There’s been a lot of press in the last year or so about port blocking, open access, Net Freedoms, and so on. I won’t provide the links, you go find ‘em. Every forum, mailing list, conference, and discussion panel seems to have a lot of heated opinion about it. Although I couldn’t attend the VON sessions, there was heated debate there between the “Freeloader!” and the “Freedom fighter!” factions.

But why should I, emotively, care at all?

Stop for a moment. Why do you, personally, care about this issue? Telecom isn’t the only industry with distribution bottlenecks, significant market power, and cross-subsidy between the stages of production. Just look at how baked beans are positioned in supermarket shelves. Manufacturers in the UK pay the supermarkets to buy prime positions. Yet telecom incites such great passion in intelligent people. Baked beans don’t. What’s going on?

I think I’ve finally worked out why. It’s David Isenberg’s elephant in the corner — what he ambiguously calls Freedom to Connect. Most of these arguments attempt to build a logical economic thesis about why we do or don’t have the correct balance between price discrimination, competition and common carriage. But it increasingly misses the point. We sense there’s a deeper, more troubling, aspect to getting cut off from part of the conversation.

Whilst nebulous and fluffy, it’s all about democracy. The rest is post hoc rationalization of our more fundamental beliefs about how a 21st century society needs to be wired up to work. And my thesis is that we are underestimating the importance of this political (as opposed to economic) side of the debate.

The sense of indignation you feel inside you when you hear about port blocking is because you sense the loss that those customer are enduring. You and I have come to realize that if you don’t have access, you aren’t able to fully participate in society any more in some non-trivial way. You can still do the old analogue things, have a protest at the street corner. But the crowds have moved online. Nobody can hear you.

Not only that, but when someone else gets the chop, you’ve lost a member of the demos from your democracy. Your conversation is impaired by others no longer being able to participate.

Why don’t we feel so upset about the closed, walled gardens of wireless networks? There are several reasons, I believe. Firstly, the very nature of the medium lends itself to competition (through multiple overlapping networks), which ensures some degree of openness. The low cost of wireless telephony is also in itself a great democratising force. Going from zero phones to one closed one is a great step forward. Participation is everything. We also have lower expectations based on the natural capacity limits the technology has had until recently. Our tolerance of “co-operative bottlenecks” has been greater in order to share the resource better.

On the other hand, when someone’s Net connections to their home come under pressure of restriction, we react differently. I think this is partly a psychological issue of how we view these spaces differently. We are defensive of our homes. Somewhat tenuously, the family still is the organising unit of society. We aspire for every household to have at least some form of unfettered access to all forms of information discourse. That’s why it hurts when we fall short.

Which brings me to my real point. This conversational chatty democracy stuff all sounds fine. But that’s hardly going to energize society into fits of fiber laying and open access regulation. Where’s the beef? Well, here’s my outrageous suggestion:

The ability to access Internet content and services is the new Right to Bear Arms.

Wow. I’ve said it. So what does it mean? The founders of the United States of America in their wisdom saw the seizure of excessive power by government as a central risk. To counteract this, they ensured the general populace would always be sufficiently armed. This gives any putative dictator or tyrant pause for thought before exercising the machinery of government violence for undemocratic ends. The price is a certain undercurrent of everyday violence, but the experiment has by and large succeeded. The USA is one of the longest-standing constitutional democracies, and has withstood extraordinary change in demographics and fortune during that period.

We’re moving from a society where physical force was the prime means of coercion to one where ideas have ascendancy. Physical force doesn’t scale well as a means of subjugation. It’s one thing to take a man’s posessions; quite another to persuade him to make your dinner every night for nothing. The hardest part of the civil rights movement wasn’t undoing the yoke of the white man, but persuading the everyday black man that it was his inalienable right to have that yoke removed. Once that was achieved, the outcome was largely a foregone conclusion.

Building tyranny is harder when the populace is armed with good information. It’s not impossible; indeed, a tyranny of the majority is still a major risk. But when I can have a cheap encrypted Skype conversation with Iranians, Syrians, and Mexicans, something qualitative has changed. For example, when I visited Syria a few years ago, we went to Hama. This town was largely razed in 1982 (with the loss of tens of thousands of lives) when its own army shelled the city to put down an Islamic uprising against the Baathist government. I pass no comment on the politics of it, but merely note that this is a little-known episode of history. You certainly don’t see it mentioned on the official tourist website. Can you imagine keeping such news under wraps in the era of video cameraphones, satellite Internet and Skype?

Consider a populace that wants to rise up against its political masters. We’re already at the point where the government response isn’t to take away the populace’s arms, but to take away its means of communication. Militias don’t congregate in the woods and more, they start their own Yahoo! group and MoveOn and Meetup from there.

There’s no point in demanding universal access if you don’t have the economic means to deliver. Much of the debate is about means, not ends. But those ends deserve greater exposure and reflection. If we are serious about transformation of society through information technology it means sweeping away many of the special protections the telecom industry has managed to accrue, enforcement of competition law, and greater collective effort to deploy connectivity and open up wireless and fixed rights of way.

There’s more at stake here than cheap phone calls and unlimited TV channels. Cheap airlines have done more for European cohesion and understanding than decades of political exhortation. Cheap, ubiquitous and unfiltered communications are becoming a prerequisite of a pluralist participative democracy. Societies that fail to encourage the free flow of information will suffer because ingrained interest groups will ensure the rules are set up to perpetuate their privileges. When you can’t make a Skype call, you’re losing something more than money.

You might believe that your political system is a stable one delivering endless contended freedom and openness. But your average American feels a lot more secure in that knowledge with a rifle in the basement. I’d want the same feeling of security, just with symmetric gigabit fibre so I can host my own subversive content if necessary.

Next time someone is vigorously defending the existence of filters on the Net, dig deeper. Don’t ask them for the logic of their argument. Rather, try to find out why it excites them so much. Perhaps they aren’t aware of what animates their own passions.

Don't get me wrong...

I don’t want anyone to think I’m about to become a crypto-socialist, so a quick clarification. The correlation between “network freedom” and the right to bear arms is only a partial one.

Taking up arms is something that can be done unilaterally. A network is by its definition a collective effort, even if an emergent rather than centrally co-ordinated one. So it cannot be purely a personal “freedom”.

The right to bear arms is equally re-stated as a right not to have your arms taken away from you. It doesn’t mean anyone has to provide you with a gun. Network access is a positive outcome of economic activity over which there are rivalrous claims to finite resources, like network engineers. But you don’t (yet) own the network, so there’s no corresponding right not to be deprived of the use of your possessions. Bearing arms is really a negative freedom (something bad that won’t be done to you), whereas Net access is a positive freedom. Freedom doesn’t do free lunches.

As I have said before, price discrimination in competitive markets is your friend. Filtering can be used for price discrimination. Filtering is a symptom of how well the system is performing. In a mature telecommunications sector, such as wireline, it is a symptom of ill-health. In a nascent one, such as cellular access in the developing world, being only able to access closed phone and SMS service is a vital part of the pricing regime that makes the network possible. The existence of network filtering is an output, not an input; a symptom, not a cause.

You do not automatically make your society freer and healthier by outlawing all network filtering. Indeed, you might achieve the exact opposite result.

Guns don’t come with enforceable end user license agreements that say “For shooting small furry animals only”. But we do distinguish between bunny-hunting guns and machine guns. We discriminate based on lethality. We don’t expect unlimited freedom to bear arms. A farmer wanting to blow some cute crop-nibblers to kingdom come is given carte blanche to blast away. Walk into a bank carring the same hardware, and expect trouble. We might likewise expect some boundaries to our communications freedom.

So I would caution people from taking the analogy too literally. The right to bear arms is also a means to an end — a populace willing and able to resist attempts to capture the machinery of state to perpetuate undemocratic activity. Unfettered and affordable network access is correspondingly essential to the operation of a free and dynamic post-industrial society.

So I’ll say it again, differently. Rules against network filtering are one way of dealing with significant market power in a vertically integrated part of the market where someone has significant market power in the access layer. It isn’t necessarily the best way of doing it, but it’s one way. In all other cases, it’s likely to be harmful. You should use the existence of such activities as a yardstick for the development and maturity of the industry. Expect new technologies and markets to be full of filtering, which slowly recedes over time as competition heats up. Meanwhile, municipal networks and other co-operative of user-owned connectivity systems should aim for more opennness that simple economics suggests, because the benefits are hidden in the political layer.

I alluded to the special privileges and protections that exist in telecom. I guess I ought to enumerate a few to back up such a claim in what is becoming sometimes a suicidally competitive environment.

The US is the easiest example of how barriers to entry are built via co-option of the regulatory infrastructure, but examples about all over. Tariff sheets and their attendant cost of lawyers to issue, public utility comissions stuffed with friendly faces, exclusionary numbering schemes, sweetheart deals on rights of way, spectrum auctions that have singularly failed to recover the maximum public benefit, suspicious tax rebates, opaque pricing schemes that fail to come under scrutiny, faux taxes; the list goes on and on. Mostly it’s just a matter of not having to comply with normal competition and cross-subsidy rules and establishing your own parallel (and captive) regulatory environment, plus special deals on costs on inputs and prices of outputs. Check out the usual places for more data.

UPDATE: Susan Crawford has some thoughts along similar lines, with the money quote being:

I’m trying to create a normative map that will help reveal the assumptions at the heart of the network providers’ arguments. The key issue should be: is access to the internet a public goods problem, for which incentives are necessary to ensure buildout and maintenance? or — Is access to the internet a monopoly problem, for which you have to find ways to ensure frictionless competition?

Right now, we can’t tell what the right answer is.

My hunch is that we’ve not found ways for the invisible hand to operate that also allows collective action by users, groups of users, communities and regional government. It’s an “economics technology” problem, not a “technology technology” problem.

David Weinberger documents Tim Wu’s similar analysis of how the world is divinding into “openists” and “deregulationists”, where a confused cross-purposes of terminology, worldviews and methods collide.

via Martin Geddes' Telepocalypse.

As a fellow free-market libertarian, and also a telecom blogger, I ought to be in agreement with Russell Roberts's critique of municipal "socialist" telecom networks.

Yet I'd like to offer, if not a contrary view, at least a different perspective on muni networks. I believe there are good and bad reasons to build them. But dismissal is not an option.

Yes, there's a clear transfer payment in favour of people who are unwilling to pay the current market-clearing price of a broadband connection. This is a net loss of utility to society, since the taxpayers whose money was confiscated had other, more pleasant, ways of spending this money in mind.

But there are also reasons to consider the free flow of information via telecom networks as a special and unique case. Information goods may not always conform to classical economic models, such as rivalrous consumption.

Let's take the market economics first.

The most important and unusual feature of telecom networks is that much of their value is option value — the ability to cater for unknown applications. E-mail, the Web, P2P, podcasting — none were there at the birth of the Internet. (Search for "End to end principle" and "Rise of the Stupid Network" for more data.) Unfortunately, the desire to price discriminate by a commercial supplier also serves to destroy option value, by limiting messages exchanged to those forms for which a tariff has been devised. The act of price discriminating network traffic and billing is also horiffically expensive. However, the desire to price discriminate is overwhelming, because of the billion-fold difference in value of different traffic types.

Telecom networks potentially generate huge consumer suplus. There is also an elemet of merely co-ordinated self-supply in a muni network. You do no harm by fixing your own blocked sink rather than calling a plumber. By engaging a general contractor, a locality effectlvely self-supplies itself ("unplugs its own data sink"), and retains the full consumer suplus. Again, because of the nature of networks, this isn't something users can do unilaterally.

There may be a co-ordination problem that corporations find hard to overcome. Most communications are geographicaly local, but there's little point in buying a videophone if insufficient of your friends and family across town — some of whom are in poorer households and districs — have one first. The natural unit of purchase of a telecom network may be greater than the single household, by the very nature of being a network.

Those poorer households are hard to cross-subsidise via market means, because the applications, where most of the money is spent, are separated from the connectivity. It's so far proven impossible to make the cross-subsidies between different connectivity buyers and application users work in an effective and fair manner, particularly when users are on different networks. The coordination and transaction costs are too high. (Would a universal service type of outcome arise from a pure market operation? It's debateable — at the very least, it's uncertain.)

Another co-ordination problem is a whole district can't easily sign up to a single network provider at once. The network provider has to engage in house-by-house sale. This is extremely expensive. A municipal network eliminates this transaction cost at a stroke.

There is also evidence that communications infrastructure generates new business and economic activity. This value is not captured by a traditional network operator (e.g. Google's billions of revenue do nothing for SBC or Comcast). But if the general public is the network owner, their interests do align. There is real evidence that the net gains from any form of increased data connectivity are large (see this for example). It is unproven, although not unreasonable, to hope that a forced municipal network will indeed have this effect. Unlike most infrastructure white-elephants, the almost infinite flexibility of a telecom network significantly lowers the risk of such a public enterprise.

Next, there is the practical issue of a market forming over rights of way for new facilities-based entrants. Early phone networks involved massive looms of wire down the street from multiple providers. Planning laws, zoning and access restrictions prevent a proper market forming in this bottleneck.

Finally, there are internal public costs of service delivery. A municiapl network enables those local services to be delivered at potentially lower cost. This is particularly true when access is universal and non-digital service delivery channels can be eliminated.

There is also a non-market side to this. The operation of our democracy requires ideas to flow freely. The increasing dominance of digital media may displace traditional analog alternatives. (When did you last go on a protest march? Read a political pamphlet?) The current experience in Canada with Telus, cutting off access to union web sites that offended it, suggests that allowing a tiny handful of corporations to control this access is potentially dangerous.

Lastly, the invisible nature of information goods and rights of way emprically seems to lead to markets in them more easily being manipulated via political means and regulatory capture. The public don't feel the pain of loss of the services they never got the experience, or the low prices they never saw advertised. The endless pleading and lobbying of telcos worldwide should be a warning signal of a market out of balance.

The trick is, of course, in balancing all these softer issues against the harder deadweight loss of a tax-backed transfer payment. But just because competition is good, it doesn't mean that co-operation (if sometimes coercive) is automatically worse.

Many of you will have heard of the famous Black-Scholes equation for the pricing of financial options. The basic idea is that an option contract to buy a thing at some future date at a fixed price has some potential premium over the current price of the asset because it may allow you to buy at a discount some day (i.e. the strike price is below the market price on the day the option is exercised). Black-Scholes lets you calculate this premium.

A stupid network is like an infinite sequence of discrete options to communicate between connected parties. At the finest granularity, every frame or packet contains a message from a pool of possible messages. A stupid network makes that pool of possible messages larger by deferring optimisation for any particular message type. (For example, IMS networks pre-optimise on SIP, which would exclude a more bandwidth-efficient signalling protocol such as IAX — which could be a problem for wireless devices.) The assumptions for a "stupid" network is that networks have considerable longevity, there is high uncertainty about the future returns of different "messages," and high initial cost — otherwise we could just build more and more application-optimised networks. These respectively map onto "low interest rate," "big standard deviation in returns" and "high current stock price" in Black-Scholes, maybe perhaps, if I interpret things correctly.

I'm wondering if any network economists or general econometricians out there have done the work to adapt and extend Black-Scholes to model communications networks from an option theory viewpoint. If any of you know the answer, I'm curious to find out what they discovered.

As someone with a degree in mathematics, I would regard the problem as "non-trivial", and definitely well beyond my aptitude.

Naturally, the option price may be somewhat different for the owner and user of the network, depending on how good the owner is at price discrimination (i.e. manipulating the strike price) — something the "stupid" network is notoriously poor at. There could be some interesting consequences for muni network advocates. Spreading superfast broadband to people who won't today pay for it at market-clearing prices is a way of foisting options to communicate onto the economy, with the hope that someone will invent crazy new applications to redeem them. Perhaps there's a sounder theoretical basis for muni networks yet to be explored?