Usually people keep quiet in libraries. But not last Thursday night, when the richest man in the world, Carlos Slim Helú, spoke in a grand, softly lit public room at the New York Public Library. Slim had been invited because of his stunning philanthropy: NYPL President Tony Marx reminded the audience that Carlos Slim had committed $10 billion to charitable giving. Earlier this year, Slim promised to pay for the translation of Khan Academy videos into Spanish, and Salman Khan sat next to him at last week's event.
I happened to be there because I was interested in Slim's role in Mexican telecommunications. His companies control 80% of the landlines and 70% of the wireless market in Mexico, and the OECD said last year that uncompetitive telecom services were costing the Mexican economy $25 billion a year.
>Mexico is at the bottom of the OECD ranks for high-speed Internet access, yet Slim's profit-taking is neither illegal nor evil.
Loud laughter greeted Slim's early remarks, and within a few minutes a major nonviolent protest erupted: kazoo-playing audience members trooped around the giant hall and left the building after flinging multicolored pieces of monopoly money into the air.
What was printed on that money? It bore the legend "$73 Billion Net Worth By Price Gouging & Overcharging." And that’s when I realized that this moment represented a turning point: Monopoly communications industry behavior may finally become socially interesting in America. There are just a few steps between what's happened in Mexico and what’s going on here in the United States.
Mexico is at the bottom of the OECD ranks for high-speed Internet access adoption and Mexico's network investment is lower than in any other OECD country -- but Slim's profit margins are much higher than the OECD average.
Yet in the absence of regulatory oversight, Slim's profit-taking is neither illegal nor evil. It's entirely rational for him to allocate capital to dividends and profits rather than investing in upgrades to his network, much less encouraging his competitors. He is in harvesting mode, because neither competition nor oversight pushes him to do anything else.
But his behavior -- which includes charging high rates, making life difficult for competitors, and obstructing attempts at regulation through the court system -- is not in the interests of all Mexicans. So Mexico's Congress passed legislation by a vote of 108-3 last week to rein in his monopolistic practices.
>We’re not only falling behind in our global competitiveness, we’re also reinforcing existing social inequalities. Just like Mexico.
Here's what stands between us and Mexico: We have several monopolists, not just one.
Comcast and Time Warner Cable, within their territories, have an almost complete lock on high-speed wired Internet access, and face competition from Verizon's FiOS service in only small portions of their footprints. Verizon is in cahoots with the cable guys, having entered a joint marketing agreement with them that was blessed by the federal government last year; Verizon has said that it has no plans to expand FiOS. Both Verizon and AT&T are focused almost entirely on wireless, where their profits remain high; AT&T is trying to convince the federal government that wireless should be fine as a basic service for many Americans.
What we have in America is a "you take wires, we'll take wireless" division of markets that allows these enormous companies to set high prices, cherry-pick service areas, and make life difficult for competitors.
Along the way, we're not only falling behind in our global competitiveness, we’re also reinforcing existing social inequalities. Just like Mexico.
Carlos Slim, by the way, said the same thing about wireless as a basic service for poorer and rural people last night that AT&T is saying to America: he says it's the “future.”
[#contributor: /contributors/5932739a2a990b06268aab71]|||Susan Crawford is a professor at the Cardozo School of Law and an adjunct professor at the School of International and Public Affairs at Columbia University. She is also a Fellow at the Roosevelt Institute. Crawford has been an ICANN board member and a Special Assistant to the President for Science, Technology, and Innovation Policy. She is the author of *[Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age](http://www.amazon.com/Captive-Audience-Telecom-Industry-Monopoly/dp/0300153139)*.|||
Yes, it’s true that wireless is cheaper to build out to all Americans than wired service is. But a wireless connection is far more expensive from a consumer's perspective: watching one HD movie on a wireless device may mean hitting a usage cap and incurring overages.
And we know that wireless is a complementary service to a wired connection -- not a substitute -- because 83% of people in America with smartphones also have a wire at home. Smartphone-only users tend to be poor or minority-group members, and have limited online usage patterns compared to wire users.
What we need -- and what Mexico needs -- is a full-on upgrade to fiber. But neither Slim nor our incumbents has any rational incentive to get us there.
The reality from the American consumer perspective is that the difference between a single Carlos Slim and multiple executives of Comcast, Time Warner Cable, AT&T, and Verizon is vanishingly small. Multiple dominant firms can have the effect of a single monopolist simply by acting in parallel to keep new competitors from showing up, as a recent Yale Law Journal article by Scott Hemphill and Tim Wu points out.
These companies don't have to agree in writing to carry this out or even raise their prices; they can simply, within their separate geographic and product territories, bundle and tie their services, buy up inputs that a competitor might need, and refuse to connect to competitors -- among many other potential tactics. It's in their interest for these local monopolists to cooperate, because any defection would make the whole system crumble.
>What we need, and what Mexico needs, is a full-on upgrade to fiber. But neither Slim nor our incumbents has any rational incentive to get us there.
When such cooperation is working well, no new entrant can achieve the scale that would be needed to change the situation. And, right now, all of this is working well in America.
Last week, several waves of inappropriate laughter aimed at Slim left the non-laughing members of the audience feeling anxious and uncomfortable. A security guard came into the hall, watching the crowd narrowly for evidence of incipient laughter. One young woman then launched the effort from the front of the hall: "What are you laughing at?" she cried. "Slim's philanthropy is laughable!" responded a young man, loudly, from the back of the room. "He's overcharged Mexicans billions and billions of dollars!" (Our American monopolists also contribute greatly to philanthropy.)
And then the kazoos began. I think they were playing Darth Vader's "imperial march," but adrenaline may have overshadowed their performance abilities. At any rate, they were herded out. A shocked and embarrassed Tony Marx, the president of the New York Public Library, tried to get the evening back on track; he didn't seem to know what the the demonstration had been about, and referred to it as a random, playful effort.
After the protestors left the hall last Thursday, Salman Khan continued bravely on, talking about "flipping the classroom" and the importance of making education serve everyone in the world more effectively. At one point, Khan said that the lack of connectivity in Central America was making it necessary for the Khan Academy to provide an offline version of its videos; ironic, under the circumstances. Slim chimed in, delicately; Marx made sure that the question time ran smoothly, and must have been relieved that the protestors did not line up at the microphone. But something has changed in the air in America, and it's all about one of the most essential human needs there is: the capacity to communicate at a reasonable cost.
Wired Opinion Editor: Sonal Chokshi @smc90
