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Tuesday, November 6, 2007

Bruce Owen on "Antecedents to Net Neutrality"
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Bruce Owen, one of the finest communications and media economists of our generation, has written a powerful piece for Cato's Regulation magazine asking, "After the long fight to end the 'common carrier,' why are we trying to resurrect it?" He's referring, of course, to the ongoing efforts by some to impose Net neutrality regulation on broadband networks. In his new article, "Antecedents to Net Neutrality," Owen points out that we've been down this path before, and with troubling results:

[T]he architects of the concept of net neutrality have invented nothing new. They have simply resurrected the traditional but uncommonly naïve “common carrier” solution to the threats they fear. By choosing new words to describe a solution already well understood by another name, the economic interests supporting net neutrality may mislead themselves and others into repeating a policy error much more likely to harm consumers than to promote competition and innovation.

Net neutrality policies could only be implemented through detailed price regulation, an approach that has generally failed, in the past, to improve consumer welfare relative to what might have been expected under an unregulated monopoly. Worse, regulatory agencies often settle into a well-established pattern of subservience to politically influential economic interests. Consumers, would-be entrants, and innovators are not likely to be among those influential groups. History thus counsels against adoption of most versions of net neutrality, at least in the absence of refractory monopoly power and strong evidence of anticompetitive behavior — extreme cases justifying dangerous, long-shot remedies.

Owen then provides a detailed history lesson in the failures of regulation [make sure to read it] and then draws three lessons from that history:

First, as the examples above attest, there is little clear evidence that traditional regulation ever achieved even its narrow objective of making nondiscriminatory service available to all at cost-based prices. On the contrary, discrimination on the basis of factors correlated with price elasticity has been a commonplace of regulation from the time of the 1887 [Interstate Commerce Commission] Act to the present.

Second, the remedy makes the disease worse. Regulators and regulation often have served as deterrents to technical innovation, both by incumbent monopolists and potential entrants. ... The framework of regulation and the principles of administrative law give incumbent producers great leverage in preventing entry by competitors. This, in turn, reduces the incumbent’s own incentive to innovate.

Third, there is no body of learning or experience from other contexts suggesting that these failures might be remedied significantly by “better” regulatory practices. The long-run interests of consumers arguably are better served by unregulated (and therefore hopefully shorter-lived) monopoly than by regulated (and therefore likely semi-permanent) monopoly.

Make sure to read the whole thing.

posted by Adam Thierer @ 9:24 PM | Cable , Communications , Internet , Net Neutrality , The FCC

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Bruce Owen's article makes some reasonable points, but is rife with the old Cato Institute "trust my biased analysis perspective". He makes a lot of statements intended to reflect historical fact that just have not been objectively substantiated.

FACT: Net Neutrality is a really bad term for the issues that should be debated and resolved objectively.

FACT: Net Neutrality, whether an appropriate law or regulatory mechanism can be adopted or not, should be about "market overhang and control". To pooh-pooh the issue is to say it's OK for Walmart to own the toll road that customers use to reach Walmart and Target stores, charge customers a toll, restrict traffic to and from Target, and replace Target traffic directing signs with Walmart signs.

To rely on the FTC and other government agencies to police business activity, given today's political environment just won't work. Federal authorities and Congressmen need a mechanism to protect themselves from themselves. Otherwise, they are for sale to the highest bidder. Just like frequency spectrum.

Arguing that "Net Neutrality" is anti-innovation and anti-consumer is equally a red herring, and just flat incorrect. Just the opposite is true.

FACT: The 1982 Settlement occurred because AT&T wanted it. They feared that rapidly changing technology under the existing rules would doom them to being mere common carrier transport providers as others delivered the Information Age. They also mistakenly thought they had the cost structures and marketing know-how to succeed in the computer business and had to escape the regulatory handcuffs to do so.

FACT: The Telecom Reform Act of 1996 was a tech-bubble scam perpetrated by Wall Street that had no chance of realizing its claimed objectives for competition in the last mile. Peter Huber said it best in his book. It just took a while for the economic model to be shown as horribly flawed.

We are still pretending to be efficiently operating under that model.

FACT: AT&T had been handcuffed from introducing new technology and services for twenty years. They were on a fast pace with new technology and had the resources and experience to get it right earlier than anyone else could have. There was nothing cumbersome or delaying about their approach. But they had a national asset - the public network to operate and maintain.

Whatever rules current service providers follow to keep consumers connected and protected still follow from the "old days of regulation". There are no new mechanisms to replace them.

We don't need anymore duplicitous, self-serving laissez-faire economics. Everyone's integrity is for sale these days.

Fiddling while Rome burns should be passe.

Posted by: Art Black at November 7, 2007 1:09 PM

It amazes me when "experts" who are directly funded by the phone companies, conclude that the PSTN -- Public Switched Telephone Networks are private property and the companies should have exclusive use of these networks.

In truth, the Telecom Act opened up the PSTN because of monopoly controls ---

More to the point, the authors continue to ignore the thousands of state documents outlining how customers, not the phone companies, have been the major funder of broadband and the networks in the form of excessive phone rates and tax perks. --- These were given to the phone companies state by state to pay for the upgrades that were committed to--- though, the authors don't believe that state committments should be honored or the monies returned when they failed to deploy fiber optic services.

The committments were all laid out in Verizon and AT&T's annual reports, state orders, etc.

This deregulation was grnated because the companies made these committments --- 6 million homes by 2000 for Ameritech, 8.75 million for Bell Atlantic, 5.5 million by Pac Bell, ---

The irony here is that 'experts' now have erased the idea that state obligations were funded through excess phone rates -- and yet, there is nothing to show for it.

America is 15th in the world in broadband because the Experts never pointed out that their clients failed to deploy.

And this is not simply about connections at 200K -- this is about the fact that while we depend on companies who are now being coddled by the experts, other countries have kicked out collective butt.

The OCED wrote: The fastest average advertised download speeds are in Japan (93 Mbps), France (44 Mbps), Korea
(43 Mbps) and Sweden (21 Mbps). Japan is tops when it comes to fastest residential broadband, offering connections of 1Gbps.

but you keep repeating that your clients are doing a great job if only more regulation was removed....

Here's just some of the committments by state and the monies collected that was never used to upgrade America's networks.


Posted by: Bruce Kushnick at November 8, 2007 5:53 AM

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