andrey April 10, 2011 at 5:03 am

Way to go! There were so many comments from people who actually know this stuff, but you just skipped over them to come up with this crap.

66 Dan Weber April 11, 2011 at 6:20 pm

He does sound like someone who never had a professor tell them to calculate the bandwidth of a station wagon full of DAT tapes.

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