Topic: Telecom, Internet & Information Policy

A La Carte Cable and the Economics of Abundance

Ars Technica reports that FCC chairman Kevin Martin is once again pledging to force cable providers to offer “a la carte” cable programming. I’ve found discussing this issue frustrating because people have surprisingly strong intuitions about it. Indeed, with the possible exception of “independence from foreign oil,” I can’t think of a single policy idea that is simultaneously so wrong-headed and so popular across the political spectrum.

But it is wrong-headed. People have this intuition that when they sign up for cable, they’re “forced” to pay for MTV to get Nickelodeon. Or conversely, that they’re “forced” to pay for Nickelodeon to get MTV. They seem to imagine that if they could just pick and choose cable channels individually, they’d be able to get the content they want and lower their overall cable bill.

The problem with this line of reasoning is that almost none of the cost of providing cable service to you is dependent on the number of channels you take. In economics jargon, cable channels have close to zero marginal cost. Once the content has been produced and the coax has been laid, it costs little or nothing to give every customer access to every channel in the bundle rather than only certain channels. So if they stop sending you Nickelodeon, it doesn’t reduce the total cost of providing you with your service. So why would you expect a price break?

Indeed, there are lots and lots of examples of bundled products and services that no one in his or her right mind would demand be unbundled. For example, why am I forced to buy the sports section with the business section in my morning paper? Why am I forced to buy evening and weekend minutes with my cellular phone plan? Why was I forced to buy a variety of software products with my new laptop? Why am I forced to take an all-you-can-eat Internet connection rather than paying for only the minutes I need?

These add-on products all have near-zero marginal cost, so it doesn’t cost the company anything extra to provide them to all customers. Indeed, in some cases, it would actually cost more to provide them on an a la carte basis. Imagine the nightmare of being a paper boy if each customer got to decide which sections of the paper he would take.

I think that’s a pretty straightforward argument, but people still seem to find it deeply counterintuitive. It occurs to me that this is an example of a point that Mike Masnick over at TechDirt has been making for a quite a while now: people find reasoning about goods with zero marginal cost deeply counterintuitive. People seem to have a strong intuition that anything that has value must also have cost, and so even if it appears to be free, you’re really paying for it somehow. But with information goods, which can be duplicated an unlimited number of times, that’s not true. Duplicating it really does cost close to nothing, and so it’s socially efficient to make it as widely available as possible.

So the right way to think about cable bundling, I think, is that you get several channels you don’t particularly want for free along with the ones you do want. Requiring a la carte programming simply takes away those free channels. People have an intuitive sense that those channels aren’t really free — that they’re really paying for them somehow. But that intuition is wrong. The extra channels really are free. And prohibiting cable channels from giving them to you really is a bad policy.

Mike has a long series of interesting posts on the economics of abundance here.

Link Analysis and 9/11

In our paper Effective Counterterrorism and the Limited Role of Predictive Data Mining, Jeff Jonas and I pointed out the uselessness of data mining for finding terrorists. The paper was featured in a Senate Judiciary Committee hearing earlier this year, and a data mining disclosure bill discussed in that hearing was recently marked up in that Committee.

On his blog, Jeff has posted some further thinking about 9/11 and searching for terrorists. He attacks a widespread presumption about that task forthrightly:

The whole point of my 9/11 analysis was that the government did not need mounds of data, did not need new technology, and in fact did not need any new laws to unravel this event!

He links to a presentation about finding the 9/11 terrorists and how it could have been done by simply following one lead to another.

Jeff feels strongly that Monday morning quarterbacking is unfair, and I agree with him. Nobody in our national security infrastructure knew the full scope of what would happen on 9/11, and so they aren’t blameworthy. Yet we should not shrink from the point that diligent seeking after the 9/11 terrorists, using traditional methods and the legal authorities existing at the time, would have found them.

Another “Piggybacking” Story

CNN reports on another example of police hysteria over “wireless theft.” Stories like this seem to pop up every few months: somebody parks their car on a residential street, opens up his laptop, and uses it to access a wireless network that’s not protected by a password. Then the police come along and arrest the guy. In the two cases reported in this story, both of which occurred in the UK, the police let them off with a warning. But in 2005, a guy was fined 500 pounds and placed on probation for a year for “stealing” Internet access.

As I argued in an op-ed last year, this is silly. Accessing someone else’s wireless network, especially for casual activities like checking your email, is the very definition of a victimless crime. I’ve done the same thing on numerous occasions, and I deliberately leave my wireless network open in the hopes that it will prove useful to my neighbors.

The only concrete harm opponents of “piggy-backing” can come up with is that the piggy-backer might commit a crime, such as downloading pirated content or child pornography, with your connection. But remember that there are now thousands of coffee shops, hotels, and other commercial locations that offer free WiFi access, and most of them don’t make any effort to verify identities or monitor usage. So someone who wants to get untraceable Internet access can go to any one of those establishments just as well as they can park outside your house.

Which isn’t to say that there are no reasons people might not want to share their network connections with the world. If sharing your Internet access creeps you out, by all means set a password. And there’s almost certainly work to be done educating users so that people are fully informed of the risks and know how to close their network if they want to do so.

But arresting people for logging into an open network is completely counterproductive. Ubiquitous Internet access is socially useful, and the vast majority of “piggy-backers” aren’t doing anything wrong. If you see someone parked on the street outside your home using your wireless network, you shouldn’t pick up the phone and call the cops. Instead, call your geeky nephew and ask him to set a password for your network. Or, even better, do nothing and consider it your good deed for the day.

The Border … Is You

Tomorrow, the House Homeland Security Committee is hosting a “Border Security Tech Fair.”

Vendors scheduled to participate include: Sightlogix, Scantech, Wattre, Hirsch, Bioscrypt, Cogent Systems, Cross Match, L1 Identity, Sagem Morpho, Motorola, L3 Communication, Authentec, Privaris, Mobilisa, and Lumidigm.

I don’t know all of these companies, so I made some educated guesses about the links (and I may have gotten the wrong division of Motorola), but it appears that fully 11 of the 15 participants are in the biometrics industry.

If you think for a minute that this is about the boundary line dividing the United States from its neighbors, I have a bridge to sell you. No wait - I have a “biometric solution” to sell you.  Mobilisa, for example, is being used to run background checks on the citizens of Clermont County, Ohio.

Participants in the Homeland Security Committee’s lunch briefing are all in the biometrics industry.  One of them, James Ziglar, wrote an op-ed in favor of a national ID in Monday’s New York Times. He claims it’s not a national ID, but then, he’s got a biometric solution to sell you.

If It’s Not a National ID, Then What is It?

Former IRS Commissioners Doris Meissner and James Zigler editorialize in today’s New York Times about their support for “secure, biometric Social Security cards” as an essential part of immigration law reform.

The give-away line?: “To insist on secure documents with biometric identifiers is not a call for a national ID.” They provide no logical support for this naked assertion. Because it’s false.

Strengthened “internal enforcement” of immigration law means federal surveillance and tracking of all workers. All of them. Including you.

Substantiating the Libertarian Vision, One Anecdote at a Time

Yesterday, it was six seconds to get a “yes” from a private entity when a government official took eight days, four hours to reach “no.”

Today, “Why is it that one guy with a laptop can accomplish more in 20 minutes that an army of city officials and bureaucrats can in as many weeks?

While the D.C. Taxicab Commission dithers over issuing a new map, some guy just went ahead and made one on Google maps.

False Suspicion and Cold Comfort

A post on the Washington DC/Metro Area Flickr users group has touched a nerve with readers of DCist, who are sharing stories of similar experiences in the comments.

D.C. area photographer “Yonas,” taking pictures in the Gallery Place Metro station, caught the eye of Metro Police who found it suspicious. They demanded identification and subjected the photographer to questioning.

This offends me about five different ways, but it provides a good opportunity to illustrate how suspicion is properly generated — and, in this case, how it is not properly generated — using patterns. The same concepts apply to the cop on the beat and the high-tech search through data.

I testified to a Senate Judiciary Committee hearing on data mining earlier this year regarding searches for terrorists and terrorism planning:

Pattern analysis is looking for a pattern in data that has two characteristics: (1) It is consistent with bad behavior, such as terrorism planning or crime; and (2) it is inconsistent with innocent behavior.

In … the classic Fourth Amendment case, Terry v. Ohio, …  a police officer saw Terry walking past a store multiple times, looking in furtively. This was (1) consistent with criminal planning (“casing” the store for robbery), and (2) inconsistent with innocent behavior — it didn’t look like shopping, curiosity, or unrequited love of a store clerk. The officer’s “hunch” in Terry can be described as a successful use of pattern analysis before the age of databases.

Recall that after 9/11 people were questioned and even arrested for taking pictures of bridges, monuments, and buildings. To common knowledge, photographing landmarks fits a pattern of terrorism planning. After all, terrorists need to case their targets. But photographing landmarks fits many patterns of innocent behavior also, such as tourism, photography as a hobby, architecture, and so on. This clumsy, improvised [pattern analysis] failed the second test of pattern development.

Photography on public property will almost never be suspicious enough to justify even the briefest interrogation. Photography is a serendipitous activity so it appropriately gets wide latitude. (Other facts could combine with public-location photography to create a suspicious circumstance on rare occasions, of course.)

It bears mentioning that regulations allow photography in Metro stations, but I don’t find regulation of this kind terribly comforting. It reminds me of Prague shortly after the Velvet Revolution, where I observed that people were consciously coming to grips with the revolutionary idea: “All that is not forbidden is allowed.” The prior state of affairs had been the opposite, “All that is not allowed is forbidden.” I hope this latter rule is not in force on our subways or anywhere else in this country.