Ok, let me explain something to the free market fundamentalists, who no more understand what a free market is than most Christians understand what being Christ-like means. (Hint: if you are pro war and think getting wealthy is a worthwhile goal, Christ would have had nothing to do with you. Good luck getting that camel through the eye of that needle.)

Unregulated markets in most goods or services tend towards either oligopolies or monopolies. They do not tend towards markets competing on price and quality amongst a large number of providers. Over time, in most markets, the natural competitive instinct is to acquire - to integrate until you're in control.

Why? Because the best way to make a profit is to provide something people need and must have and can't get from anyone else. If you are the only person who has food, you can charge anything. If you are the only company providing gasoline, you can charge almost anything. And so on. Or, rather, in the modern world, if you are one of a few it's pretty easy to come to an understanding on price, even if that understanding is based on a wink and a nod.

If you are the only company providing broadband connections (or one of only a few) to a large chunk of the US (or if it's just you and the local cable company) you can jack the price up to as high as the market can bear. And since no one is really competing with you, there's no need to really improve service.

This is what the Department of Justice has just decided to do by approving the merger of Bellsouth and AT&T - a merger which control almost half of all landlines in the United States. The CEO of AT&T, as Matt Stoller points out, is on the record against Net Neutrality - as would you be if you were in his position - charging more for access by customers, and more for access to those customers by companies on the net sure sounds great.

Here's how it works - just like the old railway companies. When the railways controlled the West the way they did it was simple - you paid what they said to get your grain to market (or sold it to them at a price they dicated) or your grain rotted and you got nothing. Of course they set the prices at just enough for most farmers to limp from year to year and took the vast majority of the profit for themselves.

More After the Jump

Companies that use the internet to sell to customers (which includes any company which uses the web to communicate with its customers) will be charged by these companies most of the profit of the relationship with those customers. If they don't like it, they are welcome to go completely out of business, rather than just have low profits.

And since those numbers will be set at a relatively high number, a large minority of companies which rely on the interent will simply find that the profit margin necessary to pay is more than they can afford, and will go out of business.

That's what monopoly profits are about. If a car has a median economic value of X and you have a monopoly or oligopoly on selling cars then you set the price of a car as 90% of X. A lot of marginal people won't be able to afford them, but plenty of people will, and you'll make as much as possible from them.

This works best when there is no substitue or competitor.

So, in an industry where you can't escape (if you want broadband you will buy it from us or from the cable company in your region and no one else and no, there is no substitute since municipal wifi is being made illegal state by state), the drive is always towards monopoly or oligopoly.

Thus, to keep a free market, requires government intervention. One way this works is by making sure companies don't get too big. The second is by mandating competition. For example, old style dial-up internet access was competitive and cheap because the government forced the phone companies to allow third parties to resell time on their lines and to sell that time at a minor markup from cost. Same thing with why long distance charges went down so much. Anyone old enough to remember when a twenty minute call to the opposite coast was bloody expensive? I sure am. The reason it was so expensive is the phone company had a monopoly. The reason it got cheap is that the old phone company got broken up and forced to allow competition.

And, step by step, that period of competition has been ending. The monopoly has been coming back.

And in large part it's because free market fundamentalists think that a free market is any market the government isn't interfering in, not a market where a market is kept free from those who would use monopoly power to end competition so that they can extract monopoly profits.

Free markets are great things.

One day, perhaps we'll have some.

But not in telecom.