Net Neutrality: The Liars Need To Be Locked Up
The Market Ticker - Commentary on The Capital Markets
2017-07-13 10:04 by Karl Denninger
in Technology , 854 references Ignore this thread
Net Neutrality: The Liars Need To Be Locked Up
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The last couple of days have been so-called days of action on so-called "Net neutrality" and now a veritable trove of large "consumer" corporations have joined the fray -- Amazon, Facebook and (of course) Netflix among them.

It's time to cut the crap on all of this -- every one of these firms simply wants to shove their costs down your throat, whether you use their services or not.

That's what this is really about, you see.

It's obvious with Netflix, of course, but less-so with the others.  Facebook, for example, has to deliver advertising -- including high-bandwidth video advertising -- to make money.  To do that someone has to pay for the transport of the data from their servers to your computer or phone.

Who pays?

They think it ought to be you.

That's ugly enough but it gets uglier -- you see, all these firms have to have transport to service their applications (e.g. movie viewing, etc) for anyone who might buy their service.  This means that network providers must build out capacity to serve that.  Who gets that bill?

Again, they want the answer to be you, whether you use their service or not!

It should be you who gets the bill if you use the service.  But what if you don't?  What if you have no interest in Netflix?  What if you have no interest in Facebook's ads?  What if you don't want to use Amazon's movie service, or streaming music?  Why should those firms be able to shove off their infrastructure build and operating costs on you if you don't use the service?

Let's take a "closer to you" example.  You are a homeowner.  You have no interest in Netflix but you do have an interest in Internet service.  Your daughter, on the other hand, who lives with you, does like Netflix.  Let us assume for a moment that you're independent entities living in the same house, sharing household expenses, but she's an adult and paying her own way.  Who gets the bill for her Netflix addiction?

You do under a net neutrality paradigm because your "shared" internet connection must be faster and lower-latency to serve her even though she is the only one who requires that.

What if there was no Net Neutrality?

Then your ISP (cable company, probably) would tell Netflix that they must locate a server at each of their head ends and feed it with their own circuits or they'll be charged back the cost of the infrastructure build to serve them.

What happens then?  Netflix's prices go up but your cable internet bill goes down.

The cost gets shifted to the actual user and the forced, literally at gunpoint by power of law, extraction of those costs from people who have no interest in the services in question ends.

Folks, I'm a former Internet ISP CEO; I ran MCSNet in Chicago at the "dawn" of the consumer Internet age.  I have no dog in this hunt other than an interest in only paying for things I want to use.  Being forced to pay some percentage of my monthly cable Internet bill (or for that matter my monthly cellphone bill) to build infrastructure to support a company's service that I find worthless (Netflix) is an outrage.  If the market was left alone this would not happen because in a competitive market there would be choices -- and those who did try to cross-subsidize in this manner would fail.

As soon as you make it a matter of law then choice vanishes and so do those market forces.  My Internet bill is materially higher than it should be, and my daughter, who likes Netflix, is paying less than she should be -- she is able to effectively shift her costs to me.

There is another problem, and it's equally-serious: What is the valuation of Netflix if the cost is not $8 or $10 a month but $20? How many subs do they lose if only their actual customers pay for their infrastructure buildout instead of every Internet user in America?  I don't know -- but I bet that number is substantial, which means that company and all others lobbying for the same thing are stealing from every single American who has no interest in their service.

Theft is a crime, and these people need to go to prison -- all of them.

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Svtikicat
Posts: 8
Incept: 2017-05-24

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I, too, used to work at an ISP (for almost a decade).

The internet has always been tiered. I loved watching the college kid's expressions when I told them (after they complained about how slow the internet was at their apartment) that we will give them ANY internet speed they want, as long as they were willing to pay for it. "Let's see...about 40k to run a fiber line to you apartment and then about $x for the bandwidth plus....".

I thought the whole Net-neutrality argument was based on charging differently based on where the traffic came from versus paying for a set bandwidth limit.

Of course, both of us know ISPs oversubscribe their lines. If everyone used the allotted bandwidth they are promised (at the same time), the ISPs could not handle the traffic.

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SAD FACT: Misinformed people rarely change their minds when presented with the truth.
Tickerguy
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Quote:
I thought the whole Net-neutrality argument was based on charging differently based on where the traffic came from versus paying for a set bandwidth limit.

It is -- predicated on the load that said traffic source presents.

When you're 10% of the total load on the system you're so outsized that you ought to be paying something for it -- either by putting servers closer so the cost is mitigated or being billed back.

Netflix is in many places 40% or more of the evening load on ISP systems! At that point they ought to be basically buying the infrastructure buildout -- one way or the other.

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Winding it down.
Unknownsailor
Posts: 397
Incept: 2009-04-06

Bremerton, WA
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It has always amazed me that so many supposedly smart people cannot see the basic issues you lay out so clearly. I don't know if it has anything to do with the admittedly ****ty ways ISPs have acted in the past or what, but I have tried to explain your POV on this numerous times, and all I ever get back is just pure unmitigated bile.

At this point I just link to your articles on it and wash my hands of the whole thing any more.

I wish I could link to your older rants about NN, but I can't get any of those articles to come up...
Kroyl
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Incept: 2015-11-12

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There should be some form of "limited" net neutrality so that ISPs can't discriminately bill or otherwise restrict the service based on "perceived value" of the content.

Otherwise, ISPs will certainly split their service into Basic, Deluxe and Pro packages, and on "basic" packages things such as VPN, gaming, VoIP etc. will be blocked or intentionally sabotaged (even if using only a tiny amount of bandwidth).
The extra "value-added" services would be priced not by the actual cost + margin, but by the "ability to pay/ability to switch to different ISP" of the targeted customer base.

The bigger danger here is that the "Basic" package will eventually morph into "Free" package (subsidised by content providers either directly, or through advertisement revenue sharing/online purchase revenue sharing/customer data sharing deals), and it will be used by the majority of customers - turning a large part of U.S. internet space into "one big Facebook".

The day Net Neutrality is finally repealed, Amazon will start building their own ISP :)

Full disclosure: I am outside US, so I'm not directly affected by it, but if such "free" model is ever commercially successful in US, it will be eventually implemented worldwide and be promoted as "universal internet access" BS.
Johnnyb
Posts: 37
Incept: 2014-10-21

Tulsa, OK
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Isn't this all the result of unmetered bandwidth to the user? Would all of this go away if bandwidth to the users themselves were metered?
Jack_crabb
Posts: 5225
Incept: 2010-06-25

Peoples' Republik of Maryland
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It's hard, nigh impossible, to use logic and reasoning when explaining anything to the communist libturds. I mean, come on, they've got feeeeeeeeelings and emoooooootions in spades, but essentially nil in reasoning ability.

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Molon Labe
Where is Henry Bowman when you need him?
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Gantww
Posts: 1410
Incept: 2011-04-22

Nashville, TN
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Re: the streaming. I didn't realize netflix was at 40% of evening bandwidth. Holy crap. I'm just now finishing up running cat6 to the tv so I can put a roku in there. Clearly I missed doing it when the cool kids were doing it.

That said, I wonder if getting rid of net neutrality might also change the digital distribution model for content. At the moment, it's largely streaming, and thus costs more because of build-out costs. I wonder how much it would help the costs if instead of streaming movies, people actually downloaded them to a local buffer to watch. I would imagine you could get better compression of content, plus it would be more resilient to being slow. Do you think there is any possibility of things moving in that direction? I know the MPAA wouldn't like it, but to some degree their stance on such things is predicated on this model too.

Thoughts?

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Pissing on the host in the middle of the living room with guests present is a pretty good reason for the host to forcibly remove one from the scene, in my humble and correct opinion. - Jack_Crabb
Lenguado
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Orlando, FL
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Quote:
-- every one of these firms simply wants to shove their costs down your throat, whether you use their services or not.

Isn't this the basis of pretty much the ENTIRE modern economy?

Net Neutrality. The UNAffordable Care Act (Obama Care). The UNEarned Income Tax. Medicare. Medicaid. WIC. etc etc etc.

If anyone doesn't think we are already a Socialist society, they aren't paying attention. . . .

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I just realized... they aren't saying, "Keynesian Economics"
they're saying "Kenyansian Economics". Grass Huts for everyone!
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Krzelune
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If they don't fix this what will happen is the ISPs will charge everyone per GB of data use for all internet access. Just like they used to do with long distance phone calls. It is already happening to some extent. I'd love to see the look on some of their customer's faces when they get their first bill.
Jackjimbopits
Posts: 423
Incept: 2009-07-02

Phoenix, AZ
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Cost shifting has been so lucrative for the Health industry, everyone's trying to get into it....

Budget-racer
Posts: 2
Incept: 2016-03-14

Virginia
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I consider myself to above average intelligence (doesn't everyone), but tech stuff has really been hard for me to keep up with, since I've never had much use for the latest toys or worked in the field like a number of other members. I'll fully admit that at the time, I had to read the original net neutrality articles quite a few times before it really sunk in. I had read this site for a long time before ever joining up mostly because I didn't feel I had anything to add to the tech/finance discussion. A few of the fixing old car or household repair posts pushed me over the edge as mechanical stuff is more my thing and I've done my best to pare down and starve the beast, so it's nice to know I'm not alone with that.

All that to say, it's no surprise to me that a large percentage of people are fooled by the genius marketing behind just the term "net neutrality" alone. These same mega users of data, that want their use subsidized, are probably perfectly fine with tractor trailers paying a higher toll to use the same roads without realizing their own internet use is essentially the tractor trailers of the digital highway. We live in a world of seconds long sound bites and headlines designed to make you feel smart and informed without actually studying anything. Combine that with the hatred most people already harbored towards their ISP and we get another perfect storm converging.
Jrgtrading
Posts: 6
Incept: 2011-10-29

Colorado
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The best thing that ever happened to us was being forced onto satellite internet out here in extreme rural Eastern Colorado. It really teaches you the value of each gig. We can watch maybe one TV thing a day on Netflix, etc, but you have to budget your data. It costs a lot more, but we accept that since we realize that we live far enough in the sticks that we have to literally bounce our web browsing off FRIGGEN GEOSYNC SATELLITES.

Meanwhile, we watch bemusedly at all the neighbors around us who are still on the "exhaust market" landline ISP freak all the way out. They're *ALL* trying to let each kid watch a movie a day on six different devices while they're trying to do videoconferencing for work. They constantly complain that Centurylink should be "forced" to add capacity... when out here the ISP has to measure "miles per customer" instead of "customers per mile" with the ranching properties. But they're unwilling to pay more than the urban customers.
Thomasblair
Posts: 84
Incept: 2009-04-03

AL
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I know that the precise answer is "it depends" (location of origin and destination, time of day, day of week, etc.) but what is a good blended cost to deliver a gigabyte of data? I've read estimates that range between a penny and a quarter per.

I'd like to see metered connections with a flat administrative fee of say $5/mo plus a usage charge per GB.
Tickerguy
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There is no specific answer because it is VERY distance sensitive.

Oh, and the cost comes down over time - a lot. The last mile technology matters quite a bit too.

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Winding it down.
Kroyl
Posts: 16
Incept: 2015-11-12

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It's not rather distance sensitive, but time-sensitive (in terms of peak usage).
The marginal cost of that 1GB of data during non-peak hours is almost exactly zero - that capacity would be available anyway.
And during the peak hours - the marginal cost can go well above $1/GB (depending on how you count, of course - the number will depend on your "expected rate of return on capital investment").

If Netflix, etc. had to pay their fair share of the costs, a possible solution would be to add a small surcharge if you download the "heavy" content during peak hours. Most people would adjust their viewing schedule (or download the content in advance) even if the surcharge is very small compared to marginal cost of GB during peak hours.
Mangymutt
Posts: 402
Incept: 2015-05-03

Vancouver WA
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One of the few socialistic programs I am 100 percent in agreement with is our system of roadways.

EVERYONE has equal access to them.

I can get from WA State to New York City without having to ask anyones permission.

I can do it by car, bus or walk.

I can conduct commerce because of our roadways.

I can buy trucks to haul my product or walk to the local convenience store for a six pack.

But what I do not have the right to do is steal a car or get on the bus for free.

If I can not afford to buy trucks to haul my product I do not get to use someone elses for free.

But I am free to walk to where I want to go.

In many ways the internet is our modern day highway system, we use it to educate ourselves, visit people and conduct business and I believe because of that everyone should have equal access to it.

Equal in the sense that ANYONE should be able to go to the local library and use the internet to communicate, educate and conduct business. To me it would be the same as using our roadways.

What everyone does not have the right to do is have free access to the products and services others pay for.

If Karl decided to start his own cloud service, I can not just use it for free i.e. get on the bus for free.

I honestly have no issues with everyone being able to walk from point A to point B for free, but if they want to get there faster, in more comfort or take more with them, THEY should pay for it.

Well I am off to watch my free Netflix now :p


Nonsensical
Posts: 20
Incept: 2017-06-16

La Verne, CA
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I got a solution since these tech companies are essentially run by sociopaths who've built their entire businesses by evading taxes, ignoring laws, violating copy rights, privacy issues, anti-trust laws, unregulated acquisitions and so on, well, except it comes to themselves, of course.

So here's my proposal. Google went ahead without any permission to digitalize all books ever published. This led to a lawsuit of copyright infringement by the Authors Guild, and in 2013 Judge Denny Chin ruled that Google met all the requirements of fair use, rather bizarre considering Google digitalized the works in their entirety. Then in 2015, the second circuit upheld the ruling saying that Google served a public good without violating intellectual property law, which again is rather bizarre considering Google was the only one to benefit.

So, okay, let's then go along with the court's interpretation of Google's actions, that is, they serve a public good, but need a concentration decree and hold a definite monopoly of market share in search. Google even sometimes goes so far to imply they are a natural monopoly, but one that doesn't do evil, which sociopaths are good at lying by the way.

However, it sounds like Google may very well be an utility. Hmmm, well, in that case, maybe convert them into a public utility just like Bell System. You could possibly make the entire Internet free on their add revenue and create another Bell Labs, and push out the so called geniuses like Page and Brin (who seem.more like sociopaths than engineers) and fund real engineering geniuses like Tim Berners-Lee.

I doubt it's feasible given that we're talking about networks as opposed to platforms and search, but still, I like to dream that one day these sociopaths are stopped since none o them have really devised a real business that wasn't predicated on theft.

Nonsensical
Posts: 20
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La Verne, CA
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Of course I'm no f of net neutrality and shifting costs to those who don't use it, but companies like Comcast and Time Warner Cable (now spectrum, or becoming spectrum, not all has been converted here in the Los Angeles area yet, at least) have become pretty lethargic.

In Chattanooga, Tennessee, Volkswagen told the city they'd like to build an auto plant there, but because it's in the middle of tornado alley they wanted a smart grid put up to help ensure power isn't shut off to the plant.

So the Electric Power Board of Chattanooga (EPB) built a smart grid, and Volkswagen built their plant. But once EPB had strung fiber optic cable of every lamppost in town, it realized that each of these posts stood less than 100 feet from a home to which the company could sell broadband service, and there were at least 50,000 of these homes.

Comcast sued in the Tennessee legislature and sent EPB a cease and desist order saying it could offer 100 megabits per second if there's only one person on the line. So the EPB improved it's service to one gigabit per second. I believe the EPB charges $70 a month for one-gig broadband plus TV service. Comcast is rapidly losing market share in this region.

I don't know how cost effective EPB is or how feasible what they did would be elsewhere, but definitely it does seems like the network providers have become lethargic off their monopolies.

Ateir reasoning to the FCC why Comcast and Time Warner should merge since each company operated a de facto monopoly in the individual cable markets they serve, their merger would not change the competitive environment for the individual consumer. Which would likely be true, however, the economist Joseph Stiglitz showed that the notion that companies have to get bigger to be more competitive (remember the banks have made this argument) is total BS and at a certain level they become massively inefficient. For the most part, massively large conglomerates and monopolies tend to be inefficient but what they gain is massive market share for the upper management and massive political power. (that's probably off topic, though).

It just seems like one of those situations where you have two sides battling each other an you want both to lose, the networks and the companies like YouTube and Netflix and such.
Idiom
Posts: 102
Incept: 2015-02-20

New Zealand
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Here we have regulated utilities owning last mile fibre. So everyone has gigabit fibre to their house.

Backhaul from those tiny local utilities is totally up to your ISP. And because their is no geographic monopoly, changing ISP's is trivial.

Net Neutrality is not needed because its easy to avoid anyone trying to gouge or be a dick about access.
Uwe
Posts: 8262
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IMO, net neutrality -- defined as every packet must be treated equally by your ISP -- is A Good Thing. Allowing ISPs be break stuff like VPNs or the ability to use the SMTP server of one's choice is no bueno.

I think correct market solution is metered access. You pay $xx dollars a month for a certain connection speed and $y for every GB of data that flows through that pipe. In that case Netflix stays at $8 a month (or whatever it is; I don't know, I don't have it), but those who use it still pay for the bandwidth it consumes.

Electricity is charged that way. Municipal water is charged that way. Why not data?

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"I am free, no matter what rules surround me. If I find them tolerable, I tolerate them; if I find them too obnoxious, I break them. I am free because I know that I alone am morally responsible for everything I do." -- Robert Heinlein
Whitehat
Posts: 31
Incept: 2017-06-27

New York City
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The reason that this is allowed to occur regardless of the unfairness of it is that it subsidizes the wealth generation of a few and influential. Essentially, your internet bill supports the the incredible wealth that the Facefart and Amascam and others like them extract even though logical arguments often presented here by Karl do not support the valuations. By stealing a little bit from all of us (actually not a little bit) the infrastructure is supported by which no user of their product is faced with a secondary purchase barrier. The best example is purchasing a car. Now you need to deal with associated cost such as insurance and regulatory. If buying Prime video from Amazon or getting Netflix resulted in a bill from your ISP, these companies would have significantly less market share. Market share is always used as a way of justifying stock price regardless of profitability. Whenever you are selling to people, you always want the purchase to be easy, fast and you want to avoid future regret.

The internet business model with data works somewhat like private clubs and health spas. A number of people pay the price, but not everyone uses at full capacity as this would crash the organization. However, data service providers are a little different. They are essentially a utility now and almost required to exist in the modern world for their customers. Often they are monopoly or close to it. This means that you are forced to subsidize the ease with which Netflix and Amazon can play the system and have no choice not to do so. The electricity, water and natural gas utilities that stream to your home or business charge you per unit consumed which is fair to all users. People perceived internet like their television where they could use the signal as much or as little for a flat rate or free in some cases. This was not lost on the business world. Here in the US it is impossible to do what is common in other countries and purchase only the TV channels that one wants. They did it to us with internet too.

The cable subscribers subsidized the sports networks and **** like MTV. The only option given with objectionable content was that the subscriber could block it after paying for it, nice, only in America. The internet subscribers subsidize the mega users and by extension the latest stock market frauds.

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There are two ways to be rich: One is by acquiring much, and the other is by desiring little.
Rickcaird
Posts: 149
Incept: 2009-08-17

Boynton Beach, Fl
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But, "net neutrality" is such a nice sounding name. Marketing...
Aftercastgames
Posts: 2
Incept: 2017-07-15

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Uwe wrote..
IMO, net neutrality -- defined as every packet must be treated equally by your ISP -- is A Good Thing. Allowing ISPs be break stuff like VPNs or the ability to use the SMTP server of one's choice is no bueno.

I think correct market solution is metered access. You pay $xx dollars a month for a certain connection speed and $y for every GB of data that flows through that pipe. In that case Netflix stays at $8 a month (or whatever it is; I don't know, I don't have it), but those who use it still pay for the bandwidth it consumes.

Electricity is charged that way. Municipal water is charged that way. Why not data?


This is exactly how most mobile data plans are sold. Unlimited plans, on the other hand, now include provisions for limiting bandwidth in order to attempt to combat a small number of users "abusing" the company's infrastructure.

Even home broadband internet services include these types of provisions for exactly the same reason. And the ISPs and the wireless providers can always raise their prices if they can't come up with any other alternative.

I "prefer" to have my data NOT analyzed and prioritized based on "agreements" made between the ISP and the various web sites out there, but I won't go so far as to say that the government should mandate that it NOT happen.

The free market has a way of working these sorts of issues out, usually by introducing newer technology to overcome technical limitations. Let the ISPs figure out how to solve the problem, and if they get it wrong, let them go out of business...
Aftercastgames
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Incept: 2017-07-15

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Whitehat wrote..
The internet business model with data works somewhat like private clubs and health spas. A number of people pay the price, but not everyone uses at full capacity as this would crash the organization.


Actually, it works a lot more like an airline. They sell you a service with a specific cost and expectation. You pay them $150 and they fly you from one place to another at a specific time.

However, sometimes they take a little gamble in order to increase their own profit, and sometimes that gamble results in not enough seats on the plane to hold up their end of the deal.

Should this practice be mandated illegal by the government? If you've ever been in this situation, you might say "yes".

On the other hand, the future can't always be predicted, and sometimes "unforeseen" circumstances can interfere with this sort of transaction.

But selling too many tickets is not an "unforeseen" circumstance, and, in fact, the whole point of "selling tickets" is to prevent just this sort of situation.

If left alone by the government, companies that sell services that they can not fully support will eventually lose customers until they can either support the remaining customers, or go out of business. It's a great system that works well in almost all circumstances without the need for the government to step in.

But once the government does step in, there is a significant risk of the entire industry being destroyed, and at that point, customers don't have the option of simply taking their business to a competitor.
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