Concerns about monopoly power in communications and commerce predate the telephone, and we can learn much from history.

by Alex Goldman ISP-Planet Managing Editor [April 17, 2006]

Tim Wu, professor at Columbia Law School and co-author of Who Controls the Internet?, said that concerns about monopoly power and the internet have a long history.

He said that when the telegraph came into operation, it reduced latency from days to hours. At the time, the telegraph was particularly important to newspapers. Western Union, Wu said, gave the Associated Press an exclusive deal to use its network, in return for which the AP agreed to never criticize Western Union or support its competitors.

The effects of this early network discrimination were political as well as economic. "The AP was close to the Republican party of its time, and its strategy was to support the Republican party, which was a different Republican party than today" Wu said.

"The AP did not offer biased news. Instead, it did not offer news about the Democrats for about 20 years."

"The high point of this strategy was during the presidential election of 1876. Although the Democrats had won the popular vote, they made it known through the wire service that they were concerned about the results of the election. The Republican party contested elections in Florida, South Carolina, and Louisiana. Throughout the process, Western Union leaked Democrat memos to the Republican party. It's not well known, the role that a network monopoly played in this election."

Monopoly regulation has a long history
Common carriage is the duty of the phone networks to carry all calls, but the duty goes back a long way. Taking, perhaps, a page out of the work of his colleague Eli Noam (see The Impending Doom of Common Carriage), Wu noted that although common carriage is now a key part of telecommunications law and monopoly regulation, it originally had nothing to do with market power and everything to do with the public duty due certain public actors.

"For example, a sea port cannot give preference to one kind of ship over another. Imagine streets working better for Ford cars than for cars made by GM or Toyota. Common carriage is a powerful intuition and it's right. It applies to actors who are inputs into other parts of the economy. If they are valuable as inputs into other businesses, then the more they are allowed to distort the market, the worse it is for the national economy."

Any company making unusual profits in a regulated industry, such as oil and gas, can distort the economy, not just telecommunications.

Of course, not every company with monopoly power exercises it. "Some companies realize that neutrality makes the most money."

Some companies do choose to not exercise whatever pricing power they have. "But there are well known ways in which companies do not behave in a neutral way. For example, in the 1950s and 1960s, it was probably in the interest of hotel owners to serve black people as well as white people, but for various complex reasons, they weren't serving black people. This was not only bad as in morally wrong, it was also bad for the economy. The Supreme Court decisions ending discrimination depend on equal protection, but also on the commerce clause, on the idea that neutral commerce is important for the economy."

Bell regulations
History shows that regulating monopolies produces unexpected benefits. "The Bell company was forbidden from banning devices from the network," Wu noted.

This rule was the result of the Hush-A-Phone case, decided in 1956. While the initial case simply allowed a company to manufacture an attachment to a phone handset that would physically block noise, the rule that any device was allowed on the network lead directly to the fax machine and the internet.

The present day
Today, even applications can be built on an open platform. Google makes it easy to program, for example, a link that searches for all articles on ISP-Planet on the topic of net neutrality, showing 100 results per page.

But the Bells fear applications and devices and want to harness and restrict them. "The FCC concedes that blocking is anti-competitive and bad," said Wu. "A few years ago, the cable companies were sending notices to customers forbidding the use of VPNs. The initial AT&T user agreement said that the use of Wi-Fi cold be a Federal crime."

The threat today is a two-tier internet. "We see no problem with charging users for different amounts of bandwidth," said Wu. "The problem is what happens when one auction site works better than another on the network. The best kind of discrimination is made by the consumer only."

The Bells are already allocating bandwidth. "AT&T Lightspeed is advertised as 25 Mbps, but 19 Mbps is reserved for television whether or not you order it. Sure, you have 6 Mbps left for the internet, but there are preferential service agreements within that. It's ridiculous, the idea that 76 percent of the future is TV! Well, people dig their own graves. The best approach, even for the companies themselves, would be to give out neutral bandwidth. A requirement that they do so would be saving them from themselves. Technology changes quickly, but business practices change slowly."

Wu advocated a proposal echoed by Rick Boucher, that if preference was given to anyone, it should be required to be given to everyone, known as Most Favored Nation status, a term that dates back to the nineteenth century behvior of mercantile nations in China.

— End