An Antitrust Analysis of the Case for Wireless Network Neutrality

The ongoing debate about possible implementation of regulatory rules requiring “network neutrality” for wireless telecommunications services is inherently about whether to impose a prohibition on the ability of network operators to control their vertical relationships. Antitrust analysis is well suited to analyze whether a wireless network neutrality rule is socially beneficial. Implementing network neutrality rules would be akin to using a per se antitrust rule regarding vertical relationships instead of the rule of reason analysis typically applied to vertical relationships in antitrust. Per se rules are used to prevent actions that rarely, if ever, have any pro-competitive benefits, such as price-fixing agreements. Rule of reason analysis is used when there are potential efficiency gains from the actions under investigation. Some vertical practices of the wireless carriers, such as bandwidth restrictions, may appear to be anticompetitive, but may also have plausible efficiency justifications so should be judged under rule of reason analysis. Economic examination of the wireless industry shows significant competition between networks which reduces the concern about vertical relationships, but some areas that should be monitored by antitrust and regulatory authorities. We propose several regulatory changes that would likely increase wireless competition and lessen the perceived need for prophlactic network neutrality rules while at the same time allowing efficiency-enhancing vertical relationships.network neutrality, wireless internet, antitrust,

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

A Losing Battle for All Sides: The Sad State of Spectrum Management

Spectrum Wars: The Policy and Technology Debate, Jennifer A. Manner, Boston: Artech House, 2003, 186 pages. A review of Spectrum Wars: The Policy and Technology Debate by Jennifer A. Manner. In this 2003 publication, the author goes a level further than most spectrum analyses do, by attempting to integrate the complex relationship between domestic spectrum policy and international spectrum concerns. Spectrum Wars can be divided into three major parts: a deep background of the institutional detail of the frequency management process, a description of the tensions between different theories on how to change spectrum management, and finally, a view about how the changes in the telecommunications marketplace may affect future spectrum management proceedings

Low-Income Demand for Local Telephone Service: Effects of Lifeline and Linkup

This study evaluates the effect of the “Lifeline” and “Linkup” subsidy programs on telephone penetration rates of low-income households. It is the first to estimate low-income telephone demand across demographic groups using location-specific Lifeline and Linkup prices. The demand specifications use a discrete choice model aggregated across demographic groups. GMM estimators correct for the possible endogeneity of subsidized prices. A simulation predicts low-income telephone penetration would be 4.1 percentage points lower without Lifeline and Linkup. Results suggest that Linkup is more cost-effective than Lifeline, and that automatic enrollment in the programs increases penetration.telephone subsidies, low-income telephone usuers

Using Market-Based Spectrum Policy to Promote the Public Interest

With the increasing demand for spectrum to accommodate emerging technologies, and the discovery that higher frequencies are usable, the FCC has replaced its reliance on administrative mechanisms for allocating spectrum with a more flexible, market-based approach. The FCC can best accomplish its mission of promoting the public interest by continuing to rely on competitive market forces and by establishing a clear and consistent paradigm for approaching allocation, assignment, usage, and other policies. Such a paradigm envisions an FCC that would actively monitor spectrum to remedy situations in which it is not used to its full value; establish mechanisms to reduce new services\u27 need for immediate secondary market transactions; set and enforce minimally restrictive baseline rules governing interference and health effects; maximize the amount of spectrum available to users; and, in some cases, intervene in markets to correct significant market failures

Household Demand for Broadband Internet Service

As part of the Federal Communications Commission (“FCC”) National Broadband Report to Congress, we have been asked to conduct a survey to help determine consumer valuations of different aspects of broadband Internet service. This report details our methodology, sample and preliminary results. We do not provide policy recommendations. This draft report uses data obtained from a nationwide survey during late December 2009 and early January 2010 to estimate household demand for broadband Internet service. The report combines household data, obtained from choices in a real market and an experimental setting, with a discrete-choice model to estimate the marginal willingness-to-pay (WTP) for improvements in eight Internet service characteristics.

The Impact of "Deregulation" on Regulator Behavior: An Empirical Analysis of the Telecommunications Act of 1996

This paper examines how regulators set local prices in response to the changes brought on by the Telecommunications Act of 1996 (“Telecom Act”). We are particularly interested in the extent to which state regulators set prices that promoted efficiency or were influenced by private-interest groups who had secured rents under a regime of regulated monopoly. Using regional Bell operating company (RBOC) data, our empirical results indicate that private interests continue to influence the structure of retail and wholesale prices, although their influence appears to be waning. We find that changes to the regulatory structure, as measured by federal approval of RBOC Section 271 applications that open up markets to competition and universal service subsidies, resulted in a re-balancing of retail prices and lower overall price levels.competition, political contributions, private interest, public interest, regulation, telecommunications, universal service

Communications Policy for 2006 and Beyond

In this Article, the Authors propose sweeping changes to the current telecommunications regulatory regime. With impending reform in telecommunications laws, the Authors argue that an important first step is the creation of a bipartisan, independent commission to examine and recommend implementation of more market-oriented communications policy. Through maximizing the operation of the markets, the authors argue that communications policy will better serve its goals of increasing business productivity and consumer welfare through the better services and lower prices. Important steps to achieve optimal market operation include deregulating retail prices where multifirm competition is available, minimizing the cost of public property inputs, overhauling universal service, assigning greater jurisdictional authority to federal regulators, and significantly reorganizing the FCC. The Authors argue that the timely implementation of these policies is crucial for achieving United States telecommunications policy goals

Using Spectrum Auctions to Enhance Competition in Wireless Services

Spectrum auctions are used by governments to assign and price licenses for wireless communications. Effective auction design recognizes the importance of competition, not only in the auction, but in the downstream market for wireless communications. This paper examines several instruments regulators can use to enhance competition and thereby improve market outcomes.