Writing for Wired (which shares a parent company with Ars Technica), Susan Crawford, currently a visiting professor at Harvard, complained about a recent travel mishap. An airline agent told her she wouldn't be allowed to bring her viola on the airplane despite the fact that the flight's overhead compartments had plenty of room for it. Violas are too fragile to check, Crawford says, so she was forced to spend an extra night in DC in order to take a different flight—and deal with a different, more accommodating gate agent—the next morning.

She used her story as an extended metaphor for the current debate over Comcast's broadband cap. Netflix is the hapless passenger in this analogy, while Comcast is the erratic gate agent who demands it pay extra to allow its viola high-bandwidth videos on the airplane network.

In a response to Crawford, Hance Haney of the Discovery Institute pounced on this example and argued that it demonstrated precisely the opposite point:

Most people don't own a viola, nor do they want to subsidize viola travel. They want to pay the lowest fare. Differential pricing (prices set according to the differing costs of supplying products and services) has democratized air travel since Congress deregulated the airlines in 1978. First class helps make it possible for airlines to offer both lower economy ticket prices and more frequent service. Which is probably why Crawford's column isn't about airlines.

The comparison of broadband to airlines is instructive, but not for the reasons that either Haney or Crawford suggest. Haney is right that airlines' ability to offer a first-class option is good for everyone because it induces those first-class passengers to pay a disproportionate share of the costs of air travel. But airlines' discriminatory policies are not a matter of public concern precisely because good public policy has made the airline industry relatively competitive. If one airline makes its coach passengers miserable to induce them to upgrade to first class, many will switch to a competing airline.

That's often not a realistic option for broadband customers, who rarely have more than one serious alternative to their current broadband provider. Thus, Internet data caps have generated so much more outrage than price discrimination by airlines. But the success of airline deregulation has important lessons for fixing our dysfunctional broadband markets.

Airlines don't own airports

The deregulation of air travel was an important achievement of the Carter administration. Before 1978, the airline industry was a cozy cartel insulated from competition by government regulations. The elimination of these regulations allowed a number of airlines to enter the market or expand service to new cities. Fares plummeted, bringing air travel within the financial reach of many more travelers.

Paradoxically, a key factor in the success of airline deregulation was that airports remained in government hands. It's a useful thought experiment to imagine what would have happened if the same policymakers who deregulated the airlines had also privatized the nation's airports by selling them to incumbent airlines. Superficially, that might look like a further step in a free-market direction, but appearances can be deceiving.

Deregulation succeeded because it opened the market up to new firms. But new airlines require access to existing airports, and incumbents would have little incentive to rent gates on good terms to would-be competitors.

Theoretically, new firms could just build their own network of rival airports. But this would not only be prohibitively expensive, it would also require demolishing thousands of homes and subjecting thousands of households to the noise and other nuisances of living near these redundant airports. Indeed, constructing a new major airport is so disruptive to nearby residents that in practice it only occurs with government assistance. That's one reason that most metropolitan areas have only one major airport, and even the largest metropolitan areas only have two or three. City officials are understandably reluctant to have more airports than absolutely necessary.

Fortunately, incumbent airlines don't control the nation's airports; as a result, the airline industry has become highly competitive. New firms like US Airways, Frontier, JetBlue, and Virgin enter the market at regular intervals.

Vertical integration can harm competition

We can illustrate the problems of the current broadband market by extending our airline analogy one step further. Suppose that in addition to owning the nation's airports, the incumbent airlines also acquired hotel chains. These "vertically integrated" airlines could then boost their profits by pursuing the following strategy. First, hike the cost of an ordinary airplane ticket. Second, offer customers "double play" deals if they stay at airline-owned hotels. This would make it easier for airlines to identify their richest customers based on which hotels they stayed at, and to charge those customers correspondingly higher prices.

This kind of bundling would be good for the bottom lines of incumbent airlines. But it would be a terrible development for independent hotels and tour companies, which would be starved of customers and struggle to stay in business.

The broadband market seems to be undergoing a similar transformation. Comcast already offers "triple play" deals of data, phone, and video services. And it recently acquired NBC, paving the way for even greater vertical integration down the road. This makes independent firms like Netflix and Sony understandably nervous, because it means that Comcast is both a key source of customers—Comcast controls more than 20 percent of the US residential broadband market—and a major competitor.

This isn't just bad for Netflix; it's bad for consumers too. Competitive markets produce a wide variety of innovative content that a handful of vertically integrated telecom-entertainment conglomerates can't match. If incumbent firms destroy their competitors in an effort to increase their profits, consumers will suffer from reduced competition and perhaps higher prices as well.

Fixing broadband is hard

By separating the airports from the airlines, regulators ensured that airport monopolies didn't undermine competition in the airline market. In principle, this is a good model for the telecommunications market, and it's a model some countries around the world have pursued.

In the UK, for example, the incumbent telecom company, BT, was required to create a separate subsidiary, called Openreach, that provided wholesale access to the "last mile" of its network. A variety of companies, including another division of BT, offer retail broadband access on top of the bare infrastructure provided by Openreach. This has enabled serious competition among wired broadband providers.

The United States tried a similar regulatory approach starting with the 1996 Telecommunication Act, requiring the local phone incumbents to "unbundle" their lines for use by competitors. But the incumbents were not required to fully separate their wholesale and retail divisions, and that made it almost impossible for the Federal Communications Commission to guarantee that third parties were being treated fairly. The incumbents wore their would-be competitors down with years of foot-dragging and litigation. The unbundling experiment finally ended when the Supreme Court allowed the FCC to abandon it in 2005.

At this point, resurrecting unbundling would be a tough sell, and the National Broadband Plan doesn't call for it. Most of the independent firms that took advantage of the first unbundling program wound up in bankruptcy. If a future FCC tried to revive the policy, it would face a tough sell with potential entrants.

Still, the success of competition in the airline industry—and a similar success in trucking—suggests that the long-term goal should be to achieve a clean separation between the monopolistic parts of the broadband industry and the competitive parts. In recent years, we've been moving in the opposite direction, with telephone and cable incumbents merging with each other and acquiring "upstream" businesses like NBC. Just as we would have been concerned about a monopolistic TWA acquiring the Hilton hotel chain, so regulators should be concerned of mergers between broadband incumbents and content companies.

Regulators missed the boat with the Comcast-NBC merger; they should be more skeptical next time such a merger is proposed.