Spectrum of Greed

Open markets, regulated markets, telecom, oh my!  There are lots of variations on the debate, but in the end, you have one side saying that it is broken, so it must be regulated to fix it, and the other side saying it is too regulated, and therefore broken, so deregulate further to fix it.  I have to call bullshit.

There is a great term I saw over on Big Picture, called agnotology.  It fits the broadband industry perfectly.  The definition of agnotology goes like this:  Culturally constructed ignorance, purposefully created by special interest groups working hard to create confusion and suppress the truth. If I hadn’t seen the word before the definition, I would have thought it was meant as a functional description of the FCC.

So we have agnotology being practiced with extreme predjudice in the telecommunications industry.  But if we dig under the surface, neither of these agnotological postulates (regulated/deregulated) is accurate, they are a smoke screen to hide what is actually occuring.  Let’s examine for a moment the relationship between capitalism and innovation.

First, capitalism:  A company in a capitalistic society must compete against other companies providing a similar product or service.  They compete on price, on quality, on style, or on some other differentiator that provides a basis for customers to perceive their offering as a superior value to others.  Depending on whether the company is a newcomer to the market or an established market share leader, the innovation that the company practices is a direct inverse to the size of a companies market share and the size of the market it serves.  For as the customer base of a company grows, the infrastructure necessary to support the customer base expands.  As the size of a companies infrastructure grows, it becomes more of an oceanliner and less of a skiff.  The ability to innovate dwindles, and a culture of stability and cash maximization dominates all else.

Next - Innovation:  How does innovation occur in a capitalistic economy?  Competition and open markets work together to provide opportunity to risk takers - entrepreneurs who believe they can change the game in an industry.  Their innovation either lives or dies on it’s merit, and they either attract and begin serving a customer base, or not.  If they are successful enough, they too can grow to be market dominators, and defend their turf from future innovators.

So what does this have to do with the rate of innovation in the telecommunications industry?  Telecom is an industry dominated by very large corporations serving enormous customer bases.  Unfortunately, there is no ability for small, entrepreneurial, innovative companies to come in and change the game, because the barriers to enter this market are created by a government agency that has ultimate power to prevent any new companies from entry.

The consolidation in this industry is no friend to innovation either, and it just continues to decrease the number of companies operating in this market.   The latest of these is Verizion Wireless being allowed to swallow Alltel in a merger that cost almost $6 Billion.  It makes Verizon the largest wireless carrier in the US, and third largest in the world ranked by revenues thru Sept. ‘08.

When a company can pay nearly $5 Billion for 700Mhz licenses it doesn’t really need in the first quarter of 2008, preventing new competitors from entering the market, and then is allowed to acquire another company operating in this closed market for $6Billion in the same 12 month span, that should tell all of us something.  How would a new entrant compete against a company that can spend $11Billion to expand in one year?  That is some serious intimidation, even if you are allowed entry.

What would I call regulation of a market that has this type of activity?  Nonexistant.