Local Broadband Access: Primum Non Nocere or Primum Processi - A Property Rights Approach

High-speed or "broadband" Internet access currently is provided, at the local level, chiefly by cable television and telephone companies, often in competition with each other. Wireless and satellite providers have a small but growing share of this business. An influential coalition of economic interests and academics have proposed that local broadband Internet access providers be prohibited from restricting access to their systems by upstream suppliers of Internet services. A recent term for this proposal is "net neutrality." We examine the potential costs and benefits of such a policy from an economic welfare perspective. Using a property rights approach, we ask whether transactions costs in the market for access rights are likely to be significant, and if so, whether owners of physical local broadband platforms are likely to be more or less efficient holders of access rights than Internet content providers. We conclude that transactions costs are likely to be lower if access rights are assigned initially to platform owners rather than content providers. In addition, platform hardware owners are likely to be more efficient holders of these rights because they can internalize demand-side interactions among content products. Further, failure to permit platform owners to control access threatens to result in inadequate incentives to invest in, to maintain, and to upgrade local broadband platforms. Inefficiently denying platform owners the ability to own access rights implies a need for price regulation; otherwise, there will be incentives to use pricing to circumvent the constraint on rights ownership. Price regulation is itself known to induce welfare losses through adaptive behavior of the constrained firm. The impact on welfare might produce a worse result than the initial problem, assuming one existed. Much of the academic interest in net neutrality arises from the belief that the open architecture of the Internet under current standards has been responsible for its remarkable success, and a wish to preserve this openness. We point out that the openness of the Internet was an unintended consequence of its military origins, and that other, less open, architectures might have been even more successful. A policy of denying platform owners the ability to own access rights could freeze the architecture of the Internet, preventing it from adapting to future technological and economic developments. Finally, we examine the net neutrality issue from the perspective of the "essential facility doctrine," a tool of the common law of antitrust. The doctrine establishes conditions under which federal courts will mandate access by competitors to the monopoly platform of a vertically-integrated firm. Because local broadband Internet access is not today a bottleneck monopoly (there are several competitors and the market is at an early stage of development), the essential facilities doctrine would not permit reassignment of access rights from platform owners to competitors. We conclude that "net neutrality" is a welfare-reducing policy proposal.Technology and Industry, Regulatory Reform

Network Neutrality and Congestion Sensitive Content Providers: Implications for Service Innovation, Broadband Investment and Regulation

We consider a two-sided market model with a monopolistic Internet Service Provider (ISP), network congestion sensitive content providers (CPs), and Internet customers in order to study the impact of Quality- of-Service (QoS) tiering on service innovation, broadband investments, and welfare in comparison to network neutrality. We find that QoS tiering is the more efficient regime in the short-run. However it does not promote entry by new, congestion sensitive CPs, because the ISP can expropriate much of the CPs' surplus. In the long-run, QoS tiering may lead to more or less broadband capacity and welfare, depending on the competition-elasticity of CPs' revenues

Network Effects in Action

This Chapter begins by examining and exploring the theoretical and empirical limits of the possible bases of network effects, paying particular attention to the most commonly cited framework known as Metcalfe’s Law. It continues by exploring the concept of network externalities, defined as the positive external consumption benefits that the decision to join a network creates for the other members of the network, which is more ambiguous than commonly realized. It then reviews the structural factors needed for models based on network effects to have anticompetitive effects and identifies other factors that can dissipate those effects. Finally, it identifies alternative institutional forms that can eliminate or mitigate the impact of network effects

Common Carriage’s Domain

The judicial decision invalidating the Federal Communications Commission\u27s first Open Internet Order has led advocates to embrace common carriage as the legal basis for network neutrality. In so doing, network neutrality proponents have overlooked the academic literature on common carriage as well as lessons from its implementation history. This Essay distills these learnings into five factors that play a key role in promoting common carriage\u27s success: (1) commodity products, (2) simple interfaces, (3) stability and uniformity in the transmission technology, (4) full deployment of the transmission network, and (5) stable demand and market shares. Applying this framework to the Internet suggests that common carriage is not particularly well suited as a basis for regulating broadband Internet access

Common Carriage\u27s Domain

The judicial decision invalidating the Federal Communications Commission\u27s first Open Internet Order has led advocates to embrace common carriage as the legal basis for network neutrality. In so doing, network neutrality proponents have overlooked the academic literature on common carriage as well as lessons from its implementation history

The Next Frontier for Network Neutrality

The challenge for policymakers evaluating calls to institute some form of network neutrality regulation is to bring reasoned analysis to bear on a topic that continues to generate more heat than light and that many telecommunications companies appear to believe will just fade away. Over the fall of 2007, the hopes of broadband providers that broadband networks could escape any form of regulatory oversight were dealt a blow when it was revealed that Comcast had degraded the experience of some users of Bittorent (a peer-to-peer application) and engaged in an undisclosed form of network management. This incident, as well as the polarized debate that followed it, underscores the need to reframe the policy and academic debate over broadband regulation and begin evaluating a blueprint for a next generation regulatory strategy that will focus on promoting innovation in the network itself and by applications developers. This Article seeks to do just that. This Article begins by explaining how the debate over network neutrality has all-too-often presented polarized perspectives and slogans where more nuanced analysis is called for. As Internet pioneer David Clark commented on the network neutrality debate, [m]ost of what we have seen so far (in my opinion) either greatly overreaches, or is so vague as to be nothing but a lawyer\u27s employment act. As the Article explains, any effort by Congress to develop a well-specified response to network neutrality concerns would be premature, as the Federal Communications Commission (FCC) and the Federal Trade Commission (FTC) should first be afforded an opportunity to develop an effective consumer protection and competition policy strategy. As the Article explains, the FTC has an important opportunity - and indeed a responsibility - to develop and implement a consumer protection strategy in this area, calling for effective disclosure of broadband terms of service and the enforcement of the commitments made in those policies. Moreover, as to the relevant competition policy issues, the Article calls on either the FTC or the FCC (or both) to develop and implement an effective institutional strategy to guard against anticompetitive refusals to provide access to quality of service assurances. In short, the appropriate response to network neutrality concerns is not to ban such quality of service assurances altogether - as that would stifle the Internet\u27s development - but to ensure that the offering of such assurances is not used to injure competition and harm consumers

Legislative and Regulatory Strategies for Providing Consumer Safeguards in a Convergent Information and Communications Marketplace

The Federal Communications Commission desires to apply a single regulatory category to services and service providers, a process the Commission can achieve when ventures concentrate on one function and offer one readily identifiable service, such as telephony. However, technological convergence, digitization and the ability of the Internet to handle many different service types within a single bitstream now make it possible for companies to offer quadruple play bundles of wireless and wireline telephony, video, and Internet access services. Following Comcast Corp. v. FCC, the FCC must rethink how to best serve the public interest and safeguard consumers. Absent a legislative remedy, the FCC has experienced great difficulty in finding ways to sanction ISP anticompetitive practices regulations within the Commission\u27s limited statutory authority. This article explains how the FCC backed itself into a corner when it sought to free the Internet of most regulatory oversight by determining that the information service classification applies to all Internet access technologies. Facing complaints about ISP anticompetitive practices, the FCC currently lacks explicit statutory authority to provide a needed remedy. The article also provides recommendations on how Congress and the FCC might recognize that convergent services, such as Internet access, combine both unregulated information service and telecommunications components in much the same way as wireless cellular telephone companies. The article recommends that in light of the ascending importance of Internet access and the lack of sustainable competition that would foster effective self-regulation, Congress should amend the Communications Act to authorize the FCC to apply limited Title II safeguards to ISPs that already wireless telephony