As argued by Tim and Jim in their recent posts, the decision by the Norwegian broadband carrier NextGenTel to limit the bandwidth available to NRK (Norway’s broadcaster) for its IPTV service–unless it paid for more, and the subsequent withdrawal of that policy, shows a functioning market, rather than a market failure.
Tim and Jim stress that consumer reaction forced NextGenTel to reverse its policy. They are correct, although that still leaves the impression that this was a case of a network giant trying (unsuccessfully) to use its muscle to impose unreasonable conditions. But there’s more to it than that. First, NextGenTel doesn’t seem like much of a giant. It’s no monopolist, or even a former monopolist. Instead, its a relatively small start-up, launched only six years ago. Purchased earlier this year by a firm called TeliaSonera, NextGenTel itself only has some 150 employees. It’s not clear to me whether they even own their own infrastructure. Their website mentions only that its network “consists of approximately 850 DSLAMs,” implying the rest is leased. If bottleneck control of infrastructure is a necessary condition for neutrality regulation–as most regulation agree it is–then NextGenTel’s actions should not be of concern.
In any case, NextGenTel’s policy was hardly unreasonable. The “victim” in this case was NRK, the Norwegian Broadcasting Corporation. The IPTV service at issue here was apparently launched by NRK earlier this year. In a press release issued in May, NRK boasted that its service would be provided “with minimal capital investment and very low cost of ownership.” Part of that capital investment needed for the high-bandwidth demands of NRK’s new service no doubt would be made instead by NextGenTel and other broadband networks. It seems entirely understandable that NextGenTel didn’t want to play this role in NRK’s business plans.
Rather than a dominant firm using its power to impose unreasonable restrictions, this seems to be a case of a competitive firm asking for reasonable compensation. It also seems that if supporters of neutrality regulation want a smoking gun of market failure, they will have to keep looking.
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