Free-market types have been rallying behind Comcast and against Netflix for some time now. For the sake of context, the debate is over whether Comcast should be able to “throttle” access to Netflix across its Internet service. Netflix, hosting streaming video, absorbs an incredible amount of broadband Internet access that can ostensibly stress Comcast’s infrastructure. Those of a more conspiratorial bent cite Comcast’s desire to protect traditional television from the Internet upstart as the reason behind throttling Netflix.
The aforementioned free-marketers have been using some variation of the argument that Comcast can do whatever it wants with its wires. Or interconnected tubes. Or whatever infrastructure provides the Internet. Further, Comcast should be free to price its service in any way it desires assuming the market can bear those prices.
I do not disagree, but by supporting Comcast, free-marketers are missing the bigger picture. First, Comcast is charging a premium to consumers to have faster Internet access. For instance, 105 mps speed service is roughly $15-$20 more expensive than a more basic package. Additionally, Netflix has struck a deal with Comcast to pay more for faster service. So Comcast is now charging consumers for faster service on one end and Netflix for faster service on the other. That is, of course, capitalism and completely fine. However, despite this additional compensation, Comcast is still delivering Netflix at a slower rate than as recently as six months ago.
All of this points to a larger issue: the difficulty faced by other Internet Service Providers to break into the market. If there were alternatives to Comcast, this bad service at a higher cost would be no problem for consumers. They could simply move on to a different service provider. Unfortunately, the alternatives are not fast enough and in many areas (like Washington, D.C.) they are nonexistent. Herein is the real problem for those of us that love the free market. There are no competitors because the game is rigged. Regulation, government (local, state, and federal), and startup costs all stand in the way of more competition. The FCC really has run away with itself in terms of restrictions on ISPs.
On top of that, current providers (and in particular Comcast) levy tons of lawsuits to discourage new startups. And just in case you were wondering, Comcast spends a ton on lobbying efforts here in Washington. You can bet their lobbyists are fighting on Capitol Hill to maintain the status quo.
The one exception is Google Fiber. Google Fiber is working in select cities because government has gotten out of the way; indeed local governments have petitioned Google to come there. Google is only providing Internet to cities that are desirable economic environments—that means only three cities so far with a dozen or so more on the way. For the record, Google Fiber doesn’t throttle any video service provider.
So the next time you hear a libertarian yelling about how Comcast is free to do whatever it wants with its cables, feel free to remind them they aren’t being pro-free market enough.