Cato responds to Wu
Tim Wu wrote an article recently in Forbes, arguing for the creation of a "cellular Carterfone" rule, allowing any electronics maker to build a phone that interoperates with a mobile network and allowing any consumer to buy that phone and use it on their network, without the mobile carriers blocking them and restricting the types of available phones.
The Cato Institute has a response, which makes a few interesting points and a few bad points.
Read more...The interesting question is: is the market for innovation broken in mobile devices today? On the one hand, carriers offer very limited phone choices, and notoriously require the manufacturers to cripple various features like call timers or GPS. The small oligopoly of major carriers appears to be locking out innovation. On the other hand, it is possible to buy (though it is more expensive) a non-carrier-sanctioned GPS phone, and use it on T-Mobile and AT&T/Cingular. Also, people aren't running away from Verizon in droves despite prohibiting users from installing third-party applications on its phones (except for Treos and Blackberries).
Is the market simply not providing these choices because consumers aren't interested in them enough to pay for them, or is the market not providing these choices because the carriers make it too hard for startups to provide the service?
The Cato paper also argues that regulations such as Carterfone or CableCARD never work because the carriers resist complying, and the FCC eventually gives up. A prime example is the Telecommunications Act of 1996, which required phone companies to allow resellers to offer DSL over their networks. Many startups sprouted to offer service, static IPs, and other added value, but the Bells provided such slow and often cripped service to the resellers, with poor enforcement options, that consumers could not partake of these options and the FCC gave up trying to enforce the provision.
It's true that such regulations often encounter stiff opposition from the monopoly carriers. But to argue that we therefore should never impose any requirements on the telcos is letting them win when they break the law. Lawbreakers by definition are not complying with the laws they are breaking. We don't give up on outlawing car theft just because car thieves continue to resist complying with that rule.
We can reasonably argue whether a particular requirement is prudent or imprudent, but the telephone companies have a monopoly, and basic economics teaches that monopolies need some level of regulation. If we can create a market where telephone companies have sufficient competition and can no longer wield market power to the detriment of consumers, then regulations will become unnecessary. But the rules they are resisting, like the DSL rules or Carterfone, are precisely those meant to ensure competition and a functioning market. If they resist, we can't simply throw up our hands and forget about trying to create a market.
What do you think about Tim Wu's argument, or the Cato paper?
1 Comments:
I believe this is greed on the carriers' part, pure and simple. If anybody were allowed to connect a well-equipped personal computing device to a cellular system, then we'd be able to do things like send text messages or capture digital photos without paying outrageous per-use charges to the carrier.
Indeed, the entire '90s stock market bubble appears to have revolved around cellular carriers' predictions that consumers would be happy to pay through the nose for "value added" services like those -- when in reality, those prices make it much more cost effective to buy separate gadgets to do those jobs, if you need those features even as often as two or three times/year.
I say, we badly need a cellular "Carterfone" rule, written to give carriers the bare minimum of control they need to prevent hackers from using the carriers' networks without paying. In cellular, as in wired telephony, the transport of data needs to become completely commodified. Until then, we might as well be limited to two tin cans and a string.
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