I’ve talked recently about the Federal government’s involvement in limiting media through regulations and the FCC. Companies like Comcast are not operating in a free market, they have the government to give them advantages, and put regulatory roadblocks in front of their competitors. But the Feds aren’t the only crony capitalists in government. Local governments play a large role in limiting internet provider competition by charging exorbitant fees to companies who want to put their wires in. The cost of the network doubles with the governments forcing pay-offs before a business can start operating. This means an internet company must already be large and established in order to start providing service in an area, and the smaller competitors are cut down by the government demands.
This crony capitalist way of doing business has even blocked Google fiber from delivering services in some areas, because of the gigantic costs—so just imagine how impossible it is for a small company to try to set up an internet business. And this is yet another reason why big companies become monopolies, and small ones wither: government intervention into the market. The local government limits who can even put the wires in the ground or on the poles, meaning they can approve or deny an internet provider moving into their area arbitrarily.
The lack of competition makes it easier for local governments and utilities to charge more for rights of way and pole attachments.
It’s a vicious circle. And it’s essentially a system of forced kickbacks. Other kickbacks arguably include municipal requirements for ISPs such as building out service where it isn’t demanded, donatingequipment, and delivering free broadband to government buildings.
If you can’t afford those kickbacks, your company doesn’t get to exist in that area.
In Austin and Kansas city, politicians wanted Google fiber, so they charged less and streamlined the approval. This however still means those local governments can arbitrarily deny ISP’s to their area by charging restrictive prices, thus allowing the possibility of a Google fiber monopoly. But in places with less regulation, competition among internet service providers has flourished, allowing more choice and better prices for better service.
“[I]t’s clear that investment flows into areas that are less affected by regulation than areas that are dominated by it,” observed Milo Medin, Google’s Vice President of Access Services, in summarizing the lessons of Google’s Kansas City experience in Congressional testimony.
When even well-established companies like Google are deterred by such barriers to entry, is it really surprising that there aren’t more competitors jumping into the broadband market? As Medin pointed out, “just imagine the impact on small and medium-sized enterprises.”
So the solution is to deny the power to government to approve or deny internet providers who want to build networks in their area. Any provider who wants to and can pay for the actual costs of building the wire networks, not the bribes forced on them by local politicians, should be allowed to do so. This is no different then traveling on public roads with goods your company needs to deliver. Local governments cannot demand a payoff or deny Stop and Shop access to their roads. And likewise, local governments should not be allowed to deny some businesses the ability to operate in that area, while selectively approving others.
Yet again the solution is less government, and more freedom. Free market competition can take care of a lot of problems, but not when the government turns capitalism into crony capitalism; not when the government gets to pick the winners and the losers.