Political Irony

A fascinating article in Ars Technica about Internet Service Providers got me going on the issue of “too big to fail”. In the article, they talk about how many people are unhappy with their ISPs. “If complaints aren’t about delivering the promised speeds, they’re about the crappy customer service, billing problems, frequent outages, and the impossibility of switching to another without being cut off from the Internet for months.” In order to answer the question of what a good ISP would look like, they look around the world, and actually find some!

For example, in France, the young company Free.fr offers 20-30Mbps internet (100Mbps in some towns), free phone calls to 100 nations, HDTV including a DVR, free access to WiFi hotspots, and more. All for considerably less money than I pay for my Verizon internet access. Free.fr does some radical things, including allowing customers to work on Free’s open-source products. Are their customers happy? Their churn rate is below 0.01% per month, which indicates that their biggest reason for losing customers is probably because they die.

In other countries, other amazing innovations are happening. For example, in some places ISPs are giving special routers to their customers, which create a public WiFi hotspot that runs separately from the customer’s local access, creating ubiquitous wireless access. Wouldn’t that be great to have here? Why aren’t our telecom companies doing this?

To conservatives who claim that government regulation is responsible for stifling business innovation, I point out that these innovations are happening in places like Britain, France, and Sweden — countries which those same conservatives decry as horribly socialist. So the problem doesn’t seem to be government regulation.

The answer is that most of these innovations seem to be coming from small or new companies. This is no big surprise. In the US, the big internet names are Google, Yahoo!, Amazon, and eBay, which didn’t even exist 20 years ago.

There are plenty of other examples of this phenomenon. When I was younger, the big retailers were companies like Montgomery Ward, Sears, JC Penney, and K-mart. How are they doing now? And their decline is not just because of the internet — Walmart and Costco (which of course are relatively young companies ) seem to be doing just fine in the bricks and mortar retail market.

The problem still could be government regulation, if that makes it difficult for new companies to get going in markets that are heavily regulated. But I don’t think so. Look at airlines, one of the most regulated industries of all, where the old established companies are facing savage competition from smaller upstarts. Or look at the “Big Three” automobile manufacturers, who had their lunch eaten by imports.

The real problem is that all of our major ISPs seem to be old telecom companies. They would love to just make lots of money off their ancient, outdated services. That’s what old companies do. And like the big car companies, older airlines, and ancient banks, they have almost no incentive to change since the government is all too willing to bail them out if they take any risks. While I am not in favor of socialism (where government runs businesses), I am far more concerned about fascism (where government does whatever big business wants).

Innovation doesn’t come from old companies. It never has. Neither can it be legislated by government. Innovation comes from free markets, which means markets that are open to new ideas and (especially) to new companies.

The job of government should be to create these markets where new ideas can thrive, and not to bail out dinosaurs that are too big to survive on their own. Let ’em die, but make it easier for new companies (like Google) to take their place. Because once a company gets too big or too old, all it can do is fail.

UPDATE: Here’s a news report from yesterday about how some Wall Street firms are not only too big to fail, they are too big to punish when the violate the law.