Time for a Silver Bullet How To Make Tech Companies Do The Right Thing
Hal Plotkin, Special to SF Gate
Tuesday, December 22, 1998
Recently, at my request, Silicon Valley Congresswoman Anna Eshoo’s press secretary, Tracy Warren, sent me a list of the most significant digital communications policy issues facing Congress and the FCC next year. From the looks of it, Washington will have its hands full.
Unlike the Battle Royal over who gets to live in the White House, the items on Eshoo’s agenda deal with what it will be like to live in your house. It dawned on me, though, that it’s virtually impossible for anyone, even a notoriously quick study like Eshoo, to master all the complex details of each contentious dispute.
Near the beginning of the year, for example, there’s a major battle brewing over the ground rules for transmitting high definition television (HDTV). Meanwhile, Internet Service Providers (ISPs) are locking horns with traditional phone companies who are trying to stop them from rolling out more low-cost Internet Protocol (IP) phone services. And at the same time, long-distance and local phone companies are waging their own protracted death match over access to local phone networks.
These disputes will all be settled eventually, if not by Congress or the FCC, then by the courts. The real problem, though, is there are far too many of them. They take too long to resolve and they cost too much.
Even worse, the convergence of various digital technologies means we’ll probably see increasing numbers of technology bottlenecks as competing business interests try to retard progress that threatens their bottom line. In the meantime, consumers are often cheated out of the benefits of new technologies, forced to pay unnecessarily high prices and saddled with all the other problems that crop up in the absence of free, open and fair markets.
The protagonists usually benefit financially by prolonging these battles. Take, for example, the most famous anti-trust case in history, the breaking up of Ma Bell. Ma Bell’s monopoly was once so powerful other companies were even prevented from selling telephones.
That monopoly was finally dismantled more than a decade after it became clear to anyone paying attention that free markets were being unfairly constrained. In the meantime, though, as it fought off regulators and Congress with a variety of scare tactics and threats, Ma Bell racked up huge profits.
When the dust finally settled, Ma Bell was forced to play fair. Consumers, in return, got choices they never previously enjoyed along with still-plunging prices.
Those evening phone calls asking whether you want to switch long distance companies may be annoying. But they are considerably less unsettling than the domestic rates, upward of 80 cents per minute, Ma Bell charged for long distance when it had a stranglehold on the market.
I wonder how different things might have been back then if Ma Bell, or companies now engaged in similarly unfair trade practices, knew they’d eventually have to pay a steeper price for illegally choking their rivals? Right now, all they get is a slap on the wrist. “Go and sin no more,” the regulators tell them. Usually, however, they get to keep their ill-gotten gains.
If we did the same thing with common thieves no bank would be safe. Instead of “rob a bank, go to prison” it would be: “rob a bank, promise not to do it anymore, and you can keep the loot.”
Capitalism works better than other social systems because it provides incentives. We common folk have an incentive to work hard: if we do, we get more money. Shopkeepers have an incentive to lower prices; they get more customers.
For technology companies with a lock on their markets, however, the incentives work in the opposite direction. Instead of providing consumers with more products or services for less money, the primary goal is to cripple the competition.
They’ll usually spew jargon to the very last nanosecond as they fight to preserve any unfair advantages they might enjoy. Only when the Federales intervene do they back off.
In technology’s higher echelons, this is called good management. Little wonder, then, that we find a basic sense of decency and humanity lacking in so many of those who lead our top technology companies. A sense of humanity, of obligation to the common purpose, would only get in the way.
We need to change the incentives. In addition to forcing unfair players to mend their ways we should require them to pay triple damages to the consumers they’ve bilked, similar to the way organized criminals are required to pay triple damages under the RICO statute, which has recently been extended to other areas of business law.
These damages would be calculated by figuring out how much customers were overcharged due to unfair competition and then multiplying that number by three. The penalties would kick in only after a company is found guilty of violating applicable laws.
The threat of such penalties would hang like a sword over would-be technology monopolists. For once, they’d have to consider whether what they are doing is right, whether it is fair, and whether it might eventually be determined, by a judge or jury, to be illegal.
Right now, few technology executives bother with such trifling concerns. They know they can baffle Congress and bamboozle the FCC with virtual impunity.
Ripped-off consumers, of course, can file class-action lawsuits. But, pitted against the deep pockets of big companies, consumers rarely get a fair shake. It’s taken decades, for example, for class actions filed against tobacco firms to make headway despite the fact those companies sell products created by people who knowingly poison their customers.
The solution is to make illegal actions more expensive than legal ones. A few leading technology companies will howl when we do it. But the result will be more competition, lower prices and accelerated progress. Instead of spending so much time trying to figure out how to capture market share by stopping the other guy, high-tech companies would have a bigger incentive to create better products, to do it faster, and to charge less.
In addition, it’s also likely disputes between competing industries would be resolved privately and more quickly, without costly and time-consuming regulatory, legislative or judicial intervention. It’s amazing how reasonable business executives get when you threaten to take away their money.
Enacting treble damages payable to consumers undoubtedly won’t solve every digital communications policy dispute. But it would, I suspect, give our legislators and regulators more time to think about some of our other pressing problems.
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