Wednesday, September 26, 2007

I-Phone Restrictions Herald the Benefits on Non-Neutral Networks--Not!!

George Mason University Law and Economics Professor Thomas Hazlett has written a short piece in the Financial Times heralding the virtue of closed wireless handsets and the wisdom of markets in lieu of regulation. See

He's right that no one put a gun in the ribs of buyers more than willing to tolerate deliberate strategies to limit access to networks, software applications and services. Yes, there surely are instances where consumers face a "take it or leave it" value proposition. But in robustly competitive markets, consumers can vote with their dollars and find alternative service arrangements that offer fewer restrictions.

The increasingly concentrated cellular telephone marketplace in the U.S. offers consumers limited options. Bear in mind that most cellular advertisements claim that the network generally works. Now that's a high bar: we're the network with the fewest dropped calls!

I can agree with Professor Hazlett about the virtues of marketplace competition. But I surely disagree with him that I should ignore locked phones, walled garden access to content, two year subscription lock-ins, the absence of a market for used phones able to access cheaper service, etc. and conclude that the cellular business "is a competitive process in which independent developers, content owners, hardware vendors and networks vie to discover preferred packages and pricing."

Living in Pennsylvania I have one source for wine and spirits, the state Liquor Control Board. This government monopoly regularly hires experts to claim that its absolute monopoly accrues public benefits without any consumer harm. So I am to ignore the extortionate prices, limited customer service and a dearth of choices.

The I-Phone early adopters have to make a similar leap of faith, but I dare suggest no one likes the fact that they could do more more with their I-Phone had Apple embraced an open access environment. Successful market debut of a closed I-Phone parallels the years of marketplace success AOL achieved with its walled garden of content and features. But consumers grew weary of limits on their access and lucky for them had opportunities to find a better value proposition.

Consumers seeking to unlock the I-Phone risk voiding warranties and limited relief in any event. So much for a robustly innovative and competitive cellular marketplace.