Business Report

Meet the New Monopoly, Same as the Old One

A new book argues that concentration of power is an inevitable result of new communications networks.

For much of the last century, people didn’t have a choice of phone companies; a monopoly owned the lines that carried calls, and it provided the phones to homes as well. AM radio stations were held by a handful of people, who managed to squelch independent voices and delay the advent of a superior technology, FM radio. Television was dominated by just three national networks in the United States, and each offered similar programming.

Columbia University professor Tim Wu is the author of “The Master Switch.”

Fortunately, we’ve overcome that. Governments recognized the benefits of busting up monopolies in these information industries so that competitors with creative ideas and innovative technologies could flourish. Inexpensive computers and electronic devices made it possible for more people to become creators. And the Internet emerged as a distribution platform that no one was in charge of, so anyone could be heard. Now we have more choices than ever in the media we consume and the ways we consume them.

Thank goodness the confining days of the 20th century are behind us and freedom of expression and choice will forever reign, right? Don’t be so sure, says Tim Wu, a law professor at Columbia University. In his new book, The Master Switch: The Rise and Fall of Information Empires, Wu argues that our Internet-driven, increasingly wireless information bounty could be on the verge of falling into the stifling control of a handful of powerful companies—just as TV, film, radio, and telephones did in their time. In Wu’s view, such companies as AT&T, Comcast, and Apple will try to increase their power as gatekeepers of information, subverting the promise of the Internet as a revolutionarily open distribution medium. Google was founded on an alternative premise, one rooted in the ideals of the Internet, but Wu fears that Google might also be drawn to the dark side.

Wu’s argument is important for two reasons. First, a communications industry that is closed (meaning, in this context, that it is dominated by a monopoly or oligopoly, unchallenged by government regulators) creates fewer opportunities for ingenuity and economic growth than an industry that is open to a wide range of players. When the Bell monopoly controlled the U.S. phone system, it quashed innovations such as the answering machine and blocked add-on products and services that weren’t provided by AT&T itself.

  • The Master Switch: The Rise and Fall of Information Empires, by Tim Wu

Second, the structure of a communications industry tends to shape its products. For instance, when Hollywood was closely held by studios that controlled the production, distribution, and exhibition of movies, it had little reason to take creative chances. And because it was consolidated, the industry offered one-stop shopping for conservative religious forces that demanded a “production code,” which prohibited films from depicting anything deemed immoral. As a result, Hollywood movies in the middle of the century were largely predictable, homogenous fare. In the 1970s, after Hollywood was forced to relinquish vertical control of the movies, risk-taking directors and producers finally got avenues to theater screens, and American cinema blossomed. But when the 1980s and ’90s brought a different kind of business structure to Hollywood—that of the conglomerate, in which a film studio is part of a larger corporation that also sells video games, books, or toys—then we got more and more movies like Transformers, which are not merely films but also two-hour advertisements for products and sequels.

Wu has one basic reason for believing that the communications industries of today could become dangerously consolidated, making it much harder for independent companies and creative voices to be heard: something like this has always happened. He calls it “the cycle.”

Wu’s cycle describes a pattern that fits each major new communications technology, from the telegraph and telephone to the Internet. First, the breakthrough overturns some dominant business order. It creates new opportunities for inventors and investors and expands the range of voices that can be broadcast. The advent of radio, for example, spawned thousands of small, independent stations around the country, as churches, unions, and other community groups all sought to express themselves over the airwaves—much as millions of everyday people and organizations would later put up their own Web pages.

But before long, the most powerful forces in the industry, seeking the significant benefits of scale in the information business, centralize control. They persuade government and much of society that this concentration is for the common good, so that productive order can be brought out of the chaos. In the case of radio, the executives who built NBC argued successfully that the nation needed to clear the airwaves of tiny, independent stations to make room for a network of larger stations that each could reach more people.

Then comes the final phase of the cycle: once a communications technology with open origins has given way to a closed, tightly controlled system, that system is especially ripe to be disrupted. That generally happens when a better, competing invention comes along, but often it also requires a regulatory change that breaks up the old order and ensures room for upstarts. Cable TV was the perfect technology to upend the monolithic power of broadcast. But broadcasters fought hard to stop it, and cable took off only after it won the crucial support of regulators in the Nixon administration.

Wu’s is the second book this season to argue persuasively that technological change unfolds in predictable patterns. But while the other such book, Kevin Kelly’s What Technology Wants, wanders off course by trying to align technology’s patterns with the grand arcs of evolution, Wu’s is rooted much more firmly in an understanding of business and human nature. Essentially, Wu says, communications empires arise for simple reasons that haven’t gone away: businesses naturally try to keep growing, and their leaders are often lured by grand visions. He even acknowledges that there are often benefits to these empires, which is why consumers and government regulators often go along. One such benefit is that by exercising tight control, communications providers can often guarantee a higher quality of service. (Think of Steve Jobs’s claim that the Apple-controlled application store for iPads and iPhones is free of pornography and other junk that litters Google’s Android bazaar, which lets anyone try to sell an app.) And indeed, information monopolies do spread benefits that arise from their large scale. In the 20th century, AT&T had abundant resources to deliver high-quality service to the entire country at reasonably low prices. It could afford to fund Bell Laboratories and let its researchers explore breakthroughs that had no obvious commercial purpose.

Wu is less convincing, however, when he claims that the cycle is about to claim the openness of the Internet as its latest victim.

Certainly, Internet service providers such as Comcast, Verizon, and AT&T have begun to undermine support for one of the founding ideals of the Internet: “network neutrality” (a phrase that Wu introduced in the last decade). That’s the idea that all data packets are created equal, and that no operator of the networks that make up the Net should give priority to some packets over others. Clearly, you can hear echoes of yesterday’s monopolies when today’s communications providers argue that net neutrality keeps them from managing their systems to ensure the best service. It’s no stretch to assume that service providers would love to set up “fast lanes” for companies that paid extra—a step that by definition would disadvantage the voices of the less well capitalized. And already, TV networks are trying to exert more control over the ways their content can be seen, demanding higher payments from cable systems. The Fox network recently blacked out World Series games to strong-arm Cablevision into paying higher programming fees. NBC, CBS, and ABC have made it impossible to use a certain kind of device—Google’s new product that brings Web content to TVs—to watch shows on their websites.

But Wu also sees ominous signs where they might not really exist. His book describes how the antitrust breakup of AT&T in 1984 didn’t kill the beast; in fact, the company has reconstituted itself as the dominant phone provider in much of the country. It is also the exclusive provider of the (closed!) iPhone in the United States. And to drive home just how powerful AT&T had become by 2003, Wu argues that the National Security Agency could spy on huge chunks of Internet traffic solely by securing the phone company’s coöperation.

Each of these bits of evidence seems less impressive on further inspection. Yes, AT&T is the only choice for traditional landline phone service in much of the country, but these days a customer can get phone service from the cable TV company or several wireless companies. Yes, AT&T is the only company offering the iPhone in the United States, but that’s about to change because of competition, and it’s not like the iPhone is the only choice of smart phone. And sure, the larger a communications company gets, the more fruitful it is for the government to tap its lines. But does anyone think the NSA would give up surveillance if it had to approach 30 companies instead of one, two, or six?

Wu is surely right about why the cycle happens and why it matters: big communications companies will invariably try to become more powerful, and the ramifications of monopolistic power in information industries are more negative than positive. But we could find that the next turn of the cycle isn’t so destructive. Next to the consumers and citizens of the last century, we have significantly more choices in how we communicate—and thus more lines of defense against such consolidation.

Brian Bergstein is deputy editor of Technology Review.

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