The 21st Century Robber Barons

by Dave Schuler on February 24, 2014

The term “robber baron” was coined to describe medieval German nobles who extracted tolls, tariffs, and tithes from passing traffic on the river Rhine. You can still see their castles, built close to the banks, looming over the river. It was later used to describe rapacious industrialists who lined their pockets without adding much value to the detriment of the common good. We have them today, too.

It’s being reported that Netflix has agreed to pay Comcast for access to its network:

Netflix Inc. has agreed to pay Comcast Corp. to ensure Netflix movies and television shows stream smoothly to Comcast customers, a landmark pact that could set a precedent for Netflix’s dealings with other broadband providers, people familiar with the matter said.

In exchange for payment, Netflix will get direct access to Comcast’s broadband network.

The deal comes just 10 days after Comcast agreed to buy Time Warner Cable Inc. The acquisition, if approved, would establish Comcast as by far the dominant provider of broadband in the U.S., serving 32 million households before any divestitures it might make. It also comes amid growing signs that congestion deep in the Internet is causing interruptions for customers trying to stream Netflix movies and TV shows.

or, said another way, the robber baron is now extracting tolls from passing traders. That’s certainly a better outcome than Comcast’s just silently strangling Netflix and, until and unless Congress acts to counteract the Court’s recent rulings or the FCC figures out a way to re-write its regulations to fit within its Congressionally-delegated powers it’s probably the wave of the future.

Comcast didn’t develop the Internet and if it had tried on its own it would have flopped, as so many proprietary networks did. It doesn’t own the Internet but it’s profiting mightily from it. Its power should be limited to the “last mile” and all traffic on the Internet should be treated equally, consistent with the law of common carriers.

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The Colossus of Rhodey
February 27, 2014 at 7:45 am

{ 16 comments… read them below or add one }

TastyBits February 24, 2014 at 8:36 am

When AT&T was broken up, they were forced to allow third party long distance companies to use their infrastructure. This is one solution.

I would prefer a public fiber network parallel to the existing cables. It would be no different than a public highway, but instead of public taxes, the companies would pay for the upkeep. This would give small businesses an opportunity.

If the government is going to piss away money, this would be a good use.

TastyBits February 24, 2014 at 9:55 am

The late 19th century US robber barons were using the government to create and hold their monopolies. From what I have studied, most of them started out playing by the rules, but somewhere along the way they went off track.

In several cases, they were stymied by a corrupt system. The only way forward was to play the game, and the game was corrupt. A few not being able to move forward honestly decided to corrupt the system.

Once a system is corrupt, the only way to win is to play corrupt. Today’s system is rigged, and unfortunately, this taints the honest as well as the dishonest. To pretend otherwise does not help. If those who claim to support capitalism refuse to acknowledge the existing corruption, they too are corrupt.

steve February 24, 2014 at 10:53 am

I have no trouble with the idea of treating traffic equally, but what if the traffic is not equal? Doesnt some form of congestion pricing make sense? (Would be nice to have the level of broadband seen in places like Japan, South Korea and Scandinavian countries.)

Steve

Dave Schuler February 24, 2014 at 11:01 am

Congestion pricing would be better than what the ISPs have been doing which is just silently limiting bandwidth.

The aggravating factor is that our “high-speed Internet” is slower than that of other comparable countries. It’s the entrenched providers (like Comcast) that are keeping us slow. Google’s gigabit service is potentially disruptive but although municipalities are notionally pursuing Google effectively they’re blocking it to ensure their continuing cut of the broadband service revenues.

Service tiers would be another possible solution.

PD Shaw February 24, 2014 at 2:18 pm

I remain ambivalent about recent news surrounding Comcast, and since I’ve never tried Netflix, this news doesn’t change much. (By the time I thought about it, Netflix had changed) We have too little content spread over too much space, coupled with what appears to be an ongoing campaign to cater to a small subset of the population that likes to write about how great sophisticated dramas like Mad Men or House of Cards are. Since Netflix won’t release numbers on HoC, I assume that the show is no Spongebob Squarepants, and its a loss-leader slash advertisement slash branding-exercise to prevent customer defections.

A model that would work better for me is one in which the original content provider sets a modest rate of reimbursement per rental viewing and all of the various intermediaries compete with various formats and purchasing plans. (I’m thinking of music radio) The last two movies I streamed, I could only find through one service each: 1776 (amazon), and Drums Along the Mohawk (Comcast on-demand). They aren’t really competing for my dollar before any merger.

Andy February 24, 2014 at 6:36 pm

Personally, I think bandwidth should be regulated at the user end instead of the content producer end. In short the end user should pay for the bandwidth and the QoS they want.

Don’t see that happening though.

Ben Wolf February 24, 2014 at 8:17 pm

I’m in agreement with TastyBits: the country needs a public broadband infrastructure to introduce some semblance of competition. Given the government’s total failure to prevent monopoly, monopsony and corruption in the telecommunications industry we need a publicly available alternative to reign in the worst excesses.

Andy February 24, 2014 at 10:16 pm

Ben,

Unfortunately the government is completely incompetent and unable to manage large projects. The best we could expect in reality is for the feds to give money to the States, but IMO that wouldn’t turn out much better.

TastyBits February 25, 2014 at 3:56 am

@Andy

The government can run the school and highway systems. There is waste, fraud, and abuse, but this is present in any administrative office. For ongoing operations, I would have a semi=private company running and maintaining the infrastructure, and it would be supported by the companies using the public infrastructure.

I remember when dial-up was how you connected to the internet. You paid the telephone company for unlimited voice calls, and your modem traffic was not separate. For ISP’s, there was AOL with nationwide coverage, and there were local or regional ISP’s.

If you did not like one, you could switch, and most people did. There was so much competition it became annoying at businesses with the sales calls. Anybody willing to purchase the hardware could start an ISP, and many did.

At one time net neutrality was not an issue because there was competition free (unrigged) market competition. The user had options, and the user could always create new options. If you did not like the available ISP’s, you could start your own.

Dave Schuler February 25, 2014 at 7:24 am

The government can run the school and highway systems.

That’s mostly a factor of state and local governments. And in Chicago it’s hard to hear that and keep a straight face.

The additional problem is that the cost of education is increasing at an obviously unaffordable rate, largely driven by an astounding increase in non-productive administrators.

highway and street spending was increasing extremely rapidly. It’s plateaued, partly as a consequence of the recession. Since three-quarters of spending comes from state and local governments, when their revenues are strained it’s inevitable it will constrain spending.

It would take some convincing for me to conclude that the highway system was well-run. I think I might go as far as to say that it’s adequately run as long as we spend an unlimited amount of money on them.

Dave Schuler February 25, 2014 at 7:40 am

BTW, I think the basic problems are human nature and that government at all levels has transmogrified from a tool used to accomplish certain tasks to a mechanism for employing people at wages higher than they could expect otherwise.

When you couple that with the idea that people have gotten that their wages should rise over time simply on the basis of the passage of time, the only alternatives are inflation or predation.

The military is an interesting case study for this. The military remains very good at its core competency (killing people and breaking their stuff). It’s not nearly as effective when it works outside its core competency even if we throw unlimited amounts of money at it. Also, based on recent news reports I note a great willingness to prioritize spending based on bureaucratic or political objectives rather than on mission-related objectives.

PD Shaw February 25, 2014 at 8:09 am

Lafayette, Louisiana, has a municipally owned and operated fiber network. I wonder if it helps that the population is 120,000, and the city is relatively compact due to surrounding wetlands.

Springfield, Illinois began looking at a similar plan before the Great Recession and it realized it wasn’t as rich as it thought it was. My impression is that private competition was not interested in building a network without significant money from the City. A big issue is that the City Ordinance requires such a franchise to offer its services to everyone in city limits, even where the demand or density of demand may not exist. Google fiber does not appear to be committed to serving all neighborhoods in Kansas City. In my city, I strongly suspect that Comcast and AT&T have improved their lines in one area of town for better streaming services, but its not apparent because the lines exist in all areas of town.

TastyBits February 25, 2014 at 8:13 am

@Dave Schuler

The present solutions are towards a manbearpig (half man, half bear, half pig) system. There will be no competition at the user level, but there will be competition at the government level. This usually results in the user getting screwed.

The network – cables and switches – should be considered the transmission system, and it should be a common carrier utility. This common carrier should allow any company to use its network to connect to customers. This would be similar to AT&T and long distance companies.

I do not like taking private company assets. I would prefer to use public funds to produce a public infrastructure. I would not have the government run or administer the infrastructure. I would have a semi-private company, or have it farmed out to local or state colleges.

The Tech Industry plus the Entertainment Industry plus the Government Industry is not going to end well.

TastyBits February 25, 2014 at 8:27 am

@PD Shaw

I am not proposing providing service. I am only proposing providing the cable for a private company to provide service.

I am proposing a dial-up model where each ISP does not need to dig up the street to lay cable to your house. The cable would be like any other utility, but with TCP/IP, traffic can be targeted to your house.

Each year, the federal government pisses away billions of dollars. When the next stimulus package comes around, they could put a few dollars in for this.

PD Shaw February 25, 2014 at 9:42 am

@Tastybits, I have no problem with such a division in principle, though the problem will be connection systems separated from the business of content are at risk of neglect since they are no longer profit-making or innovative areas. I’ve seen the problems in both private and public operations. Cities forego investment in sanitary sewer line maintenance because of budget problems (and have to be sued by the feds) Twenty-years ago the private gas utility didn’t perform the regular safety inspections and improvements (someone just checked the box that they had), which was fine until a house exploded.

As a practical matter, I think government-provided services work better in some areas based on local culture than others.

TastyBits February 25, 2014 at 10:19 am

@PD Shaw

The electric grid is private, and it needs an upgrade.

Where I see this going is the government regulating a few internet providers. These providers are going to strike deals with content providers similar to how cable works.

This will allow the Entertainment Industry the opportunity to become involved. With a limited providers, they will be able to control usage. They are attempting to eliminate fair usage.

With the infrastructure in place, a Google or Netflix would be able to hook you up to the network, and they could sign you up for a 2-year contract. Netflix could begin to provide competition to the cable companies. You or I could start our own Netflix if we wanted.

To me, this is a public investment.

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