I was driving to work when a Vodafone advert came on the radio to tell me that its broadband is better than every other broadband.
It isn’t, of course. It is the same optic fibre going down to my property whoever I pay. Change your provider and what changes is some switching at the far end and, perhaps, the level of throttling: 100 megabits from one company, 150 from another. All they are doing is changing the bit rate and throwing a few switches.
Once, throwing those switches took an organisation. People to take the order, people to process it, people to run the equipment at the other end. Now one person at a computer could do it. Or nobody. The advert promised one click and it’s all done for you, and there is no reason an AI system couldn’t be doing the clicking!!
So the cost of moving a customer from one company to another, or from one speed to another, has all but gone. What remains is the cost of putting the fibre in, paid once, and a little maintenance. The price should fall. At some point it certainly will. Or will it?
But why would Vodafone be the one to drop it? A little competition might trim it. Mostly it won’t. Broadband contracts carried an escalator for years, the consumer prices index plus a percentage, every year, and from a business point of view that makes perfect sense. Ofcom has since banned it from new contracts: any rise must now be written down in pounds and pence at the point of sale. It is still a rise.
The people buying broadband used to be the people these companies employed, and paid, to run the company, to change those settings. None of them will have a job doing it once it is automatic.
You can’t expect people to keep paying top prices and expect Vodafone and British Telecom to make massive profits. Who would they make the profits off? The consumers no longer have the income to pay.
There is a disjoint in the economy [somewhere], and broadband is just one obvious place to see it. It is everywhere. You cannot cut the cost of making things by laying people off, or paying them less, and expect to make more profit from it. There is no money in the economy to buy what you have made.
I assumed somebody must have written this down, that there must be an economic theory behind it, so I checked.
There is, and it is this year’s. Brett Hemenway Falk of the University of Pennsylvania and Gerry Tsoukalas of Boston University posted a paper in March called The AI Layoff Trap. It is a preprint, so nobody has refereed it yet. Their argument is that a firm which automates keeps the whole of the saving but bears only a share of the demand it destroys; the rest lands on its rivals. Every firm does the same sum and reaches the same answer, and between them they displace more workers than is good for anyone, owners included. More competition makes it worse. So does better AI.
They go through the obvious escapes: wages adjusting, new firms entering, universal basic income, retraining. None of them closes the gap. The one thing they find that does is a tax on each automated task, set at the demand the firm is not paying for.
I don’t know whether a tax is the answer. I do notice that nobody in the chain is being stupid. Vodafone is entitled to wait for BT to cut first, and BT for Vodafone.