Everything that is wrong with American capitalism, in one headline | Hacker News Reader

Everything that is wrong with American capitalism, in one headline

blog.rongarret.info

126 pointslisper78 comments

Service businesses spin off and absorb blocks of customers all the time. If I sell someone else my paper delivery route, is that an indictment of American capitalism?

Really, the title should be "everything that's wrong with state and local politics in one headline."

If you want to blame someone for the situation in "such cities as Long Beach, Malibu" (that often, there's only one guy delivering papers), start here: http://www.cpuc.ca.gov/PUC/Telco/Information+for+providing+s.... The state of California grants cable franchises,[1] and not with just an eye towards creating competition. Read the four bullet points on that page. Only the first has to do with competition. The other three are priorities that necessitate policies that discourage investment and competition.

> If I sell someone else my paper delivery route, is that an indictment of American capitalism?

It is if your customers don't have the option to switch to another paper.

and the reason you don't have the option to switch to another service provider is your state and local governments granting comcast, et al local monopolies.

Please direct criticism to the proper source: government interference.

No, the reason you don't have an option to switch to another service provider is that running a wireline provider is really expensive. Building one is even more expensive: you literally have to run cables to every household in a city thanks to the FCC's equal access laws (i.e. you can't ignore the poor parts of town when providing service). Each household probably has a fully-loaded cost of around $1000 (this includes switches, routers, a few thousand miles of cable, teams of guys in trucks to run the cable across the poles, etc), so for a small city of 500k households (~1 million people), you're looking at a ballpark of $500 million.

Even if the regulation allowed you to start your own cable company, what investor in their right mind would put up the money to do so? Trying to VC pitch a startup ISP would be the worst pitch ever. "Why am I going to give you a billion dollars for a 10% margin business that you're not even guaranteed to be successful in?"

In other words, the reason you don't have options for service providers is that it's expensive to be a provider; and the reason it's expensive to be a provider is...government regulations.

I think even without the government regulations you'd have a similar situation: it's expensive enough to serve even an affluent area that the market can't really support much more than 2 companies (which already exist in the form of Comcast/TimeWarner and FiOS/U-Verse in most wealthy areas). You'd probably also find that some middle-class suburbs would have no providers available at all.

Though I do agree that subscriber pricing is much better in areas where you see both a cable company and a telco video provider like FiOS or U-Verse.

> it's expensive enough to serve even an affluent area that the market can't really support much more than 2 companies

I would state this with a key qualifier: it's expensive to serve even an affluent area the way our society currently works. The way our society currently works is that local municipalities are strongly discouraged from doing local development sanely--where "sanely" means that when a new subdivision goes in, say, all the easements for running wired high-speed Internet go in as well.

The best way of doing this would be for the local developer to simply run the cables, and have them owned in common by the municipality, homeowner's association, or whatever entity owns the common areas in the development. That entity then leases access to the cables to all Internet providers on an equal basis.

The next-best way would be for the local developer to put in all the cable trenches, space for connection hubs, etc. in while the development is being constructed, right along with the water lines, gas lines, storm sewers, and other utilities, and with all the permits, easements, etc. already in place. Then an Internet provider just has to do a cable pull, which is only a small fraction of the cost of installing high-speed Internet in our actual society.

When municipalities actually try to do either of the above, however, they find themselves embroiled in lawsuits and negative publicity from the large Internet providers, who can't stand the idea that nobody really wants to buy their overpriced services, and if a way of routing around them became common, their business would be kaput.

> and the reason it's expensive to be a provider is...government regulations.

If by government regulations you mean "the fact that running cable means acquiring access rights across large numbers of privately held properties, and government protection of property rights makes you have to negotiate with each of them for the right to access unless you can piggy back on someone else that already has an easement without exceeding the scope of the existing easement", then, sure, its about government regulations.

But its the kind of government regulations that even the people who complain about government regulations generally support (often, support most emphatically).

There needs to be some regulation to make that feasible, no doubt. But why does that function justify forcing cable companies to run cable to areas that aren't economically justifiable? Or to put it a slightly different way: while the public is entitled to make equal access a priority, it can't complain about providers not wanting to enter the market or not wanting to invest more private money in regulated service. You can't have your cake and eat it too.

You left out a key qualifier: "running cable to every household means acquiring access rights..." The post I responded to specifically mentioned the FCC regulations requiring equal access to all households as the driver of the high cost of being a provider. Without the equal access regulations, it would be a lot easier for smaller providers to compete. (And it would be even easier if state and local governments didn't give sweetheart deals to large providers.)

I'm in favor of the FCC's equal-access laws. Otherwise people in places with poor infrastructure will have to pay even more to get service, which seems counter-productive for society.

Unless that regulation produces unintended consequences that depress internet access for all of society as a whole.

That's fine, but you can not be in favor of these laws and then condemn their direct consequences with righteous indignation. If you've got the one, you've got the other. If you have onerous regulation in some market, you'll be limited to a few large players that can master that regulation.

> and the reason you don't have the option to switch to another service provider is your state and local governments granting comcast, et al local monopolies.

The real reason is the FCC doesn't require the infrastructure businesses to sell wholesale access to competitors. Once upon a time, Comcast et al would've leased you the line, but you would've had choice in your ISP service. A stroke of the pen eliminated all serious competition in the ISP game, and made it so Comcast owns the entertainment pipeline all the way from movie studio lot to your internet connection.

Odd that the studios aren't allowed to own movie theaters [1], but they're heading straight for the same end result by controlling your internet access.

[1] http://en.wikipedia.org/wiki/United_States_v._Paramount_Pict....

Granting exclusive cable franchises has been illegal under federal law since the early 1990's.

Please direct criticism to the proper source: regulatory capture

What if there's not another paper because the margins are so low that neither of you would make a profit if you had to compete for customers (and your service was mutually exclusive)? And the government says that you have to drive by every house when delivering papers whether they subscribe or not?

Even if telecom/cable were fully deregulated, this is the situation you would face. A cable company may make $1 billion in revenue off of a city, but it probably costs them $900 million to serve the city. If someone else comes in and is able to radically undercut their costs at $600 million while simultaneously winning 50% of the market, both companies would still only make $500 million and lose money. The incumbent cable company probably has enough of a war chest to wait out the challenger's funding.

Infrastructure businesses are very expensive. There is no easy solution short of the government seizing the cable infrastructure, which would set such a dangerous precedent that it would probably destroy our economy.

> There is no easy solution short of the government seizing the cable infrastructure, which would set such a dangerous precedent that it would probably destroy our economy.

Sure, I mean, there's no way that the government could simply recognize the monopoly and regulate it as such.

What does that regulation look like to you? It's easy to say "regulation is the solution" but regulation can mean a lot of things. What's the easy regulatory solution?

Exactly like it did before the cable companies were allowed to kick out all their competition. In 1998, when I leased a DSL line I had a full page listing all the ISP options I had. Now that we're 'deregulated' and have a 'free market,' I have exactly zero choice in broadband ISPs.

DSL was a colossal failure of regulation. With the line-sharing rules, it was no longer financially viable for the telecoms to invest in infrastructure for common carrier services that they could no longer sell at a premium. Instead, they started investing in wireless. The telcos COULD have invested in FttN and FttH solutions, but wireless became a more attractive investment since it didn't carry the line sharing rules. Thus the telcos abandoned high-speed internet access and the cable companies (which were not under the same rules and could thus justify the investment) became the monopoly they are today.

What seems good for the consumer is not always good for the consumer. See how Verizon halted their national rollout of FiOS and instead plowed $130 billion into purchasing the 50% of Verizon Wireless they didn't already own if you want a very recent example of this.

Thanks for the informative insightful comment (and this is from someone who is no knee-jerk anti-government libertarian).

> With the line-sharing rules, it was no longer financially viable for the telecoms to invest in infrastructure for common carrier services that they could no longer sell at a premium.

I completely agree, it's no surprise that a business that naturally tends toward a natural monopoly has a hard time with long term investments if the investors are chomping at the bit for immediate ROI. Hence the need to treat infrastructure as a local utility, regulate it as one, and fund the infrastructure improvements with bonds.

Government do and can regulate the mergers. They do it all the time and for last couple of big mergers with Comcast this has been on table but they seem to see Comcast with favorable eyes.

> If someone else comes in and is able to radically undercut their costs at $600 million while simultaneously winning 50% of the market, both companies would still only make $500 million and lose money.

Emphasis added. This is not what "able to undercut" means to me. Furthermore, the situation described is great for consumers.

And yeah, it looks like Comcast has low-ish margins, for a monopoly:

http://ycharts.com/companies/CMCSA/profit_margin

But they also have nation-wide monopoly and revenue, so 10% of that is "a lot."

> Infrastructure businesses are very expensive. There is no easy solution short of the government seizing the cable infrastructure, which would set such a dangerous precedent that it would probably destroy our economy.

This is scaremongering, in the UK we have BT the almost national monopoly and Ofcom the regulator.

BT is required to grant competitors access to its infrastructure for cost price, which Ofcom sets. The UK has faster and cheaper broadband than the USA.

The American internet service provider market in no way sounds like capitalism but it does sound like protectionism. Just because you live is a country that is capitalist doesn't mean everything is.

There's plenty of alternatives for internet everywhere in the country. Saying "but they only have 1 broadband provider" isn't the same as having only one internet provider. The home I grew up in still doesn't have any broadband cable provider and can't get DSL. Yet somehow my non-tech savvy parents figured out how to navigate finding, competing and buying a high-speed internet provider after years of dial-up. They've had "always on" 24/7 internet in their house since about 1997-98 if I'm not mistaken.

What service do they use, exactly? I think most of us would be interested to hear about a high-bandwidth, low-latency option that isn't cable or DSL. The only things I can think of are satellite and cellular, both of which have huge hosts of problems for regular home use.

Oh your want high bandwidth and low latency? Just like Tesla doesn't have a dealership in my neighborhood, providers aren't available in their area that offers both of those things either.

They use to use pairbonded dial-up, then ISDN. Been on Satellite (high-band down, dial-up up then bi-directional) for the last 10 years or so. They've been thinking of switching to a 4g hotspot recently, which is similar bandwidth and half the latency (and similar cost for their uses).

They always have the option to stop paying for the paper.

If you lack the option because local government banned all other papers from the city (and courts approved this since it's "public interest") then it's really not right to lay this at capitalism's doorstep. Capitalism didn't do it, voters that elected politicians who approved it did.

> in a free market, the customer is supposed to select the supplier, not the other way around

Which free market philosopher expressed this sentiment exactly? None that I'm aware of. Free markets involve free choice of both customers and suppliers. Customers may chose to leave the supplier based on this move, and are absolutely within their right to do so. Customers might even be able to argue their way out of locked contracts.

The idea that free markets should be sort of one-sided, consumer owns supplier, is just silly in my view.

Free market is where consumer has right to buy the goods they want and suppliers have right to produce goods they want. I agree to your point, both sides should have options to select what they want. But here consumers have no choice. It cannot be considered free market even remotely.

Who is the guarantor of variety for the consumers (and suppliers) in your version of the free market?

Telecom market is obviously not a free market - there are piles of regulations, both federal and local. It looks, however, as the OP sees free market as "suppliers do what I want" - which may be a consequence of free market, sometimes, due to consumer's power to withhold purchase from suppliers that don't do what they want - but is not a condition. There could be free market where consumers have no choice - i.e., if for some reason there's only one supplier of said good. Simplest example would be unique non-commodity items - if somebody has the Picasso painting that you want, you can't just go to a competitor and buy it from them, you have no choice. Another example can be markets with very high barriers of entry and very low profit margins, where fixed costs of entering the market may outweigh potential benefits, and as such once one player has established itself there may be extended periods - with completely free markets - that there is no competition for them on that market.

So, the absence of buyer's choice is not per se an evidence of the market not being free, and there's nothing in free market that ensures buyer would always have a choice - only a promise that in most cases, the choice would exist, supported by ample evidence.

Remember ATT bid for T-Mobile? FCC stopped the deal to keep the competition and also so consumers have a choice. Same applies here but seems they are turning their eyes away. Your example of Picasso painting does not apply, by definition that is one of a kind item and only selected people want them, it is not a commodity, so market competition does not apply.

Market is any set of voluntary exchanges, I just point out that some markets can have no competition despite being free. This can happen even in commodity markets, e.g. if somebody owns a huge chunk of the market. E.g. diamonds & De Beers. For telecom markets, there seem to be no substantial reasons why healthy competition can not exist on a free market.

Can someone explain to me how this doesn't violate the Sherman Act (I'm being serious)?

Comcast is actively engaging in trust behavior with another company in order to obtain a desirable merger ruling with the FCC. How is that not anti-competitive?

Cable monopolies are state sanctioned and state controlled, and thus fall under the Parker immunity doctrine[1]. Its the same doctrine that permits tight state regulation of electric, gas, and other utilities.

[1] https://en.wikipedia.org/wiki/State_action_immunity_doctrine

I would like to correct myself. Cable franchises are state sanctioned and state controlled. Monopolies ("exclusive franchises") were also permitted under the Parker immunity doctrine, but as rayiner pointed out elsewhere in the discussion Congress explicitly prohibited them with various acts in the 90s.

Anti-trust - violating the Sherman Anti-trust Act - is a strictly subjective determination.

Comcast is a huge Democratic Party donor, and their CEO is a golfing buddy of Obama's. There was never a chance the Obama DOJ was going to stop the merger. Democrats traditionally are the harshest when it comes to anti-trust, and you can more often count on Republicans to look the other way, so when you have the Democrats (except Franken!) willing to look the other way too... forget about it. Subjective discretion rules anti-trust enforcement. If the DOJ simply chooses to not pursue it, then that's that.

I'd also argue Comcast is the most convenient scenario for the US Government, from a control position (far easier spying for the NSA and piracy control for Hollywood political donors). Far better to have one large cable entity ala AT&T and Verizon in telephony. They love massive companies, when they're under their boot.

Keep in mind there are plenty of quasi-monopolies that the government is more than happy to encourage or leave in place. From Intel, to Microsoft, to Cisco, to AT&T + Verizon, to Facebook, to Google. The Government has never had a problem per se with monopolies, just monopolies they happen to not like for whatever reasons at the time (often politically convenient reasons).

Telecom is exempt from anti-competition laws since...2004?

So Comcast is trying to build a monopoly and people see it as a failure of Capitalism ? In non-capitalist societies monopoly is a default state. (India for example for a long had only one government telecom provider. It exists today with wages to turnover ratio of 103% where as for private companies it is 5%.)

If Comcast actually manages to create an monopoly it will be able to dictate higher prices for poorer service. What prevents Google or someone else who has interest in cheap internet from entering the market as a new service provider ? One answer as usual: Government.

All corporations are greedy and will do everything in their power to create monopolies and squeeze every last penny out of our pockets. This is true is all societies and the best way to stop them is not by letting government fix the problem but letting government out of it.

The answer to poor regulation isn't no regulation.

I'm much more interested in government counterbalancing corporations instead of one of them grossly overpowering the other.

If you agree that the current system of regulation is poor, and you wish to improve it, you must ask yourself whether the regulators have/will improve. There has been no paradigm shift in regulation for a long time, and there is no reason to believe that the same regulators (or even different ones) acting under the same incentives will come up with more efficient or effective regulations, though they may come up with more numerous or novel rules.

Asking government to come up with "counterbalancing regulations" is exactly same as asking corporations not to be ruthless in making profits. In one word: "Impossible".

There is a good reason why corporations are ruthless in profit making. It is because the people who are responsible for making its decisions have a strong incentive to make more and more profits at all cost.

Government out of all people have 0 incentive to come up with anything that acts as a counterbalance. Government employees including Mr. President have only one incentive. Keep that damn job. I worked in a department that was focused on improving certain aspect of engineering education. Very quickly I realized that our jobs and funding depended on painting a very sad picture of reality and getting lots of money from government. Improving education was the last thing we were concerned about.

I do not see what is wrong with "no-regulation" at all. In fact all the empirical evidence suggests that no-regulation leads to far better outcomes in most areas.

> the customer is supposed to select the supplier, not the other way around

Which isn't entirely right. Companies routinely chase after specific demographic groups. Porsche isn't exactly selling huge numbers of low-cost commuter boxes. Where you live is just as much a demographic category as anything else.

It doesn't mean it's not a crappy deal, but the article doesn't get how things work from the company side.

What you're describing is companies choosing who they market to, not choosing who their customers are.

Extending the metaphor is off-topic, but Lamborghini (or Ferrari -- can't remember which) picks it's customers. In order to get on the waiting list for their small run cars, you have to have purchased one of their cars before and not done anything to piss them off.

When the supply is that low and the demand that high, the costs move beyond monetary.

Cable (and other utilities) are not good examples of free-market capitalism since they operate under franchise agreements with the affected municipalities.

This is mis-reading the thesis. Those franchise-agreements and associated rgulatory structures are the premise. The bit about "everything that is wrong with American Capitalism" more or less logically follows.

I read his thesis ... I'm stating it's wrong. Utilities are not free-market and don't represent American capitalism. This is one step away from government-owned utilities, closer to socialism and worse than both (capitalism and socialism).

EDIT:

Reading the sub-comments below, I think perhaps my mistake is assuming that American capitalism tends to be more like Tesla, Amazon, etc (maybe I'm deluded or just a hopeless optimist). But if "Bad American Capitalism" is the topic being discussed, utilities are a perfect example and perhaps we can agree that there are examples of "Good American Capitalism".

> Utilities are not free-market

True.

> and don't represent American capitalism

Depends on how you define "American capitalism". I think they represent American capitalism just fine, because to me "American capitalism" very often means "companies that can't compete in the free market use their capital to get the government to pass laws and regulations that protect them from competition".

You seem to be thinking of American capitalism as something other than "capitalism, as practiced in America."

> Cable (and other utilities) are not good examples of free-market capitalism

That doesn't mean they're not good examples of American capitalism. It just means that American capitalism is very often not free-market capitalism.

How are these customers not free to select their supplier? If you dont like the new owner then you can switch to another service provider.

Suppliers switch ALL THE TIME in the free market and consumers are none-the-wiser. Consumers care about the end product...is it up to par for what I pay? Think of the hundreds of suppliers that go into the computer you use. Did you select them? Do you care who provided the plastic for your keyboard?

With regards to cable/internet service providers, in a lot of locations there simply is only one option. If that's the case in the area where the customer trading is going on, then the only option is to cancel that service and go without the internet/cable. That's why it is bad.

"Not only is this the situation we are in, but we have somehow gotten here with only the feeblest of protests. "

Feeblest of protests? I ditched Comcast years ago, and it apparently bothers them enough that they send a person to my door every month or two. What does he want me to do, storm the local Comcast office?

If its that easy to "switch" customer bases why can't I just choose an upstream provider and force providers to compete on service?

I've been "owned" by three different cable companies in the last 3 years. In the same house. The worst part is, the big fish who "owns" me now hasn't bothered to upgrade fish #2's infrastructure to match their own. So I now have the worst of both worlds - famously crappy support, with poor selection. Thank Buddha for Satellite.

I wonder how much of this buyout-without-investment behavior is just a method that big providers use to punish users for "cable cutting."

It's a sad state of affairs when anybody is happy with satellite internet. So much expense for such an awful service in all respects.

As a (very) rural satellite consumer, it's only awful in most respects, not all. With the latest incarnation of satellite, the speed isn't terrible. Really, it's not.

If the weather isn't bad, and it's not spring/fall sunspot season, and you only use 15 gigs. But at least it's overpriced.

And if you don't have hills or trees between you and the southern sky, and you don't have any interest in anything latency-dependent, like gaming or VPN/remote desktop.

Oh, and uploading anything ever. Does satellite still use dial-up lines for all upstream communication?

Uploading isn't terrible anymore. No dial-up lines. Not super fast, by any stretch, but it's not an the abomination it used to be.

What kills me, personally, is that I have a fiber line running between two of the major metros in my state underground at the front of my property, and no feasible way to tie into it. Am currently taking suggestions on how to do that.

That's because we don't live in a capitalistic society. We live in a plutocracy where the rich change the rules depending on whatever is most advantageous to them. We privatize our gains and socialize our losses. There was a time during the financial crisis where I thought real change was going to occur, but things like the Tea Party went upside down and started attracting kooks and racists instead of real fiscal conservatives.

Wait what ?

hypocrisy: the practice of claiming to have moral standards or beliefs to which one's own behavior does not conform;

Social Networking Platforms are know to treat and swap users as commodities. Why are people even complaining ?

"I am not a Number; I am a Man!"

I'm not sure this is as much of a problem as he makes it out to be - if anything, we should be disturbed that the merger is being allowed to go through in the first place. Separating out some customers to prevent a monopoly is a good thing, if anything, and has been done before - when Verizon acquired Alltel, they were required to let AT&T buy the North Dakota portion of Alltel so there wouldn't be a Verizon monopoly here.

I agree that the merger approval is the original and bigger problem at large, however, unlike AT&T/Alltel this does not seem like 'monopoly prevention' but in fact just the opposite. Calling it 'saving-face' doesn't even do the situation justice.

Sure, Comcast sells off 1.4 million viewers. The gap from No.1 to No.2 post-merge then grows from ~11m subscribers to nearly ~25m. Not only that, but as the LA Times article points out, this is "a fast-evolving industry that requires huge capital investments to maintain..."

Competitors will be reluctant to enter an industry with such significant capital barriers, and why would they? Comcast owns their customers before they've even started.

Based on what I've seen and heard, Comcast has history of doing things like this. They have entered in contract with apartment complex across the nation and have mandated each apartment to have their service. The consumers have been at their mercy whether they like their content or not or even want it. Comcast has gotten too large, it is very dangerous when one company controls so much of media in the country. Where are the regulators?

Afaik, the cable companies got virtual monopolies to certain regions/cities/neighborhoods with the claim that they were like utilities. Laying cables and maintaining them was similar to what power companies do.

And now, we are finding out the rates of the cable companies are going up and up because we are basically financing their expansion into other businesses.

It's like my local power company raising rates so that they can go into business of running data centers.

When discussing the cable industry, one must acknowledge that it is unique in its government mandated monopoly. Trying to analyze it as normal capitalism is pointless.

This was an unintentional bait and switch.

Monopolies on tv? Who cares? I don't even watch it.

...and then overnight they steal internet from the phone companies and dedicated isp.

https://petitions.whitehouse.gov/petition/maintain-true-net-...

Looks like an industry ripe for disruption.

I did choose. I don't have cable.

A lot more than that is wrong with capitalism like the fact that no value is given to anything you can't sell.

Everything that is wrong with this HN post, in one headline.

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