Broadband & Neutrality Regulation

George Ou & Bret Swanson on Berkman Broadband Report

by Adam Thierer on October 21, 2009 · 15 comments

Last night here on the TLF, Bret Swanson raised a number of objections with this FCC-commissioned report about international broadband comparisons, which was conducted by some folks at Harvard University’s Berkman Center. Meanwhile, over at the Digital Society blog, George Ou also offers a hard-nosed look at the Berkman broadband report and concludes “The underlying data cited by Berkman study is simply too flawed to be of any use.” I recommend everyone check out both essays. It will be interesting to hear how the Berkman folks respond. Some of these international broadband comparisons are really fishy. [Here’s a podcast we did on that issue two years ago.]

One quick point… Like Bret, I also found it shocking that–even though the report reads like an ode to forced access regulation–the Berkman folks didn’t spend much time discussing the result of America’s previous open-access regime. “The gaping, jaw-dropping irony of the report,” Bret argues, “was its failure even to mention the chief outcome of America’s previous open-access regime: the telecom/tech crash of 2000-02. We tried this before. And it didn’t work!” Indeed, America’s regulatory experiment with forced access regulation involved a lot of well intentioned laws and regulation, and too many acronyms to count–CLECs, TELRIC, UNE-P, etc– but it did not result in serious, facilities-based competition. Instead it offered us the fiction of competition through network-sharing, or what Peter Huber once referred to as building “networks out of paper.” The results were disastrous for investment during that period since regulatory uncertainly led to a lot of stunted innovation.

In sum, sharing is not competing. You can socialize and commoditize old pipes for awhile and get decent results in the short-term, but you’ll sacrifice long-run investment and innovation if you do. [For more background, see my recent essay on “The Fiction of Forced Access ‘Competition’ Revisited” and this old Cato piece on “UNE-P and the Future of Telecom “Competition” as well as Jeff Eisenach’s PFF white paper, “Broadband Policy: Does the U.S. Have It Right After All?”]

15 comments

Internet Companies’ Bogus Plea for Regulation

by Jim Harper on October 20, 2009 · 9 comments

Some of the most prominent Internet companies sent a letter yesterday asking for protection from market forces. Among them: Facebook, Google, Amazon, and Twitter.

A Washington Post story summarizes their concerns: “[W]ithout a strong anti-discrimination policy, companies like theirs may not get a fair shot on the Internet because carriers could decide to block them from ever reaching consumers.”

No ISP could block access to these popular services and survive, of course. What they could do is try to charge the most popular services a higher tarriff to get their services through. Thus, weep the helpless, multi-billion-dollar Internet behemoths, we need a “fair shot”!

Plain and simple, these companies want regulation to ensure that ISPs can’t capture a larger share of the profits that the Internet generates. They want it all for themselves. Phrased another way, the goal is to create a subsidy for content creators by blocking ISPs from getting a piece of the action.

It’s all very reminiscent of disputes between coal mines and railroads. The coal mines “produced the coal” and believed that the profitability of the coal-energy ecosystem should accrue only to themselves, with railroads earning the barest minimum. But where is it written that digging coal out of the ground is what creates the value, and getting it were it’s used creates none? Transport may be as valuable as “production” of both commodities and content. The market should decide, not the industry with the best lobbyists.

What happens if ISPs can’t capture the value of providing transport? Of course, less investment flows to transport and we have less of it. Consumers will have to pay more of their dollars out of pocket for broadband, while Facebook’s boy CEO draws an excessive salary from atop a pile of overpriced stock holdings. The irony is thick when opponents of high executive compensation support “net neutrality” regulation.

Another reason why these Internet companies’ concerns are bogus is their size and popularity. They have a direct line to consumers and more than enough capability to convince consumers that any given ISP is wrongly degrading access to their services. As Tim Lee pointed out in his excellent paper, The Durable Internet, ownership of a network service does not equate to control. ISPs can be quickly reined in by the public, as has already happened.

A “net neutrality” subsidy for small start-up services is also unnecessary: They have no profits to share with ISPs. What about mid-size services—heading to profitability, but not there yet? Can ISPs choke them off? Absolutely not.

Large, established companies are not known for being ahead of trends, for one thing, and the anti-authoritarian culture of the Internet is the perfect place to play “beleagured upstart” against the giant, evil ISP. There could be no greater PR gift than for a small service to have access to it degraded by an ISP.

The Internet companies’ plea for regulation is bogus, and these companies are losing their way. The leadership of these companies should fire their government relations staffs, disband their contrived advocacy organization, and get back to innovating and competing.

9 comments

Broadband as a Human Right (and a short list of other things I am entitled to on your dime)

by Adam Thierer on October 14, 2009 · 46 comments

Hey people. You owe me. All of you. You owe me free broadband. I am entitled to it, after all. That seems to be where our current FCC is heading, anyway. And hey, Finland’s just done it, and the supposed Silicon Valley capitalists at TechCrunch are giddy with delight about it. We’re apparently all just Scandinavian socialists at heart now.

Thus, I too have decided to throw in the towel on the idea of everyone carrying their own weight and picking up their own tab. So, get your wallets open and ready for me because I have lots and lots of things that I believe I have an inalienable right to receive free of charge from the government (i.e, “the people”; i.e., “YOU”). Please let me know which of the things on my high-tech wish list that you’ll be purchasing for me and I’ll check you off my registry so I don’t have to send the cops to your house to collect:

free broadband (fiber, Wi-Max, and whatever else is around the corner);
a couple of free new computers (and a really fast ones, thank you very much);
3 new HDTVs for my home (including one of those sweet new DLP projectors that usually cost about $10,000 bucks. And I’ll need you to pay for someone to help me install it. Or could you just come over and do that for me perhaps?);
3 free new DVRs for each new TV set that you are buying me (and could I get a nice universal remote to control everything, please);
a free subscription in my area to either DirecTV, Cox Cable, or Verizon FIOS TV (with all the premium channels and sports packages… and don’t forget the Playboy Channel!);
a free lifetime subscription to Netflix (or I guess I would settle for a free Blu-Ray player and some free movies);
free new wi-fi router and signal extenders for my home (N-standard please, none of that B or G garbage… too slow for me);
free mobile phone service for life + an iPhone + unlimited downloads in their app store (oh, could you have that iPhone autographed by Steve Jobs if you get a chance?);
free Playstation or XBox + lots of games (and if I could get one of those driving wheels to play my new Gran Turismo game that would be dandy); and finally,
free lifetime tech support when all this crap breaks down.

In closing, I thank you for your generosity. I mean, look, I know I don’t actually deserve any of this stuff, and that there’s no good reason that you should have to pay for my free-riding ways, and there’s obviously nothing in our Constitution to support all this, but hey… screw all that! This is my God-given birthright. I am entitled, baby! Now get busy thinking of how you are all going to start paying for me, you selfish bastards.

46 comments

No, Seriously, U.S. Broadband Competition Sucks

by Julian Sanchez on October 12, 2009 · 31 comments

Ok, I didn’t say anything last month when Jerry—albeit with some caveats—cited that FCC stat about how 88 percent of zip codes have four or more broadband providers. But now I see my friend Peter Suderman relying on the same figure over at Reason. And friends don’t let friends use FCC broadband data.

First, since a zip code is considered to be “served” by a provider if it has a single subscriber in that area, this is not a terribly helpful measure of competition, which is a function of what you can get at any given household. More importantly, the definition of “broadband” here is a blazing 200 Kbps unidirectional—or about 1/20th the average broadband connection speed in the U.K., itself the slowpoke of Europe. A third of the connections they’re calling “broadband” don’t even reach that pathetic speed bidirectional. Of the 2/3 that do manage to reach that speed both ways, almost half are slower than 2.5 Mbps in the faster direction.

Mobile companies are by far the most common “broadband” providers in their sample, with “at least some presence” in 99% of their zip codes, so at least one of those four providers is almost certainly a mobile company. It’s probably a lot more than that: In only 63% of zip codes were both cable and ADSL subscribers reported—and remember, that doesn’t even tell us whether any households actually had even the choice between a cable and an ADSL provider. So we can see how easily you get to four providers under this scheme: You just have to live in a zip code with, let’s say, an incumbent cable company offering what passes for “real” broadband in the U.S., plus even spotty coverage under a 3G network (average downstream speed 901–1,940 Kbps, depending on your provider) , and a couple of conventional cellular carriers with Edge or EVDO coverage that just squeaks over the 200 Kbps bar. Congratulations, you’re a lucky beneficiary of U.S. “broadband competition.” Woo.

Look, I think the average person in this country understand that their broadband options are pretty crap, and there’s not much percentage in telling them to ignore their lying eyes and check out some dubious numbers. If the argument against net neutrality depends on the idea that we currently have robust competition in real broadband, well, the argument is in a lot of trouble. What I find much more compelling is the idea that, with 4G rollouts on the horizon, we may actually get adequate broadband competition in the near-to-medium term, and might want to be wary about rushing into regulatory solutions that not only assume the status quo, but could plausibly help entrench it.

Addendum: That Pew survey I cited in the previous post did ask individual home broadband subscribers how many providers they had to choose from. Obviously, that sample excludes people without any broadband access, but 21% (and 30% of rural users) said they only had a single provider, and only a quarter of those who had multiple providers said they had as many as four. Since average prices appeared to be lower the more competition was present, and assuming ceteris paribus you get higher adoption when prices are lower, this sounds likely to overstate the actual degree of choice Americans enjoy.

31 comments

Wireless Innovation is Alive & Well: Two New Reports Set the Record Straight

by Adam Thierer on October 11, 2009 · 20 comments

The smell of high-tech regulation is increasingly in the air these days and many lawmakers and some activist groups now have the mobile marketplace in their regulatory cross-hairs. Critics make a variety of claims about the wireless market supposedly lacking competition, choice, innovation, or reasonable pricing. Consequently, they want to wrap America’s wireless sector in a sea of red tape. Two important new studies thoroughly debunk these assertions and set the record straight regarding the state of wireless competition and innovation in the U.S. today. These reports are must-reading for Washington policymakers and FCC officials who are currently contemplating regulatory action.

First, Gerald Faulhaber and Dave Farber have a new report out entitled “Innovation in the Wireless Ecosystem: A Customer-Centric Framework.” Here’s what Faulhaber and Farber find:

the three segments of the wireless marketplace (applications, devices, and core network) have exhibited very substantial innovation and investment since its inception. Perhaps more interesting, innovation in each segment is highly dependent upon innovation in the other segments. For example, new applications depend upon both advances in device hardware capabilities and advances in spectral efficiency of the core network to provide the network capacity to serve those applications. Further, we find that the three segments of the industry are also highly competitive. There are many players in each segment, each of which aggressively seeks out customers through new technology and new business methods. The results of this competition are manifest: (i) firms are driven to innovate and invest in order to win in the competitive marketplace; (ii) new business models have emerged that give customers more choice; and (iii) firms have opened new areas such as wireless broadband and laptop wireless in order to expand their strategic options.

They continue on to address the policy issues in play here and discuss the “consumer-centric” approach they recommend that the FCC adopt: Continue reading →

20 comments

My Net Neutrality Debate with Public Knowledge

by Berin Szoka on October 8, 2009 · 12 comments

I debated PK’s Art Brodsky last week about net neutrality on the international news channel, RussiaToday. Here are a few of my key points of disagreement with Art:

The glittering generality of “Neutrality,” once enshrined in law for one layer of the Internet will be extended, sooner or later, to other layers. As Adam and I have warned, “the same rationale would apply equally to any circumstance in which access to a communications platform is supposedly limited to a few ‘gatekeepers.'” We’re already seeing this with fights over application neutrality and device neutrality, and calls for search neutrality are growing.
Art insists that antitrust suits work too slowly. But he doesn’t address the basic question of what standard should govern network management. Should it be “neutrality uber alles” or, if we’re going to regulate in fashion, why shouldn’t we ask what’s good for consumers—the standard proposed by PFF’s 2005 Digital Age Communications Act (DACA)? Neutrality isn’t always best!
Common carriage regulation didn’t work well for railroads (contrary to popular myth) and it worked even less well for communications media, retarding the development of new services like faxes, Internet services and cell phones. Regulating broadband providers the same way will work even more poorly because they aren’t just “big dumb pipes” providing a plain vanilla service and incapable of innovation that can benefit consumers.

http://www.youtube.com/v/fVcZO7KxyG4

12 comments

Why Congestion Pricing for the iPhone & Broadband Makes Sense

by Adam Thierer on October 7, 2009 · 17 comments

Interesting piece here from Slate’s Farhad Manjoo on why AT&T should dump unlimited data plans and end what he calls the “iPhone all-you-can-eat buffet.” He notes that: “The typical smartphone customer consumes about 40 to 80 megabytes of wireless capacity a month. The typical iPhone customer uses 400 MB a month. AT&T’s network is getting crushed by that demand.” Because “some iPhone owners are hogging the network” and causing “a slowed-down wireless network,” Manjoo recommends a congestion pricing model as a method of balancing supply and demand:

How would my plan work? I propose charging $10 a month for each 100 MB you upload or download on your phone, with a maximum of $40 per month. In other words, people who use 400 MB or more per month will pay $40 for their plan, or $10 more than they pay now. Everybody else will pay their current rate—or less, as little as $10 a month. To summarize: If you don’t use your iPhone very much, your current monthly rates will go down; if you use it a lot, your rates will increase. (Of course, only your usage of AT&T’s cellular network would count toward your plan; what you do on Wi-Fi wouldn’t matter.) To understand the advantages of tiered pricing, let’s look at AT&T’s current strategy of spending billions to build more network space. Why won’t this work? For the same reason building more roads doesn’t reduce traffic—more capacity increases the attractiveness of driving, which brings a lot more cars to the road, which leads to more gridlock.

Congestion pricing and metering is something I’ve written quite a bit about here in the context of wireline broadband (1, 2, 3), but Manjoo is equally correct that it could be applied for wireless data plans. It has the added value of taking pressure off lawmakers to impose Net neutrality regulation since pricing of the pipe becomes an effective substitute for most other forms of network management. In other words, price, don’t block bandwidth-hogging customers and applications. The problem, Manjoo explains: Continue reading →

17 comments

The Chicken Littles of Broadband

by James Gattuso on October 5, 2009 · 20 comments

Is the Internet in clear and present danger? Yes, say proponents of neutrality regulation of the Internet. In his speech last month calling for FCC neutrality regulations, Chairman Julius Genachowski stopped short of quoting Oliver Wendell Holmes, but did all he could to paint a dire picture of the Internet’s future: “This is not about protecting the Internet against imaginary dangers,” he said. If we wait too long to preserve a free and open Internet, it will be too late.”

The warning evoked a certain sense of deja vu, and for good reason. As Link Hoewing over at Verizon pointed out the other day, proponents of neutrality regulation “have been yelling ‘fire’ in the movie theater ever since 1999,” when they decried the trend toward cable firms providing exclusive ISP service on broadband networks, saying that the move would result in “more price increases and fewer choices for consumers and content providers alike.”

The end has been nigh many times since. In 2003, when a court upheld the FCC’s decision not to regulate broadband as a telecommunications service, Commissioner Michael Copps said “the Internet may be dying,” glumly predicting that if the Commission continued its free-market policies, “we will look back, shake our heads and wonder whatever happened to that open, dynamic and liberating Internet that once we knew.” Continue reading →

20 comments

Neutrality for thee, but not for me

by Bret Swanson on October 5, 2009 · 14 comments

In Monday’s Wall Street Journal, I address the once-again raging topic of “net neutrality” regulation of the Web. On September 21, new FCC chair Julius Genachowski proposed more formal neutrality regulations. Then on September 25, AT&T accused Google of violating the very neutrality rules the search company has sought for others. The gist of the complaint was that the new Google Voice service does not connect all phone calls the way other phone companies are required to do. Not an earthshaking matter in itself, but a good example of the perils of neutrality regulation. Continue reading →

14 comments

From the Oxymoron File: The Neutral Subsidy

by Jim Harper on October 1, 2009 · 11 comments

Peter VanDoren (editor of Regulation magazine) points me to some revealing passages in a new article in the Journal of Economic Perspectives. In “Subsidizing Creativity through Network Design: Zero-Pricing and Net Neutrality,” Robin S. Lee and Tim Wu caution against tiered pricing for Internet access services, writing:

[U]nless sufficient bandwidth and quality of service can be guaranteed for the “free” Internet, there is a risk that . . . tiering will serve to sidestep de facto prohibition on termination fees. . . . [A] priced-priority system could simply become a de facto fee charged for all content providers if the “free” Internet was of sufficiently poor quality and consumers shifted their usage behavior accordingly. . . . [T]his might dampen the introduction of new content and services and eliminate the subsidy for content innovation currently provided by net neutrality.

Locking in net neutrality by regulation would lock in a subsidy to content providers. Lee and Wu prefer it, and many of us may like the results, but it’s hard to call a subsidy regime “neutral.”

11 comments

← Previous Entries

Next Entries →