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Friday, September 24, 2004

The Coase Theorem and the Wireless 411 Plan
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The Senate Commerce Committee has narrowly approved the "Wireless 411 Privacy Act." The Wireless 411 directory, as it is being developed by six of the major wireless carriers and CTIA, would allow customers to opt-in and make their numbers available through a directory listing service - those numbers would not would not be published nor, as its proponents state, made available to third parties such as telemarketers. During the Senate Committee hearing, a representative from Verizon Wireless stated that "a Wireless Telephone Directory would be a terrible idea, and we will not publish our customers cell phone numbers or otherwise participate in the plan you have heard about today."

An editorial in yesterday's Denver Post questioned whether VZ Wireless' stance is good for its customers, but supported cementing in privacy guarantees through legislation due to fears of telemarketing and spam.

First off, the notion that there is a need for governmental involvement here is nonsense. In a "but for" scenario, the participating wireless carriers already have the incentive to comply with whatever reasonable provisions that could be included in legislation. This is being driven by the competitive environment within the industry itself - and as VZ Wireless' position against the directory illustrates, there are plausible ways to compete by differentiation. It should be noted that the fear of telemarketing is further mitigated by the existence of the federal do-not-call list (which includes mobile phone numbers) and prohibitions against auto-dialing and telmarketing calls to cell phones.

Ultimately, this issue really boils down to a property rights question and an application of the Coase Theorem, which compels the rather glib conclusion of "Who cares?" Parties will negotiate to an efficient solution, especially since the externalities created by a wireless directory are both positive and negative and impossible to accurately predict in advance. The traditional rationale for a directory listing is that it can create a positive externality (hence, wireless customers who currently want to be listed in the White Pages must pay a fee). On the other hand, the number of subscribers to the federal do-not-call list is plainly evident of negative externalities. In this light, it would appear that the proper equilibrium is the general approach being privately pursued under the 411 Plan.

9/27 UPDATE: Declan McCullagh has a nice perspective piece on News.com today, accurately entitled Legalized extortion by any other name

posted by @ 10:42 AM | General

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