Thursday, October 20, 2016

Regulation by Contractual Fine Print

            Advocates for telecommunications deregulation work themselves into a lather when thinking about how government regulation kills jobs and robs stakeholders of the incentive to invest and innovate.  Sponsored researchers provide cover with selective analysis of data and its quite bogus extrapolation.  For example, even as incumbent carriers like Verizon and AT&T spend billions on content and future technologies, like 5G, to deliver it, the carriers and their consulting advocates attribute regulation as severely dampening any reason to invest in new plant.

            Let me get this straight.  Incumbents have no reason to keep their business alive and fresh with cutting edge technologies, because regulators will prevent them from reaping the fruits of their labor by forcing network sharing and imposing network neutrality requirements? 

            Does this pass smell test?  Why would Verizon spend over $4 billion to buy Yahoo and its considerable inventory of content and customer base if the carrier business was being starved of funds to increase transmission speed and capacity? 

            Let’s consider the dead weight social loss in regulation.  I’ll readily admit that uncalibrated and unwarranted government oversight can harm consumers and competition.  Incumbents do not want you to know this, but they welcome regulation that imposes a disproportionate burden on competitors and creates barriers to market entry by prospective competitors.

            Incumbents also do not want you to know that their service contracts—and the regulated tariffs that preceded them—impose far worse costs on consumers than anything the FCC could impose.  Regulation by contractual fine print refers to the anticompetitive and consumer harming language carriers sneak into their terms of service.

            Here are some examples:

            Unlimited data does not mean unmetered and boundless downloading opportunities. Fine print in service terms, like that offered on a “take it or leave basis” by TMobile, offer metered service and severe penalties for exceeding a cap on so-called unlimited data service.  Should a subscriber exceed a data threshold, then the carrier downgrades network performance to a rate incapable of transmitting most data applications.

            How many commercial ventures can deliberately ruin their service with an eye toward forcing customers to upgrade to a more expensive tier?  Pretty risky proposition, but wireless carriers can get away with this strategy.

            Here’s another example: AT&T and other carriers, as well as content providers, like Yahoo, reserve the option of scanning anything you do and say online, mining it, collating it and marketing it. For ventures like Yahoo and social network like Facebook, subscribers accrue value in exchange for abandoning most privacy protection.  But in the case of carriers like AT&T, the scanning and marketing of subscriber usage data does not result in the offer of discounted service.  Just the opposite.  AT&T and other carriers floated a trial balloon of offering to eschew some customer snooping in exchange for additional monthly compensation.  Such a deal!  Customer can pay for somewhat better privacy, but the default is abdication of virtually all privacy.

            Another example is compulsory arbitration on terms set by the carrier using a venture hard wired to favor the carrier in light of the business it generates for the arbitrator.

            Consumers face a non-negotiable service terms severely tilted in favor of the carrier that writes the contract.  Even a brief scan of these agreements would show terms that reduce, regulate, limit, minimize and dilute consumer bargaining power.  Subscribers cannot simple churn out from one carrier to another one offering better terms, because these so-called robust competitors have nearly identical terms and conditions.

            So who’s the regulatory beast these days?

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