Friday, February 24, 2006

Does Competition Prevent the Need for Regulation?

One of the objections to regulation is that free market competition prevents the need for regulation. In some cases, this may be true. In a monopoly market, such as electric, gas, cable, and telephone service when there is only one provider for a service, the government not only selects the company that is allowed to provide the service but sets the rates for the service. For example, only one company strings power lines down the street in any particular area. We don’t want multiple power lines in our neighborhoods. Because this is a monopoly, the government (in most cases, states) set the rates that can be charged.

But what about regulations concerning consumer protection when there is competition. The Federal Communications Commission is now proposing regulations that, among other things, would protect certain consumer information that broadband internet services (such as cable companies) obtain from customers. In opposing the regulations, Time Warner, owner of AOL and provider of Road Runner broadband access in many areas, claims that privacy protection regulation is unnecessary due to competition.

According to Time Warner, in their comments to the FCC:
Broadband service providers currently operate in a marketplace in which consumers expect providers to make their privacy policies available on their websites. In fact, some ISPs compete on the basis of their privacy policies, and experience has shown that ISPs that fail to protect their customers’ privacy risk incurring their wrath and driving them to an alternative provider that takes privacy more seriously.

Time Warner seems to be saying that when we select a broadband internet service (usually a choice between the cable company and the phone company’s DSL service) we look at the privacy policy and decide which service we want based, in part, on those privacy statements.

I looked for Time Warner’s privacy statement. It is found at a small link on the bottom of their home page (, linking to that leads to a statement of approximately 3000 words. By scrolling more than half way down the page you find the statement "Unless you object, the Cable Act also permits Cable Operators to disclose personally identifiable information to others, such as advertisers and direct mail or telemarketers, for non-cable related purposes." (emphasis added).

Is this an example of competition making regulation unnecessary?