Walled Gardens, Government Intervention And Innovation

Thomas Hazlett, former chief economist of the FCC, has written an opinion piece for the Financial Times arguing that “walled gardens” promote innovation. “What works best for consumers is a competitive process in which independent developers, content owners, hardware vendors and networks vie to discover preferred packages and pricing. When decision-makers compete for customers and answer to shareholders, a sophisticated balance obtains. The alternative proposition, business models voted on by regulators, is a recipe for stasis.” The main example given is Apple’s (NSDQ: AAPL) iPhone, the success of which “crushes the argument that mobile networks are closed and need to be prised open by government intervention” according to Hazlett.
The other example given by Hazlett is i-mode, which by “Rejecting neutrality” raised 35 million subscribers in Japan by mid-2003 — although he has failed to mention its relative lack of success anywhere else. He mentions that i-mode has been called a walled garden, which is a nice way of avoiding the fact that many people consider that i-mode is not a walled garden. It’s true that sites that don’t fit within fairly tight parameters are banned from the service, but anyone can put up a site that fits the parameters and be included — a far cry from the walled gardens of operators where they specifically choose the content and if they decide not to include a particular game or video there’s simply no way to get it.
The main thrust of his argument seems to be against government regulating to promote openess, and the rules the FCC placed on the upcoming auction. While too much government regulation is probably a bad thing there’s also a case to be made for limited government intervention, the most touted being the Carterfone rules that paved the way for the fax machine and the internet.