Tim Wu and Wireless Net Neutrality Regulation

by on February 12, 2007 · 8 comments

How does Columbia Law Professor Tim Wu justify his proposal to impose massive new regulation on cellphone networks? His forthcoming paper, “Wireless Net Neutrality,” which Jerry discusses here, proposes regulating cellphone networks like common carriers:

(1) Allow any consumer to attach any safe device to their cellphone, and
(2) use the applications of their choice and view the content of their choice.
(3) Require cellphone providers to disclose, fully, prominently, and in plain English, the following information: * Limits on bandwidth usage; * Devices that are locked to a single network; and * Important limitations placed on features; and
(4) reevaluate their “walled garden” approach to application development, and work together to create clear and unified standards to which developers can work.

“Oligopoly”

Wu acknowledges critics will point to vibrant competition in the cellphone industry as the main reason we don’t need this. Although most people don’t, Wu completely dismisses the extreme competitiveness of the industry. According to him, it’s a “textbook oligopoly with four major players, premised on a bottleneck resource.”

Well, in an oligopoly prices could be expected to rise, service deterioriate and innovation suffer. But this is precisely the opposite of what we see in the cellphone space. Cellphones used to be a luxury item, now they’re ubiquitous. The FCC noted that during the five-year period ending in June 2002, the number of cellphone subscribers increased from 48.7 million to 134.6 million. This is a result of falling prices, improved coverage and the introduction of new features. None of this would have happened if the market were broken.

Wu’s oligopoly argument rests on two faulty premises:


Scarcity

According to Wu,

… it is often said that the wireless mobile market is “highly competitive.[sic]” as though starting a competitive cell phone company were as easy to start as a hot dog stand …. Structurally, the mobile wireless industry has a natural and major barrier to entry–acquisition of sufficient spectrum … The oldest fact in broadcast, spectrum scarcity, in [sic] a physical fact that cannot help but affect the conditions of competition in the wireless world.

At the outset, it’s worth noting that Wi-Fi and WiMAX are creating an enormous new competitive threat to the cellphone providers, and that technology companies, the FCC and local governments are helping reduce the cost of deploying these systems.

Setting that aside, it has always been thought that spectrum is a scarce resource although history has shown it’s abundant. For example, when ways needed to be found to make more efficient use of mobile wireless spectrum so the service would be more appealing to mainstream consumers, the market responded. A company in San Diego invented CDMA (code division multiple access), which was twenty times more efficient than the cellular technology it displaced. Spectrum may be a finite resource, but we are constantly discovering better ways to exploit it.

According to the FCC,

There is widespread belief that radio spectrum use in the US is either crowded or becoming very crowded : the shortage of spectrum is often a spectrum access problem. That is, the spectrum resource is available, but its use is compartmented by traditional policies based on traditional technologies. New radio technologies may enable new techniques for access of spectrum and sharing of the spectrum resources that may create quantum increases in achievable utilization.

Consumer ignorance

Wu also seems to claim that ordinary people are simple people who don’t always understand what’s good for them:

It is relatively easy for consumers to compare firms by metrics like price and network coverage. But taking the time to do comparisons on the basis of whether the carrier cripples technological feature sets is something only a select group of consumers have the time or expertise for.

Somehow I’m sure when Wu’s “select group” detects instances of carriers crippling technology that it’s members will know what to do. It’s easy to publish one’s views on the Internet. If consumers care, they will respond. But it could also be that the value of a particular innovation is in the eye of the beholder. Maybe the fear here is that consumers won’t care about a particular innovation, or that they may value other things, like price, convenience, reliability, etc., higher.
_______________

See:Report of the Spectrum Efficiency Working Group,” FCC (Nov. 15, 2002)

  • http://www.uglyshz.com/blog Jon L

    It’s also an important instance to note the number of MVNO’s that have been launched in the last 2 years. Though a number of have failed due to lack of consumer demand, there is a market for sub-leased and white-label spectrum as offered by the larger carriers to other companies who want in the game.

    ESPN, DisneyMobile, Amp’d, Boost, Helio, and FaithMobile are just a few of the companies that have launched their own networks on the available spectrum of existing carriers.

    The barrier to entry of this market is lower than ever, and getting lower with the (noted) introductions of technologies like WiMax.

  • http://www.uglyshz.com/blog Jon L

    It’s also an important instance to note the number of MVNO’s that have been launched in the last 2 years. Though a number of have failed due to lack of consumer demand, there is a market for sub-leased and white-label spectrum as offered by the larger carriers to other companies who want in the game.

    ESPN, DisneyMobile, Amp’d, Boost, Helio, and FaithMobile are just a few of the companies that have launched their own networks on the available spectrum of existing carriers.

    The barrier to entry of this market is lower than ever, and getting lower with the (noted) introductions of technologies like WiMax.

  • Jerry Ellig

    Let’s keep the concepts clear on “textbook oligpoly.” Economic theories of oligopoly show that ANY outcome, from perfectly competitive to monopoly to in-between, can happen in oligopoly. The outcome depends on a lot of specific facts and circumstances. (Sorry, no link, but consult that old microeconomics textbook on your shelf, in the chapters that discusses market structures.) So the mere fact that something is an “oligopoly” (relatively small number of sellers) says absolutely nothing about what type of conduct or results inevitably follow.

  • Jerry Ellig

    Let’s keep the concepts clear on “textbook oligpoly.” Economic theories of oligopoly show that ANY outcome, from perfectly competitive to monopoly to in-between, can happen in oligopoly. The outcome depends on a lot of specific facts and circumstances. (Sorry, no link, but consult that old microeconomics textbook on your shelf, in the chapters that discusses market structures.) So the mere fact that something is an “oligopoly” (relatively small number of sellers) says absolutely nothing about what type of conduct or results inevitably follow.

  • Paul Kamp

    While there is competition between carriers in the US there is also much more innovation and services available on the networks outside the US. Further, as he points out in his paper, the carriers have a number of non-competitive requirements. Two examples are, disabling phones for other networks and not allowing dual mode WiFi phones on their networks.

    Apple just did an end around on the second point by having Cingular agree to their phone sight unseen. If the carriers were not so restrictive we would have seen these types of phones a while back.

    I am all for competition, it is just the anticompetitive behavior I have trouble with.

  • Paul Kamp

    While there is competition between carriers in the US there is also much more innovation and services available on the networks outside the US. Further, as he points out in his paper, the carriers have a number of non-competitive requirements. Two examples are, disabling phones for other networks and not allowing dual mode WiFi phones on their networks.

    Apple just did an end around on the second point by having Cingular agree to their phone sight unseen. If the carriers were not so restrictive we would have seen these types of phones a while back.

    I am all for competition, it is just the anticompetitive behavior I have trouble with.

  • qtn

    actually, he doesn’t advocate “massive regulation.” he doesn’t assert centralized regulation as the solution. in my view he wants pressure to come from, and believes it can only come from, the consumer. in that sense he’s not presuming ‘ignorant consumer,’ but inundated and way-too-busy-to-read-the-fine-lines-of-cell-plan consumer.

  • qtn

    actually, he doesn’t advocate “massive regulation.” he doesn’t assert centralized regulation as the solution. in my view he wants pressure to come from, and believes it can only come from, the consumer. in that sense he’s not presuming ‘ignorant consumer,’ but inundated and way-too-busy-to-read-the-fine-lines-of-cell-plan consumer.

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