USA Today recently reported that the Federal Communications Commission (FCC) may be poised to bar apartment buildings and condominiums from signing exclusive deals with cable companies. A number of phone companies (who are moving into video) are unhappy about being prevented from offering service to the apartment/condo dwellers. The aim of FCC action would be to ensure that residents of these buildings retain the ability to select the video-programming provider of their choice.

Of course, apartment dwellers have the ability to move if they don’t like the building’s policy regarding cable choices. Meanwhile, the owners of apartment buildings have a marketplace incentive to accommodate consumer preferences, in order to be more attractive to potential residents.

Yet apparently, these marketplace pressures don’t entirely prevent exclusive deals from limiting consumer choice. Here’s a guess as to why. People have many factors to focus on when choosing an apartment, so it’s easy to overlook the issue of openness to multiple video choices. And once a resident moves in, they’re hardly likely to endure the huge hassle of moving again just because they’d like the choice of a different video-programming provider.

Anyone see an analogy here to the Internet neutrality debate?

Ok, it’s not a perfect analogy. But think about it. The ISP is like the apartment building. It’s got a bunch of subscribers (akin to residents) who are going to be reluctant to leave, because doing so is a hassle. Companies wanting to offer online applications to those subscribers (akin to companies seeking to offer cable to residents) need to traverse the ISP’s facilities. So the ISP is the exclusive gateway to access those potential customers. There may be limits on the extent to which it can leverage that gateway control without prompting a subscriber revolt. But an ISP may well conclude that so long as it does not completely deny access to a major category of applications (akin to an apartment building blocking all cable TV providers from serving the building), it has considerable ability to steer those subscribers to a specific application provider over its rivals.

Sure, changing apartments may be more of a hassle than changing broadband providers. But then again, most consumers still have very few options for broadband — whereas most local housing markets offer a variety of apartment buildings. In both cases, consumers aren’t likely to quickly and frequently switch. So once subscribers/residents have settled in, their ISP/apartment building has an effective monopoly over access to them. It’s not clear to me — and in the cable and apartment context, apparently not clear to the FCC either — that market forces automatically will prevent all possible efforts to leverage that monopoly power at the expense of consumer choice.

This entry was posted on Monday, September 10th, 2007 at 3:22 pm and is filed under Internet Neutrality. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.