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Thursday, August 19, 2004

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AT&T has struck a deal to refer its new CallVantage VoIP customers to the representatives of five cable operators, where they can then elect to sign up for broadband service. While it is a swipe at the Bells on one level, the deal is more interesting within the context of the "net neutrality" debate. No doubt, most of these cable companies will be competing with CallVantage through their own VoIP offerings, but the choice of promoting an alternative vertical structure here is also a good example of the ICE principle, or "internalizing complementary efficiencies," at work. The ICE principle holds that even a platform monopolist will have incentives to voluntarily offer access when it is efficient to do so. We are not dealing with a platform monopolist here, but this agreement (while anecdotal) serves to illustrate that there is no need for a prophylactic net neutrality mandate in the current broadband market. (Professors Weiser and Farrell have more to say on vertical integration, the ICE principle and its exceptions.)

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