John Malone Dreams of an Internet Monopoly

NEW YORK ( TheStreet) -- The dream of Internet monopoly lives on.

According to Om Malik, founder of GigaOm, John Malone is trying to roll up the cable business because he thinks he can force through monopoly prices on both sides of any Internet transaction.

The idea is this: Cable offers more bits than any telephone wire and as the cost of running new wires and trucks keeps going up, that's not going to change. Thus, as consumers switch from buying cable television services to Internet subscriptions, the cable system still has the advantage. It can charge what it wants for those bits, and charge the people on the other side, like Netflix ( NFLX), for reaching "its" customers.

Thus Malone's Liberty Media ( LMCA) is eyeing all the other big cable companies, starting with Time Warner Cable ( TWC) and Charter Communications ( CHTR), aiming to build a huge Comcast ( CMCSA)-sized footprint that can dominate the delivery of Internet services far into the future.

It's a great dream. I've been hearing variations of it for 30 years. In the 1980s and 1990s I heard it from telcos, which thought they had a monopoly. In the last decade I heard it from cellular companies, who thought they had a monopoly. Now cable.

My favorite version of this dream was dreamt by Enron in the late 1990s. Enron built a communications market just as it built markets in energy, and the idea was that if it could control access to all the Internet's major pipelines of data, it could do just what it was doing to California with electricity, squeeze everybody.Trouble is, as I later wrote in a self-published book about technology history, most recently offered as "Moore's Lore", Enron had a cat problem.

You can't get two cats, sell a litter of kittens, and then capitalize those cats based on all the kittens they and their descendants will later supply. Cats are like widgets, those imagined items you read about in economics. They have infinite utility but no economic value.

The same is true of bits. Thanks to Wide Division Muliplexing (WDM), optical cables could soon transmit not just streams of white light, but separate streams of light in all the colors of the rainbow, even colors that can't be seen by the human eye. By changing the electronics at either end of a link, a fiber cable could have its capacity increased many times over.

In other words, the same cat can have an almost infinite number of kittens. Unless you controlled all the cables you had no control over the market. Enron failed.

Since the 1990s, we've seen the same sort of thing happen with wireless Internet service, or WiFi. WiFi, like cellular, is just a radio, tuned to a specific set of frequencies, sending and receiving bits. By using all its frequencies at once, a WiFi radio transmits more data than a radio tuned to a single frequency.

The concept dates back to the 1940s, a patent held in part by actress Hedy Lamarr, who saw that you could get messages past Nazi jamming with the equivalent of a player piano roll, with frequencies acting as notes. Each side of the transmission would know the tune, but those in between couldn't pick it up. Here it's explained by Digital Journal

In 1998 the standard 802.11b router could run at 10 Mbps. Today an 802.11n router can run data at 100 Mbps. The antennae are getting better, too.

Malone thinks that cable operators can price based on scarcity, that they can create a bottleneck between bits and customers, a chokepoint where his tolls will be mandatory for people on both sides of the Information Highway.

But technology is about abundance, not scarcity. Technology tends to route around bottlenecks, whoever claims to hold them. Google ( GOOG) is already delivering 1 Gbps service to Kansas City, and it thinks it can make money at it, as CNET notes.

Malone's dream of monopoly is just not going to happen.

At the time of publication, the author was long GOOG.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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