This school of economic thought talks about the market structure and how government decisions affect it. The market structure is simply everything logistic that has to happen in order for a company to get itself into business.
Think about it.
- Managers have to be hired.
- Plans need to be drawn.
- Buildings need to be rented.
- Contractors contracted.
- Staff needs to be trained.
- Computerized systems (for accounting, administration and other business processes) need to be implemented
- Networks need to be setup.
And so on. All this structure does not happen overnight but it is however vital. Or do you know of any company that operates today that has no structure whatsoever? Of course not. Even virtual companies have people and processes in place which enables them to transact business. Even this puny website depends upon our host ISP and our know-how (and tweaking) of the platform we use.
It is this structure that is affected by regulations. This is so very much true, that to a large degree infrastructure companies have regulations written specifically for them authorizing them not to fulfil certain regulations "for the greater good". In other words, they have custom laws recognizing that if the company would have to comply with all the laws there would be no network infrastructure at all!
Furthermore, Austrian Economics also teaches us about the "Time Preference". In simple terms this means that given the choice we would want to have "good stuff" sooner rather than later. But given the protracted regulatory timelines, companies cannot deliver "now" because they can't by regulation. They have to finish all the regulatory issues (i.e. bureaucratic red tape) before the lay a single cable or fiber. As such, companies cannot begin to satisfy the market's need for networking now and as such this situation breaks the Time Preference barrier of potential customers.
Don't believe us? Simple. Do you know of anybody who wants access to the Internet but they are happy waiting months or years until a prospective ISP finishes the paperwork? Of course not! People want Internet and they want it now!
In a free market, companies would begin laying networks in small chunks and offering connectivity as they go along. Spend a little, earn a little. Simple.
But because of regulations, they are in a situation where they have to acquire a massive amount of capital, sit on it for 5 to 10 years and then, and only then, being to roll the network out.
This is obviously preposterous!
No company can survive for 5 to 10 years without a single sale!
It is this monstrous time barrier that creates an entry barrier because it runs against our time preference rule.
A STEP FURTHER
But let's move forward. Let's assume that a company can amass 1 or two billion units of hard currency and sit on it for 5 to 10 years while dealing with 4, 5, 6, 7 or even 8 or 10 different government bureaucratic levels. Once the paper storm has passed, they begin to lay the network down and begin to have customers. Great, right?! From this point onwards it is all smooth sailing, right?
This is so since due to regulations ISPs are not allowed to optimize profits… "for the greater good" you know… As such, ISPs are not capable of generating sufficient profits to pass on to wholesalers so that they in turn may be able to maintain and upgrade their network. As such network owners will do the obvious: raise prices to ISPs. But ISPs won't be able to pass these rate increases onto customers because customers will simply reject the extra expenditure and/or such fees are regulated.
And so and as a consequence of that, the market share of such network companies begins to diminish, their bandwidth becomes increasingly stagnated, their technology outdated and their deals aggressively monopolistic… which leads to more aggressive lobbying… with the expected results: people get screwed due to "industry friendly" regulations and tariffs (i.e. artificial monopolies).
As you can see, regulations are a negative feedback loop. The more regulations there are, the lower the profit and the less competition we get which leads to less available bandwidth.
IN A MANAGED MARKET
Yet, in a managed market the only possible thing to do is to keep increasing regulation because it is the only way to keep prices sufficiently low in order for users to be able to afford them.
All the talk about "free markets" and "competition" that regulations declare to foster is all dog dung. This is so because those regulations add to the pile of regulations that prevent a true free market and thus competition taking hold.
Thus, thanks to government action we are stuck in a spiral path down into oblivion through higher prices and worse service.
In a managed market there is a perception of "free" when it comes to infrastructure because of all the initial (and oftentimes subsequent) government subsidies to infrastructure companies. The true cost of implementing the infrastructure is not taken into consideration. The true cost of maintaining the infrastructure is not taken into consideration. There is a massive disconnection between actual costs and reduced fees due to government regulation. It is precisely this action that leads people to classify large infrastructure companies as "too wealthy" and thus overdue for a little bit of government blackmail. They don't see the consequences of disconnecting costs from service prices and this brings logical and inevitable consequences: stagnation and very slow replacement rate. Thus, we all end up with aging and expensive infrastructure which is incapable of servicing our needs as they skyrocket.
Take a look at the following graph, which clearly outlines the fact that even though the bandwidth is growing, the growth is de-celerating (as in slowing down). This is happening at the same time that our bandwidth consumption is accelerating, to the point that many reliable IT research sources are already talking about "The Bandwidth Bottleneck".
IN A FREE MARKET
On the other hand, in a free market there is a minimum of bureaucracy. As such any relatively small startup can begin laying a network down almost immediately. Not only that, but it is possible to lay it down efficiently. For example, in many places around the world cabling (phone, electric, network, etc.) must be buried under the ground. The regulation demands so for "aesthetic" reasons. Yet, if you take a look at what's going on in other countries (e.g. Brazil, Argentina and Japan), lying coaxial, fiber or any other network is a no brainer because it is laid on telephone or electrical poles which are already in place. A crew of two or three people can lay kilometers of networks per day effectively and efficiently. It is for this very reason that oftentimes in underdeveloped places, believe it or not, speeds are much, much higher than in developed countries! Not only that, such speeds are sustainable, maintainable and economically viable, all without government intervention!
WHERE DO WE STAND?
It is for this very reason that we advocate allowing companies to negotiate their terms as they see fit. Because if we do so and remove all regulations at the same time (and this is critical) then the free market and competition will take hold.
Sure, in the short term people will somewhat suffer, but that won't be for long. Once other companies realize how profitable it is to go into the infrastructure business, everybody will want to be in that business as this business is no different than any other business.
Sure, if we disregard Network Neutrality we will suffer -in the beginning-. This is unavoidable because there is a price to be paid for all those decades of government "management" that led to bad business decisions and the stagnation of market structures. However, once we are beyond the cleansing and clarifying period, there is only one way to go: bandwidth up and fees down.
And this brings us full circle. In a free market a system of two (or multiple) internet tier speeds may still exist however, this fact will become irrelevant. This is so because bandwidth capacity will simply overrun bandwidth requirements. There will be so much unused bandwidth (or "dark fiber") that ISPs will trip over each other to sell you upgrade packages at lower prices if only you are willing to abandon your current provider and switch to their service.
This is not a mystery nor a unique or strange feature of the network business; this is a standard feature of a free market, whereby there is constant dis-inflation (i.e. we pay less and less for the same stuff or service) while the standards of living keep increasing.
In other words, the free market solves the issue of bandwidth scarcity in the most obvious and old-fashioned fashion, by providing more bandwidth! In such conditions we don't need Network Neutrality because it becomes irrelevant. No company in their right mind would impose conditions to your bandwidth simply because should they do so, a competing firm will offer the same service (or better) without conditions.
This is important to understand. We are currently in this mess precisely because all kinds of business models using the Internet sprouted from the notion that infrastructure was free or almost free.
Instead of having a steady but accelerating network growth, we had a boom which looked like free and now we are stuck in a degrading infrastructure that is not growing fast enough because nobody can afford the price and thus the only so-called solution within this political system is to squeeze the very providers that make our Internet access possible.
In an obvious and redundantly redundant conclusion; Net Neutrality bad, Free Market good.
But, then again, if you prefer to enjoy stern bandwidth limitations at high, high prices every day, then by all means, vote. Vote for Net Neutrality. Vote for politicians. Just Vote. Your choice.
Just one thing. Don't expect "your Internet" to work any day soon… after all… it is possible to live without the Internet. Don't believe us. Just ask any North Korean.
Note: please see the Glossary if you are unfamiliar with certain words.