Based on Results – Commentary by Steve Effros

Based on results, we in the cable/broadband business should be all for “Title II” regulation. We should favor “common carrier” status, and we should plead for government intervention and rate regulation of our infrastructure. Why? Well look at what happened to similarly situated companies, AT&T for example. Not the “new” one, but the one that got so big, dominant and rich that it eventually had to be broken up into lots of “smaller” companies, all of which are now, once again, larger than most of their competitors.

Consider that. AT&T, the original one, was regulated up one side and down the other. It was also guaranteed a monopoly, guaranteed a rate of return, and became a gold standard with regard to stock valuation. Thank you, government intervention. Of course, creating a massive common carrier with no incentive to be competitive, develop new technology or be frugal with expenses (rate of return regulation tends to lead to that sort of thing) ultimately wound up with a very good telephone system which was antiquated and overpriced.

So now there’s a claim that the broadband industry should be regulated within the same pigeonhole that they put AT&T. I know the arguments that say they would do things differently, that they would not impose all the old structures, that they would be creative with new regulation that would incent competition. But where is there any evidence that this would work? The only effort in that direction is the history we now have with Europe’s efforts to regulate broadband. They went the higher-level regulatory route. The “create competition by requiring open network access” route. What happened? Well, based on results Europe does not have anywhere near the quality or extent of service now available in the United States. As a matter of fact, the European regulators are now recommending that they shift approaches and look more toward the American model!

To be sure, there is yet another model; government ownership of the infrastructure. That’s essentially what got South Korea off on the fastest foot toward getting a fiber based high capacity system. But that ownership requires massive investment. South Korea did that not because the core infrastructure would support itself as much as the belief that by building such a system they would learn the manufacturing and marketing realities that would serve them well in their real focus, the export market. That may have worked, but it’s no argument for us to do the same thing. Even the advocates of massive government support acknowledge that it would cost more than $300 billion to build the system they want here. Based on results on Capitol Hill, that’s not going to happen.

Then, of course, there is local, municipal ownership. I’ve already written about the misadventures of that approach. Admittedly, companies like Google may not think it’s a misadventure when they are able to “buy” an entire city infrastructure for $1.00. But in many communities it has certainly been a financial failure for local citizens, again, based on results.

The question, however, remains. In just about all these examples, the successful private infrastructure builder (that’s us) winds up winning in the end. If folks insist on making the same mistake again, and the result—while messy with lots of law suits, regulatory battles and so on—is that we not only survive but prosper, and the regulators at the same time create a disincentive for others to come in and compete, based on results, should we really be fighting so hard?