Netonomics.

[professor rat]

David Isenberg and Dave Weinberger wrote a manifesto called The Paradox of the Best Network. They suggest that private markets will not provide the best communications network. They say that the best communications network is a "stupid" network, meaning one that is not designed optimally for any particular application, such as voice or television. Like the Internet, the network moves packets of information, and leaves it to the devices on the edge of the network to interpret the packets.
Isenberg and Weinberger argue that it is not in the interest of incumbent communications firms (phone companies, cable companies) to provide the best network.
Arguably, building the best network is a Public Good. It will boost the economy, open global markets, and make us better informed citizens, customers and business people. So, perhaps we should let the government do it. Perhaps we should insist that the government do it.
But governments tend to make mistakes. Big governments tend to make big, costly, persistent mistakes. We do not want government to lock us into particular technologies or certain ways of doing things, no matter if they seem to be the most promising technologies and methods today.
...we are stuck between the Scylla of big government and the Charybdis of free market dynamics. We need to find wise ways to proceed. If we don�t, telephone company lobbyists will write the next chapters of the communications story.
In my view, Isenberg and Weinberger have made a case that the best network would be good for the public. However, they have not made the case that the best communication network is a public good, in the economic sense of the term. In economics, a public good is a good which can be enjoyed by people who do not pay for it. As a result, the tendency will be for that good to be under-supplied.
Charging people for Internet connectivity is not a problem. Andrew Odlyzko pointed out in Content is not King that people in fact pay more for connectivity than for content. I do not buy the public good argument.
I am more sympathetic to the argument that the government has granted monopoly franchises unwisely. Local phone companies are monopolies. Cable companies are monopolies. Spectrum is parceled out to monopolies. Each of these monopolies was chartered to provide a specific service. The monopoly charters run directly counter to the ideal of the stupid network.
The challenge for government is how to undo the past granting of monopoly charters.
�       Do you tell the monopolies that they are now free to offer pure connectivity? So far, the government seems to say "yes" to telephone and cable companies but "no" to most spectrum owners, particularly broadcasters. Would changing the charters provide sufficient market stimulus to get the current monopolies to head toward the most efficient solution for providing pure connectivity?
�       Instead, do you confiscate the assets of the monopolies, such as the phone companies' wires and the broadcasters' spectrum licenses, and make these assets available to any company that wants to use them for pure connectivity? If you confiscate assets, how much compensation, if any, do you offer existing owners?
In my view, the "public good" argument is misleading. The policy issue is what to do about the legacy of monopoly charters that were granted for specific services.
Discussion Question. It also is argued that connecting certain classes of people to the Internet (rural residents, or poor people) is a public good. Is this valid, given the economic definition of public goods?
http://arnoldkling.com/gqe/arch8.html