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Friday, November 9, 2007

OECD Broadband Portal

The OECD now provides a host of broadband data in addition to penetration in its "Broadband Portal." I have criticized the OECD numbers in the past and am pleased to see them showing a more complete picture of the available data and better explaining the source of the numbers.

For example, the OECD now shows household penetration. These data are useful because the data on which the famous rankings are based combine business and residential and cannot accurately measure business connections. Household penetration, instead, is just the share of households with broadband connections and is generally determined through surveys. The OECD only shows data from the U.S. for 2003, which put the U.S. about seventh in terms of household penetration that year.

More recent data show that household penetration in the U.S. remains fairly comparable to other developed countries. Data from the European Commission's 2007 "E-Communications Household Survey" reports, based on a survey of 26,000 households, combined with information from the Pew Internet and American Life Project reveal the following figure (see figure below).


A few notes on these numbers: There are some discrepancies between the household data on the OECD site and the numbers reported in the 2007 EC report. In addition, the OECD reports 94 household penetration in Korea, but the footnote points out that this figure includes handheld devices, so it isn't directly comparable to other countries. Nevertheless, in 2003, before they started counting mobile devices, household penetration was almost 67 percent. The most recent data for Japan shows 65% penetration. Japan and Korea would thus almost certainly be the top two countries in this figure.

The new portal also clearly notes that the speeds it shows are average advertised speeds, not the speeds that consumers actually choose or ultimately get on their connections.

I'm sure that all sides of the debate about whether the U.S. is "ahead or behind" on broadband will find something to bolster their case. But the key point is that the OECD is moving to show more information than simple one-variable country rankings. More information is always better, and I am grateful that the OECD has taken this step.

posted by Scott Wallsten @ 4:46 PM | Broadband

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Wednesday, July 18, 2007

Comptel's regulatory scorecard: Good idea, poor execution

Comptel recently released a regulatory scorecard that ranks "the relative effectiveness of the regulatory frameworks for electronic communications across countries." Quantifying regulatory governance and rules is potentially very useful in terms of providing data that allows us to test the effectiveness of particular regulations and regulatory approaches. The rankings, however, are highly problematic and uninformative for policy purposes.

The main problem is that Comptel implicitly assumes that certain regulations are good when, in fact, their effects are at best highly debatable.

Consider, for example, how the scorecard handles unbundling regulations. A country gets high marks on the scorecard for having extensive unbundling regulations. Most empirical research finds that unbundling was a failure in the U.S. (and in a recent paper I found that extensive unbundling was not good for broadband penetration across OECD countries). Yet the U.S. could improve its Comptel ranking by imposing strict unbundling regulations despite the evidence that such regulations would likely harm facilities-based competition. Achieving a higher score by imposing strict unbundling regulations is clearly not supported by the evidence.

The scorecard in general assumes that regulations are always good, and countries get higher scores for having more regulations. Some regulations have net benefits and some do not. Simply assuming that regulations that favor CLECs are good is not helpful to policy.

Continue reading Comptel's regulatory scorecard: Good idea, poor execution . . .

posted by Scott Wallsten @ 4:53 PM | Communications

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Thursday, May 24, 2007

Taxing Internet Access - A Bad Idea

Congress is considering whether to allow a ban on taxing Internet access to expire.

Taxing Internet access would be a bad idea. Consumers remain sensitive to the price of broadband, and because taxing price sensitive goods can significantly reduce demand, taxing Internet access is likely to have a negative effect on subscribership.

Given Congress's recent hand-wringing about broadband availability and takeup it would be ironic if it were to endorse a policy sure to reduce broadband's growth rate.

Continue reading Taxing Internet Access - A Bad Idea . . .

posted by Scott Wallsten @ 1:15 PM | Broadband, Economics, Taxes

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Tuesday, April 10, 2007

Good Slogans, Bad Policies: Open Access Regulations

Yesterday PFF posted a brief article I wrote explaining the negative consequences of open access regulations. I argue that while proposals like open access and net neutrality sound good, they are not based on sound economics. The most recent example is a set of filings by several consumer groups asking the FCC to impose a set of open access regulations on the upcoming 700 MHz spectrum auction. Despite their claims, these rules would require complicated and controversial price and other regulations, reduce investment incentives, and ultimately harm consumers.

posted by Scott Wallsten @ 10:55 AM | Broadband, Communications, Net Neutrality, Spectrum, Wireless, Wireline

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Thursday, March 29, 2007

Economists' Statement on Net Neutrality

I recently joined 15 other economists to sign a statement explaining how proposed net neutrality regulations were likely to do more harm than good. Some of the luminaries who signed include Professors William Baumol, Alfred Kahn, Vernon Smith, and other distinguished folks.

To be sure, some economists find merit in net neutrality, but most recognize that our history with price and other regulations in telecommunications is a sorry one that has largely hindered competition and harmed consumers. Given this history and the rapid pace of change in the industry, new market structure and price regulations seem like a poor public policy choice.

posted by Scott Wallsten @ 9:47 AM | Net Neutrality

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Wednesday, March 21, 2007

FCC Inquiry on Net Neutrality

On Thursday the FCC may open a notice of inquiry on network neutrality. It's unclear what new information there is to gather on the issue, since neither proponents nor opponents have withheld their opinions or analyses.

Nevertheless, hopefully a careful review of the issue -- including the unimpressive history of price regulations in telecom (which is the essence of net neutrality) -- will help convince the FCC that conduct should remain under the watchful eye of antitrust authorities rather than subject to precautionary regulations that could prove quite costly to the economy and harmful to consumers.

posted by Scott Wallsten @ 5:06 PM | Net Neutrality

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Thursday, March 1, 2007

Net neutrality, pricing, and 2-sided markets

As many economists have pointed out, the Internet is a multi-sided market. In such markets, optimal pricing for the various sides is not obvious. Under current Internet pricing arrangements, consumers generally pay the full cost of the "last mile" connection and other infrastructure built by retail broadband providers. Likewise, content providers generally pay the costs of their connections. But because demand and supply of content and infrastructure are interlinked and each requires the other in order to succeed, this simple arrangement may not provide the best incentives from society's point of view.

One concern of those in favor of net neutrality is that without some sort of law or regulation the broadband providers will start charging content providers. That's possible and, in some cases, possibly even desirable.

It's also possible that content providers would charge broadband providers.

In fact, that already happens. ESPN offers a service called ESPN360. Any broadband provider that wishes to carry it must pay ESPN a fixed fee for each subscriber. Unless your ISP pays ESPN, you won't be able to use ESPN360. (There has been a lot of discussion about this over the past year or so). In other words, the content provider blocks the ISP, not the other way around.

By itself ESPN's arrangement is not evidence for or against net neutrality. Those in favor of net neutrality might argue that such a structure highlights the need for a net neutrality law that bans content providers from charging ISPs as well as the other way around. Those opposed to mandatory net neutrality might point out that a service like ESPN360 may not exist at all if ESPN were not allowed to experiment with a new pricing model.

The key point here is that a content provider charging an ISP highlights the fact that in a complicated multi-sided market nobody really knows how services *should* be priced in order to best encourage investment and innovation in both content and infrastructure. Allowing firms on both sides of the market to experiment with pricing is likely to be an important component in ensuring continued innovation in content and infrastructure.

posted by Scott Wallsten @ 10:43 AM | Broadband, Internet, Net Neutrality

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Sunday, February 11, 2007

Wireless Net Neutrality?

A recent paper by Tim Wu discusses "Wireless Net Neutrality." He suggests that several features of the U.S. wireless industry may be harming consumers. Overall, he wants wireless carriers to open their networks in many ways. He advocates creating standards that will make it easier for developers to write applications and for hardware firms to create devices that will operate on a network, and following some "net neutrality" standard for use of the spectrum itself.

It is an interesting paper, but is flawed in several fundamental respects.

First, Wu writes as if this were a new issue. Just like the broader debate over network neutrality, this is simply another version of an extensively debated topic: when should a network operator be forced to allow users particular types of access to its network? Wu ignores the history of this type of regulation.

We saw such regulations in the U.S. under the UNE-P regime, when the telcos were forced to sell access to their networks to competitors at regulated rates. Proponents had hoped that unbundling would have a "stepping stone" effect by allowing competitors to enter the market and then, once they had a customer base, would begin to invest in facilities. Unfortunately, it did not turn out that way. Few of the CLECs, as they were called, invested in any facilities, while the sharing regulations reduced investment incentives by the telcos. Today, the unbundling debate is largely over in the U.S., though it continues in Europe and elsewhere with respect to broadband access.

Regulating how wireless carriers allow their networks to be used would represent another version of regulating network access, and the history of such regulation does not bode well for its impacts.

This brings us to the second problem. Even in the case of the UNE regime and today's debates in Europe and Asia about unbundling, there is an underlying assumption that some firm had enough market power to profitably act anticompetitively. The wireless industry displays no evidence of any market failure. Thus, even if one believed that sometimes regulating network access had the potential to improve competition, the lack of a market failure in the wireless industry suggests that such regulation would be completely unwarranted in this case.

Continue reading Wireless Net Neutrality? . . .

posted by Scott Wallsten @ 3:29 PM | Broadband, Spectrum, Wireless

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Saturday, February 10, 2007

Need. More. TV.

Video franchise reform would both increase supply of broadband as well as demand for the service, adding to competition and benefiting consumers. The FCC should thus be praised for pushing forward an important but controversial issue. The FCC's recent order also raises interesting questions about how reforms should handle legacy investments and highlights the need to pay attention to inherent consumer demand for broadband.

Back in December, the FCC adopted an order to reform video franchising regulations. Under the existing regime, municipalities grant franchises to companies wishing to offer video services. Historically, that meant the local cable company was the lone franchisee and was in effect granted a monopoly in exchange for paying a franchise fee and providing certain services, such as public access channels. Cable companies enjoyed largely monopoly status until satellite companies entered the market, generating competition. In part because they did not use actual wires, satellite companies were exempt from franchise rules.

The issue today is that the legacy telephone companies, in particular AT&T and Verizon, are rolling out optical fiber and want to offer video over those lines in addition to lightning-fast broadband service. In order to offer video they must negotiate for franchise agreements with each municipality. Reforms could substantially reduce transactions costs and make it easier to obtain those agreements.

Franchise reform is long overdue. While cities understandably want oversight over some aspects of installing this infrastructure, such as digging up neighborhood streets, there is no economic rationale for local franchising of video services. The need to obtain a franchise represents little more than a barrier to entry. Removing this barrier will yield real consumer benefits in the form of additional broadband competition and additional video competition. Indeed, franchise reform is one of the few policies (along with moving more spectrum into the market) almost guaranteed to increase competition.

The FCC is now grappling with the sticky question of how to apply the order to incumbents and has requested comments on how the order should apply to existing franchisees (the cable companies).

Continue reading Need. More. TV. . . .

posted by Scott Wallsten @ 3:47 PM | Broadband, Cable, Communications, Internet, Local Franchising, The FCC, Wireline

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Wednesday, January 31, 2007

The new broadband statistics are out!

Like Cartman's interminable wait for the Nintendo Wii's release, telecom wonks, broadband geeks, and other hipsters everywhere have been waiting with bated breath for the FCC to release its newest broadband statistics.

That day has arrived. The newly released data, which show the numbers as of June 2006, show that broadband investment and adoption continue to increase dramatically, up 26 percent in the first half of 2006 to a total of 64.6 million lines.

These impressive numbers mask other important details.

Continue reading The new broadband statistics are out! . . .

posted by Scott Wallsten @ 9:04 PM | Broadband, Communications, Internet, Spectrum, The FCC

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Tuesday, January 9, 2007

Venezuela goes retro: Will Chavez mandate rotary phones next?

posted by Scott Wallsten @ 8:39 PM | Communications

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Saturday, December 9, 2006

Can DOJ merger reviews inform the FCC?

posted by Scott Wallsten @ 12:38 PM | Antitrust & Competition Policy

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Wednesday, November 22, 2006

Advertised vs Actual Bandwidth Across Countries

posted by Scott Wallsten @ 2:04 PM | Broadband

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Thursday, November 16, 2006

UN Report on Broadband Misses the Mark

posted by Scott Wallsten @ 2:54 PM |

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Tuesday, November 14, 2006

What disconnect?

posted by Scott Wallsten @ 3:34 PM | Broadband

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Comptel's regulatory scorecard: Good idea, poor execution
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Net neutrality, pricing, and 2-sided markets
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