Network Access Regulation 4.0

by on May 11, 2012 · 0 comments

More this week on the efforts of Reed Hastings of Netflix to reignite the perennial debate over network access regulation, courtesy of the New York Times.  Hastings is seeking a free ride on Comcast’s multi-billion-dollar investment in broadband Internet access.

Times columnist Eduardo Porter apparently believes that he has seen the future and thinks it works: The French government forced France Télécom to lease capacity on its wires to rivals for a regulated price, he reports, and now competitor Iliad offers packages that include free international calls to 70 countries and a download speed of 100 megabits per second for less than $40.

It should be noted at the outset that the percentage of French households with broadband in 2009 (57%) was less than the percentage of U.S. households (63%)   according to statistics cited by the Federal Communications Commission.

There is a much stronger argument for unbundling in France – which lacks a fully-developed cable TV industry – than in the U.S.  As the Berkman Center paper to which Porter’s column links notes on pages 266-68, DSL subscriptions – most of which ride France Télécom’s network – make up 95% of all broadband connections in France.  Cable constitutes approximately only 5% of the overall broadband market.  Competition among DSL providers has produced lower prices for consumers, but at the expense of private investment in fiber networks.

Despite commitments by several of the major broadband companies … to invest in fiber roll-out, fiber-based broadband connections remain marginal in France …. In part, this may be due to the public controversy regarding access to the infrastructure of France Télécom … The delayed investment is also consistent with the argument that requiring open access to incumbent facilities delays investment.

This observation is from the same Berkman Center paper.  As a result of the delayed private investment, the paper acknowledges that “the French government has annouced its intention to help finance the deployment of fiber networks.”  Public subsidy is frequently the only option after politicians tax and/or regulate something to death.

The U.S. has already experimented with unbundling, and the trial was unsuccessful.  Prior to 2003, new entrants could purchase the high-frequency portion of local telephone loops to provide their own DSL service.  In February of 2003, the FCC eliminated line-sharing, which had allowed new entrants to offer DSL – but not voice – over incumbent loops (henceforth, new entrants could either purchase the entire loop or partner with a voice provider).

“There is no evidence that network sharing has increased competition in U.S. broadband markets,” according to Robert W. Crandall of the Brookings Institution.  “At the end of 2003, the FCC reported that only 1.7 percent of all broadband lines were DSL lines offered by nonincumbent telephone companies.”  (See Crandall, Competition and Chaos, 2005.)

Porter also claims that cable is often the only choice for consumers who desire very high speeds.  He is insinuating that there is monopoly problem in broadband, which might justify common carrier regulation pursuant to ancient legal theory.  The legal scholar Blackstone wrote an early text book on this subject in the 18th century.  Common carrier regulation guarded against monopolist misbehavior, but it also defended government-awarded monopolies from “ruinous” competition or unlimited liability.  It turned out to be a sweet deal for monopolists.  The fact that it victimized consumers became apparent by the 1970s.

Although telecommunications carriers are not investing in fiber-to-the-premises at the moment, they are investing in 4G wireless technologies that promise download speeds of 100 megabits per second or higher.  Verizon Chairman and CEO Lowell C. McAdam predicted earlier this week in Tampa that “mobile devices will generate more Internet traffic than all wired devices combined” by the middle of this decade.  And Wall Street Journal columnist Holman W. Jenkins, Jr. wrote this week that it seems, at least for now, that “wireless is the future of broadband.”

None of us can be sure what this market will look like in the future.  If big cable companies seem frightening now, it is worth recalling that for years doomsayers predicted that telecommunications carriers would monopolize data processing, video services, classified advertising, alarm monitoring, etc.  None of these predictions proved accurate.  Most successful commercial enterprises are one-trick ponies.

What is clear is that we never seem to tire of the network access regulation debate.  After many years of consideration, the FCC ruled  in 1984 that providers of “computer enhanced services” would not be regulated as common carriers.  Under pressure to reverse course in the late 1990s, FCC Chairman William E. Kennard (Democrat) declared that “the best decision government ever made with respect to the Internet was the decision that the FCC made 15 years ago NOT to impose regulation on it.”  In 2010, the FCC voted along party lines to “preserve the Internet as an open network.”  That decision is the subject of pending litigation.

Hastings apparently hopes to write the next version of this debate.


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