3/3: Cyberspace Inc and the Robber Baron Age [cr-95/11/25]


Richard Moore

Here's the final installment.  Discussion invited.



         This article may be posted in entirety for non-commercial use.

To appear in:  INFORMATION SOCIETY, Vol 12(2)
   Edited by:  Mark Poster <•••@••.•••>
     See WWW:  http://www.ics.uci.edu/~kling/tis.html


                Cyberspace Inc and the Robber Baron Age,
                   an analysis of PFF's "Magna Carta"

                 Copyright 1995 by Information Society

                             Richard K. Moore
                             August 19,  1995


Next is raised the issue of property depreciation.  The precedent of
microchips is used to claim that cyberspace investments should be depreciated
rapidly.  Current capital depreciation practices are denigrated:

        ...Yet accounting and tax regulations still require property
        to be depreciated over periods as long as 30 _years_. The result
        is a heavy bias in favor of 'heavy industry' and against nimble,
        fast-moving baby businesses.

The comparison with microchips and small entrepreneurial ventures is patently
absurd.  Cyberspace Inc is aiming to consolidate ownership of existing
infrastructures, and to deploy new cable, fiber, and coax.  These are long-
range hardware investments by big players, and the above argument for
accelerated depreciation make no sense.  Such inappropriate tax treatment
would amount to yet another giveaway to rich corporations, at the expense of
the oft-touted individual.  Perhaps small, risk-taking, nimble companies
_should_ enjoy more rapid depreciation, but not these corporate giants, aiming
as they are to exploit already proven technologies  .

In the next section, "The Nature of the Marketplace", the principle of
"dynamic competition" is discussed.  The principle is very simple, essentially
that new kinds of products should be allowed to capture markets from outmoded
products, just as the automobile replaced the horse and buggy.  The manifesto
attempts to present the idea as if it were a major breakthrough in economic
theory.  It then issues a rallying cry for bold new directions:

        The challenge for policy in the 1990s is to permit, even
        encourage, dynamic competition in every aspect of the cyberspace

What the manifesto fails to mention is that the American communications
industry is already experiencing _dramatic_ dynamic competition.  Cable,
cellular, satellite, telephone, and broadcast modalities are increasingly
overlapping, evolving, competing, shifting markets around, and bringing down
prices.  By a strange twist of logic, as we shall see later, the _concept_ of
dynamic competition will be used as an argument for increased monopoly control
over markets -- for reducing the _actual_ dynamic competition that is working
so well today.

The next section, "The Nature of Freedom", develops several threads.  It
presents a revisionist version of U.S. and Internet history; it continues the
blurring of individual and corporate interests; it continues the demonization
of government; it restates the corporate goal of gaining outright ownership of
the electromagnetic spectrum; it hints at the monopolist agenda.

        In a Second Wave world, it might make sense for government
        to assume ownership over the broadcast spectrum and demand
        massive payments from citizens for the right to use it.

Broadcast license fees (hardly massive, by the way) are paid by corporate
broadcasters, not citizens.  Having laid its propaganda groundwork, the
manifesto now freely interchanges individualist and corporate terms with
Orwellian impunity.  By an incredible stretch of doublethink, handing over the
public airwaves to corporate ownership is to be a victory for the individual!

        In a Second Wave world, it might make sense for government
        to prohibit entrepreneurs from entering new markets and
        providing new services.

In a single sweeping revisionist fantasy, America's remarkable record of
supporting innovative entrepreneurs vanishes from history!  And the manifesto
would have us swallow the premise that billion-dollar telecommunications and
media giants are poor, struggling entrepreneurs.

        However desirable as an ideal, individual freedom often
        seemed impractical. The mass institutions of the Second
        Wave required us to give up freedom in order for the system
        to "work."

In yet another revisionist fantasy, America's world-famous history of freedom
is discounted.  And once again individual freedom is praised, as if that had
some connection to the corporate agenda being espoused.

The next section, "The Essence of Community", proclaims the notion of
distributed communities -- long common on Internet -- as if they were a bold
new idea:

        No one knows what the Third Wave communities of the future
        will look like... It is clear, however, that cyberspace will
        play an important role knitting together in the diverse
        communities of tomorrow, facilitating the creation of
        "electronic neighborhoods" bound together not by geography
        but by shared interests.

Why does "no one know"?  Why aren't Internet lists and newsgroups cited as
living prototypes for distributed communities of the future?  Such frequent
and glaring omission of the Internet precedent is disturbing.  Just as the
American pioneer (so often praised by the manifesto) saw the New World
(falsely) as a virgin land ready for exploitation, so the manifesto seems to
see cyberspace as an empty frontier, yet to be explored and developed.  Are
the "natives" of this frontier -- today's extensive Internet culture -- to be
similarly decimated and pushed onto bleak reservations?  Just as the Magna
Carta metaphor reveals much about the manifesto's robber-baron objectives,
perhaps the darker implications of the pioneering metaphor should be taken
seriously as well.

Given the monopoly-priced environment proposed by the manifesto (in the next
section), the kind of informal, citizen-oriented virtual communities popular
on Internet are highly unlikely to be viable.  PFF's notion of distributed
communities (called "cyberspaces") seems to resemble today's internal
corporate networks, as described in a quote from Phil Salin:

       "...Contrary to naive views, these cyberspaces will not all be
        the same, and they will not all be open to the general public.
        The global network is a connected 'platform' for a collection
        of diverse communities, but only a loose, heterogeneous community
        itself. Just as access to homes, offices, churches and
        department stores is controlled by their owners or managers,
        most virtual locations will exist as distinct places of private

Those groups which can afford to pay the monopolist prices -- such as
corporations and well-funded associations -- can enjoy the benefits which
today are affordable to millions of individuals and groups.  Perhaps nowhere
else in the manifesto is the pro-individualist rhetoric so clearly revealed to
be the lie that it is.  Instead of promoting individual freedom in cyberspace,
existing freedoms and privileges are likely to be taken away.  The ominous
precedent implicit in the "pioneer" metaphor threatens to recur as cyberspace
is cleared for commercial development.

The next section, "The Role of Government", re-iterates previously stated
corporate objectives -- no price regulation, corporate ownership of spectra,
new definition of intellectual property, favored tax treatment -- and
proclaims a new objective: enabling total monopoly control over communications

Much is made of the distinction between one-way and two-way communications,
the implication apparently being that phone companies are better prepared to
develop cyberspace than cable operators:

       "...None of the interactive services will be possible, however,
        if we have an eight-lane data superhighway rushing into every
        home and only a narrow footpath coming back out..."

The claim is made that the multimedia future depends on greater collaboration
between phone and cable companies:

        ...it can be argued that a near-term national interactive
        multimedia network is impossible unless regulators permit
        much greater collaboration between the cable industry and
        phone companies. ...That is why obstructing such collaboration
         -- in the cause of forcing a competition between the cable
        and phone industries -- is socially elitist.

Next, it is claimed that dynamic competition requires that regulated-monopoly
mechanisms (which govern today's RBOCs and cable companies) should be
abolished.  Price and entry regulation are to be replaced by new anti-trust

        Antitrust law is the means by which America has...fostered
        competition in markets where many providers can and should
        compete. ...The market for telecommunications services --
        telephone, cable, satellite, wireless -- is now such a market.
        ...price/entry regulation of telecommunications services...
        should therefore be replaced by antitrust law as rapidly as

The obvious likely consequences of such an agenda are conspicuously not
discussed by the manifesto.  If entry regulation is removed, and phone/cable
collaboration is encouraged, then the obvious alternatives for collaboration
would be interconnection, joint venture, and acquisition.  Given the multi-
billion dollar capital reserves of the phone companies, the best business
opportunity would presumably be for phone companies to simply acquire cable
companies, thus establishing total monopolies over wires coming into the home.

Anti-trust law would be largely irrelevant to this scenario.  To begin with,
anti-trust enforcement seems to be a thing of the past -- especially with the
Republican radicals in Congress.  More important, perhaps, is the current
anti-trust stance toward the RBOCs: partitioning them into separate turfs
seems to be the most that anti-trust enforcers demand.  Within their turfs,
they're allowed be as monopolistic as they can get by with.

If price-regulation is removed, then we would be left with _totally_
unregulated telecommunications monopolies in each RBOC region -- controlling
phone, television, multimedia, and messaging services, and charging whatever
the traffic will bear.  Hence the appropriateness of this article's title:
"Cyberspace Inc and the Robber Baron Age".  America's total communications
infrastructure would be divided into feudal fiefdoms, and the economic regime
would resemble the railroad cartels of the nineteenth century.

All the manifesto's rhetoric about individual freedom and dynamic competition
is deception -- the agenda is totally anti-competitive, anti-individual, and
anti-free-enterprise.  A century's progress in achieving dynamic, competitive,
and diverse communications industries -- based on appropriate and non-stifling
regulation -- would be thrown out the window all at once.

The final section of the manifesto, "Grasping The Future", is mostly devoted
to reiterating the grandiose rhetorical visions of the mythical "Third Wave".
The phrase "grasping the future" is an apt conclusion to the manifesto:  the
conglomerates behind PFF are indeed grasping at the future with both hands,
ready to pocket monopolistic windfall profits, presumably enhanced by favored
tax advantages.

* * *

Despite the strongly adversarial attitude this article has taken toward the
"Magna Carta", not all of the points made in that manifesto are considered by
this author to be wrong-headed.  Creative initiatives to the problems posed by
cyberspace are indeed needed, and the manifesto offers some constructive ideas
in that regard.  A pay-per-view model of intellectual property may have merit
-- if original authors are fairly and accountably compensated, and if non-
commercial material is also accommodated at reasonable cost.  Close
collaboration among existing installed bases of coax, cable, and satellite may
be desirable -- if appropriately regulated with respect to price and common-
carrier status.  And new paradigms and visions for understanding the meaning
of communications in the "information age" are needed -- but with more honesty
about the metaphors to be embraced and how they actually map onto cyberspace

What _is_ highly objectionable in the manifesto is the deceptive manipulation
of libertarian/individualist sentiment, the ignoring of the Internet precedent
and the lessons to be learned from that, the absence of provisions for freedom
of communication and privacy for individuals, the discounting of the proven
constructive role for appropriate regulation, and the disguised corporate
power-grab inherent in the proposed package of polices.

This is not the place to analyze or even enumerate the plethora of competing
legislative proposals currently before Congress regarding telecommunications.
Suffice it to say that the agenda promulgated by the "Magna Carta" is finding
widespread expression in that legislation.  This fact -- along with the
manifesto's close connection to the communications industry and to Speaker
Gingrich -- indicates that the "Magna Carta" should be taken very seriously,
as regards both its agenda, and the kind of rhetoric and deception employed.
The "Magna Carta" provides a rare insight into the threat facing America's
future from corporate power grabbers, and simplifies the task of seeing
through the propaganda smokescreen being employed by legislators and industry

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  Richard K. Moore                          •••@••.•••
  (USA Citizen)                                 Moderator: Cyberjournal
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 Posted by Richard K. Moore (•••@••.•••) Wexford, Ireland
                             CyberRights Co-leader