The Market Failed and My Town Rescued Me

I'm a big believer in free markets, obviously, but neither markets nor my belief in them are infallible. Take my Internet service. Since I moved to a small island town in Maine in 2005, my choice of providers has been non-existent. No cable or phone company wants to invest a dime in these small communities. Verizon set me up with two basic phone lines and left it at that. Voice mail? Call waiting? Such standard business services are just not available where I live, Verizon representatives kept telling me with a mixture of mirth and boredom. Neither is DSL, obviously. I might as well have requested free back rubs and phone bills printed entirely in Klingon.

So for my web and e-mail needs, I've muddled along with the execrable Internet service provided by HughesNet, a.k.a. DirecPC. I had to pay 750 non-refundable dollars just to get hooked up with a dish and a satellite modem, and after that, Hughes sucked 60 dollars a month out of my account — not a problem except for four things. When it rained or snowed or stormed, the connection went down. Even under the best atmospheric conditions, download speeds were glacial, better than dialup but not dramatically so. Upload speeds were five times worse — transferring a gigabyte and a half worth of images to my photo website would take easily 24 hours.

To top it all off, there was the crap pile of unadulterated idiocy that HughesNet humorously calls its Fair Access Policy. As a $60-a-month subscriber, I was entitled to just 100 megabytes of downloaded material a day. 100 Mb is shockingly little in the era of YouTube, iTunes, webcasts, bit torrents, automatic OS updates, and Internet porn PDF policy papers.

Worse: you have no way of knowing when you've reached your daily limit. Even worse than that: when you do bump up against your 100 Mb threshold, HughesNet ... cuts you off for 24 hours. They don't even send you an automated, polite e-mail at 80 or 90 Mb. Once you hit the limit, they just turn off your account for a day, necessitating calls to some tech support call center in New Delhi or Bangalore on the off-chance that (hope springs eternal) something else is amiss with your Net connection. And no, charging 'à la carte' for any content over 100 Mb won't do, HughesNet has decreed (believe me, I offered). It's not an option. Too much hassle for their billing department, I guess.

A 100 Mb daily limit was perhaps a swell idea in 1998 or thereabouts; in 2007, it is the equivalent of waving a Bumblesque middle finger in your customers' faces.

"Please Sir, may I have some more?"

"Get out of my sight, you rabble!"

So lest we forget: that, too, is the free market.

And now my town has stepped in. Earlier this year, it partnered with a wireless broadband upstart called RedZone, and kicked in 75,000 dollars of tax revenues, thus covering roughly 20 percent of RedZone's initial investment in this town.

The RedZone network has been up and running, and steadily expanding, for a few months now. From a technical point of view, it is an insanely challenging crazy-quilt of small but powerful transmitters; they are supposed to cover the better part of three geographically disparate communities — each easily five or six miles from the other — that together form one municipality. The terrain is hilly, even mountainous here and there, and there are lots of people who live on private roads, well off the beaten path. Though the boonies-dwellers will obviously be among the last to get hooked up, RedZone seems to be pulling its ambitious scheme off quite nicely. More and more of my neighbors, near and far, are coming online, at half the price and double or triple the speed of HughesNet's service.

RedZone kicks a small part of our subscriber fees back to the town, so that in roughly ten years, one hundred percent of the town's cash outlay will have flowed back into its coffers, and any continuing revenues will be profit for the town from that point forward.

Meanwhile, customer service is exemplary. RedZone's founder and owner, a smart and affable entrepreneur called Jim McKenna, has personally been to my home on two occasions to install my receiver and tweak a bunch of settings that had hampered initial reliability. He also promptly responded, often in a matter of minutes, to my phone calls and e-mails while the service was still less than perfect.

Now, for the sake of libertarian purity, I'd have preferred it if RedZone had come in without support from the town. But decades of "letting the market take care of it" had clearly resulted in a lack of options for rural Mainers, and in no competition to speak of. Broadband Internet, in our day and age, is as crucial as telephone service. You could also argue that it is as important to the business health and common good of a community as the local sewer system — a municipal amenity that is pretty uncontroversial (not many people, I'd wager, feel that the sewers should be privately owned).

Of course, RedZone is privately owned; it just needed a partial, reimbursable cash injection from local taxpayers to make it worthwhile to serve us. I'm not crazy about governments correcting the perceived failings of the market, but not every principle can be correctly applied in every situation, and it seems to me that this is a textbook example.

If you don't agree, fine. Let me know, and I'll post a rebuttal — unrestrained, for a change, by slow connection speeds, arbitrary load limits, and sudden rain clouds.

Comments

[ORourke]

I don't know; in my admittedly half-trained and occasionally half-baked brain, governments are also part of the market. Yours decided that improved internet service was important to its customer base, so it found a way of providing it. If the demand continues it will make back its investment and have a tidy stream of income.

[Sandy]

Well, you can argue it was a superior outcome for you, but technically "market failure" doesn't apply. Market failure only happens when a market fails to reach the clearing price. Clearly there weren't enough people willing to pay what it would take to get a company to come all the way out to where you live.

Now, this may be small beer compared to most government interventions, but internet users imposed a $75,000 cost on non-internet users (or, more probably, pushed some people over the edge into a market they wouldn't have voluntarily entered).

You have chosen to live far from a concentration of other people, as is your right. But you have to accept the consequences of that, such as not having the same access to the same services a city-dweller has. The city-dweller has to give up cheaper land and more privacy and solitude. It's a choice.

What your town has done is to try to remove that choice. Had it been done voluntarily, as in you formed a voluntary association to entice a provider into town, I'd think you were more moral about it.

On the other hand, this is the kind of government expansion that would number in at least the five digits on my list of things to get rid of to achieve libertopia.

But it's not market failure--just a market outcome that didn't suit you personally.

[somebody]

The market didn't fail. You just chose to keep living in a place that didn't provide as good a service as other areas of the country.

[dead0man]

I'm going to have to agree with Sandy and somebody here. You chose to live in BFE, there are consequences to that choice.

[Billy Beck]

"Market failure" is conceptual rubbish. There is no such thing, for the very plain reason that nobody is ever obligated to bring you a product at a price that you see fit. It's a blessing if they do, but nobody has to do it, and that most certainly includes taxpayers.

[Dave]

As a businessman and an ISP I'm going to have to disagree with most of you. We're not talking about government intervention here we're talking about a public/private partnership and that's a different animal. As long as there the contract was open to all qualified bidders and there are no regulations preventing another company from opening a competing service should they so desire I see it as a smart move on the towns part. In today's world those without broadband access are at a competitive disadvantage in just about any industry you care to name. Even tourism is hurt by a lack of broadband access.

An added advantage will be the reaction of Verizon when people start dumping landlines to use VOIP. I predict that within 2 years you will have caller ID, call forwarding and probably DSL available to you. Telecommunications companies are the worst on the planet for being driven by one thing: Greed. They have enjoyed a monopoly for most of their existence and still aren't over it. Did you know that most of the added services like caller ID, call forwarding, last number redial and such have been designed into telephone switches since the 1950's and only take a software upgrade to activate. Most of the country didn't see any of these services until after the AT&T breakup in the 70's. They were a monopoly so they saw no reason to innovate since if you had a phone it came from them at their price. After the breakup of AT&T state regulators and competition forced them to actually try to meet customers needs instead of the other way around.

[james]

I agree with posts 2-5 someone is going to have to take your libertarian membership card ;).

[Dakota]

I do agree with the early posts. My main worry would be that the town an RedZone now have a common interest. Perhaps everything will work out dandy but really its not a "Market Failure" but a "market manipulation".

Here's a hypothetical to think about.

BlueZone comes to town and wants to compete, put up towers and offer a cut rate service. Your town worries about RedZone losing market share and with that the town loses that steady revenue stream.

Town selectmen (or whatever you have) create a new zoning and licensing scheme to keep competitors out and the town revenue stream intact. RedZone slowly lets the rates creep up because of the lack of competition.

Lots of times the shittiest situations are created with the best of intentions and results.

[Sandy]

Dave, how is Verizon's local monopoly a market failure?

Also, as an ISP businessman, I place the "sure, good for you, but you're not the market" tag upon your lapel.

Where are my contracts to build everybody there websites? MARKIT FAILYUR! Just because people there don't "want" to pay me $50K to build them a website doesn't mean those of us who know better shouldn't steal their money to pay me to do it. After all, think how much better off I'd be?

Answer: $50,000 better off. QED.

[Dave]

I never said anything about market failure. I think Sandy is right it's more market manipulation. The market wasn't profitable enough for a supplier to make the capitol investment needed to provide the service on a profitable basis so the town manipulated the market by basically investing in RedZone. The town should eventually get a return on it's investment since they are in a way shareholders. Given the fact that such a remote location is unlikely to get the service for years to come without the local governments intervention I see it as a smart move and a good use of the money. That is as long as the town doesn't try to use it's legal and regulatory powers to protect it's investment. That's unlikely to happen since the FCC trumps local law in such matters.

I would bitch about the money being a grant but have no problem with the town making an investment given the circumstances.

[Billy Beck]

It's *stolen money*, Dave.

To call that an "investment" is to destroy the language and the concepts underpinning it.

[HIttman]

Big L libertarians *would* insist that sewers should be privatized. That's why I'm a small L, choosing pragmatism over perfect dogma.

There's a big chip plant planed just a few miles from my house. To get there the town has made some outrageous tax concessions, big giveaways to the corporation. I don't like that, but the fact is that in the real world lots of other towns are also offering these concessions, and without them the plant, which will employ 2,000 people and contribute significantly to the growth and economic well being of the area, would locate elsewhere. We'll be much better off with the plant than without it, so I supported the town's plan. I didn't like it, but here in the real world (as opposed to the utopia the Big Ls insist on) refusing to make concessions would have not just limited our options, it would have removed them.

[Timothy]

I have to agree with Sandy here, Rogier. You live in the middle of nowhere in Maine, there isn't a satisfactory internet service there. However, you're not entitled to decent internet service, so yeah it's kinda bullshit that you're okay with this particular intervention because you benefited from it.

Mr. Beck: Well, I'm going to have to disagree with you about the non-existence of market failure. You can have a market fail to reach a clearing price when there are externalities (say pollution). If you don't believe there are externalities, I'm moving in next door and then blasting ToyBoy at 5000db 24 hours a day.

[Nate]

As long as it's your town, no problems. It's likely many other people in your town had the same problem, and if anyone had a problem subsidizing others' Internet connections, he could leave.

If it was your Senator in Washington demanding a federal subsidy for your Internet, that would be an entirely different story.

[Nate]

As long as it's your town, no problems. It's likely many other people in your town had the same problem, and if anyone had a problem subsidizing others' Internet connections, he could leave.

If it was your Senator in Washington demanding a federal subsidy for your Internet, that would be an entirely different story.

[Tim Schneider]

Just want to throw this out there. You can quibble about the textbook definition of market failure, but why defend a government-established monopoly. If anything, the failure of Verizon to provide service is a failure of government, not the failure of the market. How much does Verizon take in USF fees of one sort or another to provide this awful service? This actually keeps the market from being competitive, since low infrastructure cost alternatives don't have access to the same level of government subsidy. If anything, this is government intervention at the local level to introduce a competitive market, against the monopoly tendencies of state and federal policy makers. But by all means, stick with the back of the envelope libertarianism if it works better in blog comments.

[Sam]

I suppose I can more closely identify with Rogier's frustrations as I am one of the neighbors.

First,some clarification:
Rogier and myself don't live in the middle of nowhere.

For those of you picturing us traveling dirt trails by covered wagons to get home to our log cabins, Wal Mart is within a half hour drive.

The Rockefellers and Martha Stewart have residences here, and we get millions of visitors a year to Acadia National Park and from cruise ships that port in Bar Harbor.

Again, not exactly the middle of nowhere.

Free market failure, socialized internet, government intervention, I don't really care what you call it, Red Zone is a great company that made my business (Computer Repair) bearable to operate, I can download and upload critical files, actually watch a video on YouTube, and get e mail downloaded within a reasonable time.

To clarify further, up until a couple of weeks ago, the island was a bizarre mix of dial up and high speed customers, neighbors that lived two miles away from me had Verizon DSL Or Time Warner cable, I just happened to live in a zone where Verizon and TW were never coming.

There was no rhyme or reason, just luck of the draw. I worked with dial up with "acceleration" for ten years with no complaint, it was just the way it was.

We waited for cable for five years, and finally went with DirecTV when we realized it was never going to happen.

Hughes Net is a joke, even if we "frontier dwellers by choice" should be grateful for any high tech access.

I wonder if many of you you would say the same thing to a young adult who happened to live here because his or her parents live here, certainly they have no "choice" about living here, so should they (young people) be denied access to high speed internet until they are independent enough to make a "choice" to leave?

Well just my two cents, I just wonder if all of you who feel corporations like Verizon don't have any responsibility to provide frontier dwellers with Broadband access also think the Fed bailing out Wall Street investment houses (at future taxpayers expense) is also fair play?