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Wednesday, July 30, 2008

Tim Wu's Addiction to Regulatory Interference
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Thursday morning's "OPEC 2.0" Op Ed in the New York Times by Columbia Law professor Tim Wu exhorts Americans to "face" their bandwidth addiction and explore alternative supplies of bandwidth "before it is too late." One may ask, too late for what? Are we really in imminent danger? As if characterizing the everyday use of broadband communications networks an "addiction" was not worrisome enough, Wu then analogizes bandwidth - what he defines as "the capacity to move information" - with oil and other finite energy sources - and paints a dark picture of today's largest bandwidth providers as greedy monopolists (or duopolists) controlling supply and "maintain[ing] price levels and extract[ing] maximum profit from their investments" similar to the OPEC oil ministers setting "production quotas to guarantee high prices." The problems with Wu's flawed analogies are explored in greater detail by my colleague Bret Swanson.

Having induced a degree of fear in the reader, Wu then introduces a note of hope for a better and alternative world in which one "future possibility is to buy your own fiber, the way you might buy a solar panel for your home." Perhaps. But what would this really mean? How many Americans really want to become their own "network managers," bear the responsibility for buying their own fiber, or install and maintain their network? And this is one of the least objectionable suggestions in his piece.

One really needs to read Wu's "OPEC 2.0" together with his remarks reported simultaneously in the Washington Post concerning Comcast's alleged interference with web file sharing, and some of his other contributions to the "net neutrality" literature to get the full picture. Wu is a staunch advocate of "net neutrality" regulation, which bears a striking resemblance to the "common carriage" mandates embodied in Communications Act of 1934--rather ironic given his (not wholly unjustified) attack on the FCC's "command and control system dating from the 1920s." For incumbent "bandwidth providers," Wu's prescription is nothing short of "command and control" restrictions dictating to network owners what form of network management is permissible and, if not yet requiring that service be offered through generally available "tariffs," then at the priced via government-approved pricing mechanisms. These and other problems were quickly identified by my colleague Adam Thierer.

Perhaps more troubling, however, is the inconsistency inherent in Wu's call for "command and control" style regulation for incumbent suppliers of wireline and cellular Internet "bandwidth," while blithely espousing a "dogs run free" system for other wireless bandwidth. If, as Wu implies, the "command and control" system of spectrum allocation has resulted in under- utilization and deployment of innovative services in the wireless area, why is he so enamored with applying what is essentially "command and control" approach to the incumbent bandwidth providers?

In addition, although it is hard to argue with Wu's call for exploration of alternative sources of bandwidth, including evaluation of use of the TV "white spaces" - which Wu refers to as "wasted spaces" - it is probably wise to exercise caution before turning the spectrum occupied by television signals today over to unlicensed uses. After all, we are in the midst of an unprecedented transition from analog to digital TV signal transmission. Of course licensees should be expected to make the most efficient use of their spectrum, but that is not to say that regulators must reflexively permit every request for "sharing" of such spectrum to proceed without ensuring adequate protections for existing operations.

We do, indeed, under-utilize spectrum, but Wu leaps from the correct diagnosis of the problem--dictating (at least to some extent) "what licensees of the airwaves may do with their part of the spectrum"--to precisely the wrong conclusion: creating "commons" across the regulatory spectrum. Wu's solution is simply a different brand of regulation. If one truly wanted to free spectrum and encourage its efficient use, one would move from the current system of having the FCC dictate the appropriate uses of spectrum after auction to a system in which licensees would be free to put spectrum to its highest valued use. Such a system would truly maximize the efficient use of spectrum, and address Wu's concern about increasing overall available bandwidth.

Finally, Wu's halcyon vision for an alternative bandwidth future consisting of self-provisioned fiber and municipal Wi-Fi is hardly enticing. Has Wu not noticed the steady stream of announcements that municipal Wi-Fi deployments have been no more successful in living up to their hype than broadband-over-power lines? If governments are tasked with building the next generation networks, they will also have to handle the upgrades. Jeffrey Eisenach, Criterion Economics and George Mason University Law School, in a forthcoming paper for the Committee for Economic Development of Australia, notes that "in 2007, the U.S. Federal government invested a total of about $57 billion in all U.S. transportation infrastructure, including roads, bridges, ports, airline infrastructure and railroads; the Wall Street Journal reports U.S. telecom firms invested $70 billion in the telecom infrastructure alone (White 2008)." This would be a massive tax payer investment that never ends.

And yet these are examples of precisely the exploration of alternative supplies of bandwidth that Wu calls for. So what is the real point of Wu's piece? It must be to serve as a companion to the many laments that the United States is losing the "broadband" race internationally, the invented crisis recently identified so ably in the Washington Post by FCC Commissioner Robert McDowell, by identifying the villains, the incumbent providers - "companies like AT&T, Comcast and Vodafone" (emphasis supplied) - whom Wu bizarrely analogizes to OPEC, a government cartel.

Rather than constantly look to the regulatory models of the past to apply to today's networks, wouldn't it be better if we all took a deep breath and devoted serious attention to meeting the challenges of encouraging private investment in the next generation of network deployment?

posted by Barbara Esbin @ 5:50 PM | Broadband , Net Neutrality , Spectrum

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