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Monday, April 3, 2006

Build-Out Requirements... No, Thank You.
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National Journal's TechDaily has a good article by Drew Clark on the debate currently going on on the Hill about build-out requirements (subscription required).

The concern is that the rich side of town will be wired before the poor side. Rep. Markey is quoted:

"My fear, and I think it is going to happen, is that the poor side of town is going to subsidize the rich side of town where competition is going to break out."

This whole debate is saddening, and a little surreal. Here are some basic realities about build-out:

Whether or not an area can be profitably built out has to do mainly with population density. Low-income areas tend to be high-density (at least in urban centers) and therefore historically the tendency has been that these areas are built out well before more sparsely populated suburban areas. Furthermore, lower-income areas have had a pretty healthy demand for tech services. The odd thing is that legislators such as Rep. Markey, who have been around the tech legislation scene for years, really should know this.

The second fact is that build-out requirements have a rather sad history themselves: As economist Tom Hazlett has thoroughly documented, these requirements were rarely imposed on the first entrant into the cable market. Generally it was rare for such entrants to build out into the entire market immediately, it usually took a few years. The idea that first entrants have labored under such requirements is a myth, a myth fostered largely to present formidable obstances to the entrance of a second competitor in the market.

It seems just weird to me that after so many, many years and so much evidence of problems with build-out requirements--the fact that they are neither necessary and are affirmatively anti-competitive--that this debate is still going on. If we want to have a debate about whether cream-skimming (that is, where a second entrant takes only the most profitable customers) and whether it is efficient or fair, fine, but where did these legislators get this silly idea that lower income groups are not as good a target market as any? It is as if they are simultaneously embracing competition and markets, and some bizarre variant of Marxism, in which the rich get richer and the poor get poorer, and entrepreneurs are completely lacking in initiative and imagination, so that they don't pick up a dollar when it is lying right there in front of them.

posted by Solveig Singleton @ 1:04 PM | Broadband , Cable , Capitol Hill

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