Barely Legally

Confessions of a Moot Court Bailiff

Spirals, Economics of

I liked this piece by Ryan Knutson and Josh Dawsey in the Wall Street Journal, on New York City’s audit of Verizon’s stalled rollout of its fiber optic internet service. The situation is a little ridiculous: 75% of the 40,000 people on the waiting list for fiber optic service have been waiting for more than a year. (Although that’s a little misleading. I’ve been waiting for four.)

The city plans to release the audit on Thursday. It examines Verizon’s compliance with the franchise agreement that the company signed with the city in 2008, allowing it to deploy its fiber network FiOS. As part of the deal, Verizon agreed to string fiber wires past all city dwellings by 2014. Verizon says it has held up its end of the deal. The primary reason many buildings still don’t have service, the company said, is because it is struggling to get access from landlords.

Wow. The evil landlords in this city are keeping Verizon out of their buildings, in keeping with that tradition of underdeveloped real estate in New York City. For example, most of Staten Island’s homes didn’t have running water until the 1980s. It’s shameful, really. Why, I think the mayor should-

The audit says Verizon isn’t connecting some buildings because the carrier is holding out for an exclusive agreement with building owners to be the sole network provider. [A Verizon spokesperson] said the carrier does ask for exclusive agreements in some cases, but that isn’t not why [sic] buildings don’t have service.

Oh, I see. So Verizon says they’ve actually wired all the homes in New York City for FiOS, but Verizon won’t actually let anyone purchase that service until landlords help Verizon hold customers hostage. Verizon wants to be the only game in town, or they won’t play.

But again, note that they’ve already spent the money to play the game; the homes are ready for FiOS. Verizon’s problem is that, if they offer service in my building, Time Warner could theoretically lower its prices for service in my building. And then Verizon would have to lower its prices in turn, to attract customers.

This, of course, would quickly bankrupt both Verizon and Time Warner, which is why economists refer to this phenomenon as a “death spiral.”