| Obama Policy - How It Will Be Different |
| Wednesday, 12 November 2008 15:55 |
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The folks coming in are liberal Democrats like Hundt, Kennard, Copps, Adelstein, and Obama himself. Those I know are very smart, hardworking, ethical and effective. The policies will be similar to what the Democrats in the minority have been championing for the last eight years: more direct attention to consumer interests as opposed to “incentives for carriers,” deregulation when it makes sense rather than as religion, opposition to media concentration, and protection of the open Internet.Change will probably be slow. What's done cannot be easily undone; the last ten years have cut competition in many areas. Often it will be unrealistic to restore strong competition in less than a decade without wildly unlikely moves like a second breakup of AT&T. Many of these people were enormously successful in the 1990's, but will need to do some profound rethinking. Better policy makes a difference, although less than policymakers think. On $200B in Bell sales, I would guess that 2-3% more went to profit because of Powell-Martin policy than if the Democrats had made the decisions. That $4-6B is a plausible estimate of the “political risk” faced from the regime change. My sources include analysis by Merrill Lynch and others, but this is inevitably guesswork. Verizon and AT&T profits would still be close to $20B and they would remain among the most profitable companies in the world. That makes it obscene that the Bells are working on a massive push for $30-60B in handouts for “broadband infrastructure” as the country is in financial crisis, a story I'm working on. It turns out that DOCSIS 3 looks to bring 50+ meg in both directions to 70% of the U.S. in the next few years. About a tenth of what the Bells want to collect and smart policy could raise that well beyond 70%. The equipment starting to ship is so inexpensive ($100-200) it will go wide rapidly. I don't know if the cablecos will price to take massive share because it's much better than anything but FIOS, but the price in France and Japan is $25-40 as part of a bundle. That's a different story. Hundt and team in the 1990's developed some ideas that have proven successful around the world, including allowing France and Japan to leap ahead of the U.S. in broadband. In hindsight, we can see some problems as well. The 90's liberal consensus looked to solve nearly all problems with competition. That's great when it works (French broadband) but often fails because telecom has enormous advantages of scale. Without very strong policy moves, the biggest companies knock out most of the competition. Kennard was looking great in 1999 when six companies were racing to deliver broadband across the U.S.; by 2003, the U.S. was down to cable vs telco, weak competition that results in U.S. prices 20-50% higher than the leading countries. The best on wall street tell me the U.S. will almost certainly not build a third network, and wireless is great but only a partial substitute. Can these folks adapt to the changed conditions, where competition will likely be weak and they can't do anything about that for many years? It's very hard for anyone to accept a paradigm change away from what worked so well in the past. Rethinking basic principles is so hard the finest physicists in the world refused to believe relativity for years. Most of those appointed will be exceptional, but I believe the market has changed so much they will have to think very differently. There are no easy answers for what's right when competition is effectively weak, particularly because economists have poor tools to understand markets controlled by just a few companies. The majority of relevant academic work assumes an effective market and is wildly off-base in the real world. Far too many currently put their heads in the sand, pretending we have an effective “market” and dreaming that something like power line modems will resolve any market power issues.
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