cj#706> Cyberspace INC – the monopolization thread


Richard Moore

Dear cj,

First, let me announce that cyberjournal now has an official home page,
which simplifies access to cyberlib:


Raleigh Myers has also set up a home page pointing to cyberlib:



Next, I'd like to continue the cyberspace monopolization thread, last dealt
with in "cj#694> Common Sense and Cyberspace".  I recently jumped back into
the fray on the cyber-rights list, where the subject of "usage-based
pricing" came up.  I took the unpopular stance of pointing out that
usage-based pricing is INEVITABLE for digital communications.  The
flat-rate pricing regime currently enjoyed in the U.S. is an ananachronism
of the voice-phone age which no longer makes business or technical sense.

The question isn't WHETHER usage-based pricing, but HOW and WHEN
usage-based pricing.  Though the flames on the list were unpleasant, the
dialog helped me develop my arguments for further publication and for use
in my talk next month at the Electronic Democracy conference in the UK.

Allow me to share the following posting which summarized this thread on the
roundtable list.


Date: Sun, 17 Aug 1997
From: •••@••.••• (Richard K. Moore)
To: Multiple recipients of list <•••@••.•••>
Subject: re: conduit, content, and monopoly control

Continuing our earlier thread, I'd like to share the following posting from
cyber-rights, where I've been debating with Arun Mehta and Craig Johnson.

They've been arguing, more or less, that decreasing technology costs and
increasing competition will bring us a world of abundant bandwidth and
services at ever-more affordable prices - in short a utopian vision of an
open, digital cyberspace.

Rather than extrapolating linearly from current Internet experience, I've
been looking more at the major players in the communications and media
industries, taking into account their interests, and considering how
they're likely to play their cards.

I hope this is of interest to roundtable, and look forward to your comments.



Dear cr,

I hope others besides Craig, Arun, and myself are concerned with this issue
of cyberspace economics and the possibility of it becoming monopolized, in
the same sense as the existing mass-media industry - controlled by a
handful of major commercial players.  My apologies to those find it a
distraction from other list business.

Ironically, I have no disagreement with most of the points made by Craig
and Arun, but they have, I believe, missed the thrust of my argument.  For
example, let's take the question of bandwidth availability.  Arun observed:
  >There is no natural limit to how much bandwidth we produce, unlike how
  >many diamonds we mine. We have only begun to exploit wireless, and
  >there is immense potential. Just look at the plans of STS

I have no dispute with this point: the TECHNOLOGY has the potential to
provide essentially unlimited bandwidth - enough to satisfy almost any uses
we can imagine.  I'd go further, I'd say it's INEVITABLE that a global
integrated digital network will be deployed - let's call it DIGITAL
CYBERSPACE - which at very low COST could provide everyone with, shall we
say, high-quality, real-time video connections.

Further - if digital cyberspace were to develop as a commondity-bandwidth
marketplace, then all of Craig's and Arun's visions would come to pass.

Such a scenario, however, would be very unattractive to the major players
who now dominate the telcom business.  They would become the dinosaurs of
communications - much as IBM was in computing - trying to maintain an
artificially high revenue base and an antiquated business model while
young upstarts proceeded to clean their clock.

We simply cannot assume that the major telcom players will give up without
a struggle - that will they watch helplessly as their cash-cow
communications business is destroyed by advancing technology.  It is more
reasonable to assume they will take steps to protect their market
positions.  They may or may not succeed, but I belive our debate must take
into account their likely strategies, and not simply ASSUME the result that
seems most favorable to us.

My story, and I'm sticking to it, is that the Telcom Bill in fact enables
the very monopoly control that would be most favorable to the major
players.  As long as the conditions of the "transition period" are
satisfied - that "competition" is seen to be occurring - then we enter a
regime where unlimited concentration of ownership is permitted.

The telcom operators, along with other new corporate players, have the
necessary deep pockets to capitalize on this situation.  They can afford to
deploy new technology more rapidly than small independent operators, they
have economies of scale, they can buy up independent operators, they can
buy up spectrum licenses, and they can afford to engage in predatory
pricing - selling at a temporary loss in order to put those with shallower
pockets out of business.

These are standard tactics that have been used successfully over and over
again in all sorts of industries.  Not just airlines, but we can see it
happening with book distribution, newspapers, retail discount chains, fast
foods, soft drinks, etc.  And most signficantly, we see an already
concentrated mass-media industry undergoing a round of further (and global)

And we need to keep in mind that the pre-Telcom-Bill regime had been
designed to dismantle the Ma Bell monopoly, and to encourage competition
in new technologies.  Those protections against monopolist practices were
removed by the Telcom Bill, and it is the major telcom players who wrote
the bill and saw that it got passed.

It is reasonable to assume that the telcom operators are going to act to
protect their businesses, and it would be folly to asume the monopolist
opportunties created by their Telcom Bill are not well known to them.

We'll get back to this thread in a moment.


Let's consider digital cyberspace from the perspective of the mass-media
industry.  To them, it is their future distribution channel.  It will
replace television broadcasting, dedicated cable, dedicated broadband
lines, dedicated satellite channels, etc. - all of these ad-hoc,
special-purpose communication links will be integrated into the flexible,
switchable, multi-purpose, digital global network.

One can think of digital cyberspace as a kind of utopian realm, where all
communication wishes can be granted.  The question is who's going to be
running this utopian realm?  We net users tend to assume we'll waltz into
this utopia and use it for our creative purposes, just as we have Internet.
But there are others who have designs on this utopia as well.  It's a land
toward which more than one set of pioneers have their wagons ready to roll.

In other words, there are two sets of customers ready to buy digital
communications.  There's us, who are willing to move our Internet business
to the new cyberspace, and then there's the mass-media industry, who are
willing to move their business there as well.

We're willing to pay few cents per hour for our usage (and we complain of
ANY usage charges), and our need for really high per-user bandwidth is yet
to be demonstrated.  The media industry, on the other hand, can bring a
huge existing traffic onto cyberspace - a traffic with much higher dollar-
value-per-transaction than email and web hits, and a traffic that can
gobble up lots of bandwidth.  We want to pay commodity prices for
transport, while the media industry is willing to pay whatever it needs to
- and it can pass on its costs to consumers.

To the telcom operators, what makes sense is for them to plan their
business model around mass-media applications, and to structure pricing and
service offerings accordingly.  As an additional and significant business
consideration, the telcom operators need to find a way to protect their
voice-telephony revenues.

There is an obvious pricing strategy for cyberspace which serves all of
these purposes of the telcom players, and suits the media industry as well.
That is a value-pricing, or fee-for-service regime.  So much for a voice
call, so much for a message, so much for a film, etc.  This offers
incredible advantages to the telcoms.  It separates price from cost,
enabling the telcos to reap the benefits of cheaper hardware and faster
switching.  Price, meanwhile, can adjust to "all the market will bear", as
market conditions change.

And it's a pricing regime that won't be all that difficult to sell
politically.  What could be more in synch with today's economic philosophy
than for users to pay for what they get?


On the one hand, there is the "monopoly thread": the opportunity presented
by the Telcom Bill for the big telcom players to consolidate their control
of the communications industry.  On the other hand there is the "media
thread": the opportunity for the telcom players to participate in the huge
revenues to be generated when mass-media goes online.

These threads weave together into a coherent, profitable, and achievable
scenario - and it would be unreasonable to presume those responsible for
billions in telcom revenues are incapable of thinking in these terms:

        1) Encourage the "transition period", in which regulatory oversight
           continues, to be declared "done" ASAP.  Encourage bothersome
           startups (evidencing "competition") to this purpose.

        2) Consolidate telcom ownership through purchases of independent
           operators, acquistion of spectrum licenses, and mergers among
           majors (including telcom, cable, satellite, cellular).
           Note: this may cause temporarily embarrasing proft returns,
           as price competition is used to drive out independents.

        3) Begin restructuring pricing in the direction of fee-for-service.
           (Enables broadband to be marketed without destroying voice

        4) Begin rapid deployment of broadband infrastrucure, which may cause
           temporary balance-sheet problems.  Deep pockets are critical to
           all of this.

        5) Push Internet regulation in the direction of ISP licensing,
           centralized control over domain allocations, and consolidated
           ownership; encourage (with help of media industry) continued
           demonization campaigns against Internet as home of hackers,
           terrorists, and pedophiles.  (Precedent of radio relevant here,
           which started out as a citizen affair, but was turned into the ,
           first commercialized electronic mass-media industry - by means
           of demonization and establishment of broadcasting licensure.)

        6) Through corporate purchases, and through various kinds of
           regulatory pressuring, accomplish corporate takeover of existing
           Internet businesses.

        7) Begin moving mass-media distribution onto the digital network.

        8) Use established market share, and advatages of consolidated
           industry, to negotiate from strength as wave of media-telcom
           mergers begin.

As Craig points out, with respect to the situation today:
        >Backbone providers are not in the content business, with rare

He is quite right, but that really predicts nothing about the long-term.
My argument is that several steps need to take place before the market is
structured appropriately for media players to be interested.  And it will
be media players merging with telcoms that will bring content and conduit
together - this approach gets to market much more quickly than telcoms
starting up content divisions.

In the meantime, telcom remains a distinct industry from media, and it is
not surprising, as Craig points out, that:
        >This discussion is dramatically off-course in political terms.
        >First,  the phone companies adamantly opposed several major
        >provisions of the NII Copyright Treaty.  The treaty was modified
        >positively in no small part due to the lobbying of both local and
        >long distance carriers, *in direct opposition to the desires of the
        >content providers.*

        >... The fight in Congress is continuing, and there is
        >clear evidence that carriers *absolutely do not* want stronger
        >copyright protections for online works than is available offline.
        >They do not see a lot of dollar signs, but rather a lot of lawsuits
        >for infringement of copyright.

Certainly telcom and media will fight for regulatory structures that give
them best advantage.  Partly this reflects their differing traditional
business models, and partly this illustrates jockying for position for the
inevitable merger negotiations that will come further down the line.

When those negotiations come, it will be the hard-market realities of who-
controls-what that will determine the relative valuations of the parties.
It is essential to the telcoms that bandwidth not be a commodity market -
or they'll be squeezed out entirely.  They must consolidate their industry
to survive, and their Telcom Bill enables them to invest their deep pockets
into such consolidation.

But once the wave of mergers occurs, just like the current wave of mergers
between content and distribution players, these temporary differences will
disappear, and we'll be faced with a media-comm oligopoly industry with a
huge revenue base, a diminishing cost base, with only secondary economic
interest in Internet-style traffic, with a disdain for our iconoclastic and
anarchistic values, and with every reason to discourage independent
competion with their control over information flows.

Keep in mind how successful the media industry and other corporate
interests (notably petroleum) have been in emasculating, marginalizing, and
defunding public broadcasting.  In the world of commercialized cyberspace,
all our Internet-style uses are likely to be similary treated, although
with different  adaptive tactics.


Please understand that I admire Craig's and Arun's optimism, enthusiasm,
and vision - I only wish I could agree with their analyses.  Let me respond
to some the points Arun made...

  >There will be
  >companies that only do content, there will be those that only do
  >distribution, I really think who makes the hardware is so irrelevant
  >as to leave out of further consideration. OK, maybe there is synergy
  >in these being together, maybe they work better separately. We'll
  >find out.

There is, I think it is clear, DEFINITELY synergy between content and
conduit being together.   Not only that, but if this synergy isn't
exploited, the telcom majors will suffer a devastating decline in their
fortunes: THEY are not willing to "find out" - they MUST act pre-emptively,
for their own survival, and they must act decisively.  I submit that the
Telcom Bill is their first major offensive, and that it is a
well-thought-out one, creating the very regulatory environment most
conducive to monopoly formation.

>The Internet  is full of
>content providers, and once bandwidth limitations lift, the variety will
>only increase. Monopoly, or even oligopoly? Laecherlich, as the Germans
>would say.

I agree Arun, if bandwidth limitations lift, AND IF COMMODITY PRICES
PREVAIL, then the monopolization of information flows would be laughable.
But are bandwidth limitations lifting, and under what conditions will they
be permitted to lift?

8/01/97, Curtiss Priest wrote to roundtable:
>Certainly the telcos have shown little
>interest in providing bandwidth as they have dragged their feet on
>ISDN and are busily withdrawing the bare copper line tariffs that let
>clever folk build their own high bandwidth solutions.
>Then there's the issue of time lag in building to meet increased
>demand. One does not ramp up production of bandwidth in some short
>time. It's rather like farming, one plants the cable, makes the
>connections, installs the switches, and then tries to sell the crop.

WHY is it that telcos are "dragging their feet" re/increased bandwith
deployment?  And WHY are they withdrawing or not marketing existing
high-bandwidth services?   COULD IT BE that they abhor helping create a
commodity marketplace?  Could it be that they are exercising sound business
judgement?   Could it be that they're pursuing a scenario much like the
one I outlined above?

Arun objected to my use of airlines as an example of how market
monopolization typically occurs.  Recall, I stated the (all to common)
paradigm this way:

    deregulation -> price competition -> shakeout -> consolidation -> gouge

The communications business is certainly different than the transportation
business, but not actually all that different in its fundamentals.  Arun
  >1) LIMITS TO GROWTH. There is a limit to how much the human being can
  >travel. More than once a week, and you want to start looking for another
  >job. Bandwidth? With videophone calls anywhere costing a few cents a
  >minute, I'd use orders of magnitude more bandwidth than I do now.

But there is a limit to how much time you'll spend in front of a screen
(whether it be for communication, news, entertainments, or games).  As a
rough number we might say a limit on total needed bandwidth is:
        (one two-way video feed) X (4.5? billion people) X (20 hours/week)

That may seem very large, but it is finite, and it is the channel to a
scarce (and expensive) resource - a resource which is called "available
viewer hours" and which is the "market" which the media-comm players will
compete for "shares" of.  When you're reading postings like this instead of
watching the game, you're not being a profit-generating consumer, and that
is one of the key reasons Internet is not something the media-comm industry
will encourage in its current non-economic form.  (The other key reason, of
course, being Internet's threat to mass-media management of public

>2) SYNERGY. My web browser defaults to the Alta Vista site, which spares me
>a few cycles whenever I feel like it, without complaining. In airlines,
>that would be equivalent to large Boeings somewhere in the US competing for
>the privilege of  giving my little single-engined micro-lite a boost when
>I'm trying to take off.

This is a consequence of the non-economic, voluntary, anarchistic commons
that is the current Internet.  My thesis is that these economics will be
intentionally modified.

>3) COST. Hardly anyone could ever afford a personal aeroplane, and almost
>nobody the kind that gives you international connectivity. Personal
>computing power, of course, pulses in digital watches, video games, radios
>and plenty of other electronic devices that surely by now have reached
>almost every household, as have TV and telecom (well, at least to the
>extent of the public phone). Networking is getting there.

Yes, technolgically speaking, networking should be getting there.  And
SOMEONE will enjoy the cost-savings of that faster-smaller-cheaper
technology curve - but there's no guarantee it will happen in a commodity
fashion and that all the benefit will accrue to "us".   The indications are

>4) TECHNOLOGICAL INNOVATION I know of no industry in history that has seen
>the kind of growth and/or innovation that television, computers and telecom
>have gone through in the recent past, and once they all come together, all
>kinds of new products and services will emerge. Airlines have pretty much
>saturated when it comes to technology. After the Jumbo jet and the
>Concorde, there have been no dramatic improvements.

Yes, and it may turn out after fiber is installed and everything is
integrated digitally, under updated protocols, communications technology
may coast along for many years, just as you have pointed out for aircraft.
But as "television, computers and telecom" merge as technologies, they are
also merging as industries, and the players in those industries are not
asleep at the wheel.  They must and they will act to protect their

>Look at historical evidence, look at current trends -- where do you see
>prices going up in this area? Where there is a monopoly, or at least
>oligopoly. There is no long-term natural basis for such monopolies, as I
>suggest above.

It is not time yet for prices to go up.  Consolidation must occur first.
Here's where the airline analogy works: first we saw bargains (we still see
some bargains), but the so-called competition promised by Reagan-led
airline deregulation is ultimately leading to consolidation, and an overall
rise in airline fares.  But the process takes time.


From: "DDeBar" <•••@••.•••>
To: Multiple recipients of list <•••@••.•••>
Subject: Re: conduit, content, and monopoly control

I would like to suggest something to those of you with the requisite time.
Go to your local hall of records, land records office, wherever they keep
the deed records in your area. Look at the many electric and telephone
easements filed there, from 1880's forward. You will see the name changes,
consolidation, etc., of the players as it developed. Then, post this
information (in abbreviated, time-line fashion) to people near you, the
next county, state, etc., and look at how we got here. Seeing it in black
and white is somehow more convincing. Then, consider that this is a likely
model of development for the new information technologies.

I thank Richard for this VERY enlightening post. I especially agree that it
is essential to consider what the telco's, etc., believe to be in their
interest if you are going to try to predict their behaviour.



Posted by Richard K. Moore - •••@••.••• - PO Box 26   Wexford, Ireland
         http://www.iol.ie/~rkmoore/cyberjournal            (USA Citizen)
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