A Response to the "Post Office" Analogy

A fairly common argument against net neutrality comes in the form of a "post office" analogy.  It was raised in response to one of my posts at IP Democracy and I did my best to explain why it is a misleading analogy as usually presented.  
http://www.ipdemocracy.com/archives/0015 39more_on_trust_politics_internet_policy .php
I thought some MyDD readers might find this exchange useful if they encounter the "post office" argument or some variation on it.  Here's the form it took in an IPD comment, followed by my response to it.

"As long as the telcos ensure that the baseline data transfer rate does not suffer, I have no more problem with them offering tiered service as I do with the post office offering standard and priority mail." I think this is a great analogy and one worth really talking about.

My reply:

Thanks for highlighting the post office analogy.  It's an important one to address.  Though it seems to apply on first blush, I believe there are several important differences that make it not very relevant, at least in the simple form typically presented by opponents of network neutrality.

First of all, the post office is a government entity controlled by Congress through a democratic political process.  This is not the case for cable and telephone companies which, in fact, have attempted to block most attempts by local governments to build open-access fiber optic networks that could offer an  alternative path to the Internet.  

Probably more important is the fact that in the postal/shipping market there are a number of players, including the publicly-controlled post office and a number of private companies that compete with the post office and each other.  In the mass market broadband access space, it's pretty much only two players and, in some areas, only one (check the FCC's broadband competition reports if you don't believe me and keep in mind that their methodology overstates broadband availability).

The anti-competitive dangers of this lack of market providers is made much greater in the broadband access market because the access providers are also providers of most types of services delivered on their networks, either directly (e.g., VoIP, operator-owned video channels, web portals) or as "packagers" (basic and premium cable, VOD).  

So, to apply the postal example to broadband access, a more appropriate analogy would be to assume that there are two (and in some neighborhoods only one) delivery service, none of which is subject to democratic control by the public and which, in light of the lack of providers, also lack the competition-driven market discipline we see in the shipping market.  And, further, we'd need to assume that the two shipping companies were also large general purpose retailers--maybe Wal Mart as one player and Target or one of the nation's top supermarket chains as the other.  To complete the analogy, we might also assume that these companies also have financial interests in some large manufacturing plants that produce some of the products sold in their stores.

In this more realistic analogy, the integrated shipper-retailer-manufacturer duopolists would have strong incentives to develop pricing and service structures that favor their own products and services and optimize their internal economics at the expense of healthy competition and consumer choice.  In fact, they'd be considered negligent by shareholders if they did anything less.

One simple way to do this would be to, over time, increase the relative price and decrease the relative value of the "open Internet" (or in the shipping case, the "regular mail" service), and to package more and more services and bandwidth in their "private network" offerings.  In the postal version of this, Wal-Mart/Fedex  and Target/UPS might offer $5 discounts on express shipping if you bought your toaster from them, which would make the total price of these toasters cheaper than other competitors' toasters.  Over time, this would be tend toward a duopoly in the manufacture and sale of toasters and other products and services sold by these two companies, since competitors could not match their prices and still make an acceptable profit.

Another major gap in the simple postal analogy is that in the broadband access market, the end-users are already paying a substantial monthly price for access to the Internet.  This is not the case with the postal service or private freight companies.  

A more appropriate analogy might be to roads, where we pay (in this case through taxes) to have a certain grade of road pass our homes and can therefore expect that our vehicle and other vehicles can freely travel on that road.  How would you feel if, after paying to have local roads built, a private company (the one you and your neighbors paid to build the road) installed a toll booth at the entrance to your neighborhood or at the end of your block where it would charge drivers a fee to get to your home?

To refine the analogy a bit, let's assume that, after being paid by homeowners to build the road, Wal-Mart/Fedex and Target/UPS decided to maintain one lane particularly well and the other lane hardly at all, and allowed their own trucks to deliver their own products for free in the well-maintained lane, with other company's products and trucks having to either pay them to use that lane or be relegated to the poorly-maintained lane.  

Another, perhaps more accurate, version of this would be if Wal-Mart/Fedex and Target/UPS periodically repainted the lines in the road, with one lane expanding for easy and safe maneuvering, while the other lane became so narrow that some trucks (e.g., video content) couldn't pass safely or at all.

To some people, this Wal-Mart/Fedex vs. Target/UPS scenario might not seem like a bad thing.  I'm not one of them.  As I see it, market economies and democracies are in a constant struggle to avoid unhealthy aggregations of power that can cause increasing levels of distortion in the functioning of these two wonderful systems--one that thrives on healthy and vibrant competition, the other on healthy and vibrant debate.  

When each of these systems finds a healthy balance, they mutually support each other in ways that enhance freedom and abundance.  When both get out of balance, they tend to reinforce each other's imbalances, as is the case with "captive regulators" that increasingly do the bidding of companies whose excess market power they're supposed to keep in check, which has the perverse effect of increasing economic distortions.  

I'd argue that this is largely the case in Washington today.  The result is a "slippery slope" that takes us farther and farther away from healthy market competition and healthy democratic processes.

For some people, including me, the open Internet offers an unprecedented opportunity to structurally bolster both systems--in big and important ways, and at a time when such bolstering seems sorely needed.  And, so far, I haven't heard any convincing argument that this Internet-enabled opportunity is not put seriously at risk by a market structure in which vertically-integrated duopoly access providers have clear incentives to stifle the open Internet's growth in order to optimize the value of their private companies.

Tags: net neutrality (all tags)

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