Level 3 Communications

Mark Taylor

Part 1 – Let’s play Monopoly with the Internet

Published May 26, 2015

I’m sure you’ve played the board game Monopoly. It’s the fifth best selling board game ever and has been around since 1934. It is a great social game and one that can go on for hours. The fun lies in the ups and downs, the buying and selling and the simple nature of the game. But underlying the fun and social interaction is the fact that we are all trying to do two things; get an entire street, stop everyone else from getting an entire street.

When we get an entire street we know we can build houses and then that nice red hotel. And we do that because the rent we charge when other players land there rises dramatically. That rent rise is a simple demonstration of the power of a monopoly. And the genius of the game is, despite that huge word, “Monopoly,” written across the board we don’t really think about it.

Of course, two streets on one corner is even better. Then, it’s effectively “game over” because a single player very quickly gets all the money. But here’s the thing: that phase of the game, the one that gives rise to the game’s name, isn’t much fun. In fact many games descend into argument at that point or people simply walk away. It turns out that monopolies suck the life out of a fun social game.

Let me extend this example to the real world. Imagine you want to visit me in Denver and stay in a hotel. There are a huge number to choose from. It is a dynamic, competitive market. Each hotel owner aims to maximize their profit by maximizing their occupancy rates. Ideally, they want their hotel to be full all the time. And to do that they have to consider the service they provide, the price they sell rooms for, the quality of their infrastructure, how to appeal to certain niche parts of the market – in short, they have to be on their toes competing nonstop. That ensures you get choice alongside a fair price.

But, what if a single company owned all the hotels in Denver? They would still try to achieve exactly the same thing — maximizing their profit by maximizing their occupancy rates. However, now they have an additional lever to pull. They can adjust the supply; shut down rooms to ensure high occupancy rates. And over time, they will realize that is easy to manipulate. They also will realize all those other levers have less effect and may actually reduce their profit. So, they will stop doing them. The vibrant, competitive market will decline. Your choice will decline and the fair price will vanish. That’s the insidious power of a monopoly.

I think this demonstrates the danger in the United States with our access provider choices for the Internet. Most people only have one option for a provider of high speed Internet. It is unlikely, in the near term, that we will get the number of suppliers required to create the level of competition that exists within the hotel market. In fact, Internet access is like roads, electricity, gas and water supply. To some extent it is a natural monopoly because we probably don’t want 20 companies digging up the roads and our gardens to connect our house with 20 wires.

We have recognised that those other natural monopolies exist and have therefore created limiting regulatory regimes that try and avoid excessive profits. The regulatory regimes use the term common carriage, saying all “traffic” should be treated equally and that there should be no unreasonable priority given to one over another.

Net Neutrality does that for the Internet. But it does it without many of the price control rules that exist in those other natural monopolies. We want the fun, social part of the game of Monopoly without the bit at the end where someone has to crush everyone else and the life goes out of the game