| Friday, July 18, 2008 |
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"Common Carrier" Craziness
By Paula Hall @ 12:38 AM   
The common law doctrine of "common carrier" would be funny if it weren't so stupid. In effect, the common carrier doctrine operates by designating a service as indispensible, and then destroying that service.
A New York Times article discusses the doctrine in the context of the debate over the advisability of "net neutrality," which is "the idea that Internet access providers like Comcast should not be allowed to favor some uses of their networks over others."
[The chairman of a net neutrality advocacy group] said the issues at stake go back to the common-law concept of a common carrier, which defined certain businesses — from blacksmiths to ferries — as so essential to commerce that their owners could not discriminate against any paying customer.
The 'Lectric Law Library fleshes out what it means to "not discriminate," in the classic application of the doctrine to a transportation provider:
1. To carry passengers whenever they offer themselves and are ready to pay for their transportation. They have no more right to refuse a passenger, if they have sufficient room and accommodation, than an innkeeper has to refuse a guest.
What's funny is that no-one seems to follow this policy to its logical conclusion. Let's say a common carrier does routinely refuse to provide service to certain individuals or a class of individuals. If the carrier is profit-seeking, the refusal to provide service will rest on the profitability of that refusal, or else some other carrier will enter the business to provide service to the denied individuals. Under the common carrier doctrine, such "discriminating" carriers would have to be punished, in proportion with the severity and persistency of their discrimination. Eventually, one or all of the following three things will occur: 1) common carriers will cease to be profitable as a result of increasing fines, and go out of business, 2) punishment of carriers will escalate to forcibly shutting noncompliant carriers down, or 3) no-one will undertake common carrier trades. Either way, the doctrine must have the effect of eliminating the businesses designated as common carriers. If all of the above is true, then why, you may ask, do we still have common carriers? It is because we have a mixed economy. In a free economy, all property is privately owned, including all businesses. In a mixed economy such as ours, internet service providers such as Comcast can do business only if they are first licensed by the government. Once licensed, they enjoy a near-monopoly, with the ability through incumbency and lobbying to prevent other potential providers from entering the field.
So, we now we have the following perversion of incentives: a government policy of violating property rights (the common carrier doctrine) becomes a weapon by which those whose rights are violated (like Comcast) keep competitors out of the field by force. That is, the system is set up so that it is possible to make money by giving up your rights, so long as you thereby gain the power to violate the rights of others.
Ironically, this policy is supposedly designed to protect consumers. But it is consumers who lose in the end. Licensed common carriers have little incentive to provide good service at a good price, because consumers have no choice but to deal with them. So under common carrier policies, consumers must either 1) purchase overpriced and inferior services, or 2) face the complete unavailability of those services.
There's a way to describe a policy like this. It's called "stupid."
Actually, there's a better way to describe the common carrier doctrine. Wrong.Labels: Business, Politics
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| Comments on ""Common Carrier" Craziness" |
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 | Friday, July 18, 2008 at 5:43:02 mst
Comment ID: #1
Name: Flibbert
E-mail: junk(at)treygivens.com
URL: http://flibbertigibbet.mu.nu/
My favorite part is this "They have no more right ... than an innkeeper has to refuse a guest."
Because my thought is, "True. They have exactly the same right to refuse a customer."
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| Friday, July 18, 2008 at 6:21:02 mst
Comment ID: #2
Name: Brian Fritts
E-mail: BFrittts(at)lauth.net
Municipalities are also getting more aggressive in trying to control private cable companies as well.
Some time ago, I worked on a project to establish a cable and telephone company for a Midwestern residential real estate developer. In essence, the developer would grant technology easements to his cable and phone company before building any homes in the new subdivision. The cable and phone company he created then had the exclusive right to provide those services, even after he turned over the development to the homeowner's association.
We learned very quickly that the local counties and towns wanted their cut. They routinely charge most cable companies a 5% or 6% franchise fee for using the public right of way. As we never used the municipalities right-of-way to provide service, we argued that we were immune from the requirement. The case law at the time supported that position and we avoided the fee. Provided none of our easements overlapped or crossed the public right-of-way, there was nothing the municipalities could legally do.
However, the municipalities quickly caught on to the system we were using, and used other means (such as denial of necessary rezoning applications) to extort payment of the fee.
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| Friday, July 18, 2008 at 8:37:36 mst
Comment ID: #3
Name: Galileo Blogs
E-mail: rayniles(at)rcniles.com
URL: http://galileoblogs.blogspot.com
Brian,
Your experience is very interesting. I argued in an article I wrote (non-pseudonymously) in The Objective Standard that only by establishing secure and true property rights to the rights-of-way will the problems faced by cable companies, electric companies, and all other "network" or "grid" companies, be solved. True property rights means the right to buy, sell, lease, rent, and otherwise use the conduits owned by these companies in whatever mannner they choose.
Recognizing such property rights solves a bunch of problems caused by our mixed economy. It solves the monopoly problem because anyone can buy or "homestead" new rights-of-way (I argue for a "homesteading" procedure whereby unused space above and below the streets can be appropriated as private property in the same manner homesteaders did that with fallow land). That means there is legal and practical freedom of entry, which would bar anyone from charging monopolistic prices. More importantly, it allows free entry for anyone who has a better or cheaper technology to provide the network service. The result will be more capacity and cheaper rates for all network services.
Without private ownership of rights-of-way, we will see continuing pleas for regulation of cable rates in the same manner that electricity rates are regulated.
By the way, the corruption you faced is horrible. In my article I talk about how even Thomas Edison faced it when he built the country's first commercial electric grid in New York. It has been with us ever since and will only end if property rights are protected.
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| Friday, July 18, 2008 at 18:08:33 mst
Comment ID: #4
Name: Promethean
E-mail: Clay.Hellman(at)gmail.com
While I agree that there should be free competition in these markets w/o gov't interference it is interesting to see what is happening now.
1) State Governments in CA and NY are pressuring ISP's to stop allowing access to USENET b/c some tiny % of USENET might be used to spread child pornography(part of me hopes that no one explains to these guys exactly how the internet works or they'll be pressuring the ISP's to turn the 'net off altogether.
2) Large ISP's frequently fight w/ local providers, including cooperatives which seek to provide service where the ISP's service is poor or non-existent. The ISP's often attempt to deny end-users any service and/or quality service.
3) ISP's claim to provide unlimited internet access for a fee, but then arbitrarily cut off access to end-users who are accused of being "bandwidth hogs" who have gone over some limit which the ISP's often refuse to define. I would add to this that ISP's suggest that somehow these end-users are taking advantage of them when the ISP's have set the terms of the arrangement and then broken those terms. (I would add as an aside that most people don't likely use their bandwidth more than several hours a day which means that on the face of it that they are paying for a huge amount of bandwidth that they aren't using. You'd think that this would wash, but I doubt that the ISP's want to talk about grannies that they charge $40-$50/month for less than 20 hours/month actually spent online.
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| Friday, July 18, 2008 at 18:17:30 mst
Comment ID: #5
Name: Galileo Blogs
E-mail: rayniles(at)rcniles.com
URL: http://galileoblogs.blogspot.com
Promethean,
Your points are examples of the bad consequences of government's legal entrenchment of monopoly bandwidth providers. The basic problem is that there is no legal and practical way for companies to acquire conduit to homes and businesses. The solution isn't to socialize existing conduit through common carrier rules. Rather, the solution is to recognize property rights to conduit, both existing and to-be-created conduit, so that it can be bought, sold, and "homesteaded." That would bring true competition to the grid.
On a fundamental level, the problem isn't access to bandwidth, but a lack of new investment in bandwidth. That can only happen when the property rights of the bandwidth owners is fully recognized, just the opposite of the argument for common carrier status, which impairs the property rights of the bandwidth owners by regulating their terms of trade. In sum, the ironic truth is that to eliminate "monopoly," the rights of bandwidth owners to behave as seeming monopolists must be fully upheld. Assuming they don't break contracts, they must be allowed to charge *any* price they want and set *any* terms they want for access to bandwidth. But, and it is a big "but", at the same time property rights must be recognized so that competitors can legally enter the market, as of right, without having to bribe politicians.
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| Saturday, July 19, 2008 at 3:57:44 mst
Comment ID: #6
Name: Mike Hardy
E-mail: hardy(at)math.umn.edu
From Wikipedia:
"A common carrier is an business that transports people, goods, or services and offers its services to the general public under license or authority provided by a regulatory body."
This is distinguished from a "private carrier", which does not offer its services to the general public. Both "common" and "private" carriers are commonplace. The lack of a right to refuse services to anyone therefore seems to be held to follow from the fact that it has offered its services to the general public. My brother repairs cars and people pay him money. He has a business card that states that he is _not_ open to the public and he thereby avoids being subject to certain regulations.
So is an offer of services to the general public binding, and what does it imply? That seems to be the question raised by this blog.
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| Saturday, July 19, 2008 at 13:45:46 mst
Comment ID: #7
Name: Galileo Blogs
E-mail: rayniles(at)rcniles.com
URL: http://galileoblogs.blogspot.com
Mike,
"Common carrier" is not simply an offer of services to the general public. If it were, it would be subject to whatever contractual terms the vendor offers to the public. Even in that situation, he would still have the right to refuse service to people under conditions he specifies, for example if a person is disorderly or doesn't pay his bills.
"Common carrier" does not refer to a type of voluntary, private contract. Rather, it is a term that refers to government intervention in private business relationships. The carrier, whether it is the owner of electric or data cables, a trucking company, or any other business, is required to offer service to the public under terms set by government. Typically, the regulations require "non-discrimination" which means that everyone must be charged the same price, prices must be publicly posted, and no individual can be refused service.
When the government imposes common carrier status on a business, he deprives the owner of the full use of his property. Common carrier status is a violation of his property rights. The practical effect of such laws is to make the business less profitable than it otherwise would be. The result of that is inferior quality and more expensive service than would otherwise exist. For evidence of this, observe the service provided by such regulated common carriers as trucking and airlines (before deregulation in the late 1970s), electric utility service, cable television service and, if the "net neutrality" people have their way, future Internet service.
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