Democracy & Technology Blog WSJ weighs in on the competitive future of broadband

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Grokster’s Loss is America’s Gain by Thomas W. Hazlett, Wall Street Journal, 29 June 2005, p. A14.
The Price War For Broadband is Heating Up by Dionne Searcey, Wall Street Journal, 29 June 2005, p. D1.
Thomas Hazlett, a fellow at the Manhattan Institute, joins the chorus praising the Supreme Court’s unanimous ruling in MGM Studios vs. Grokster. The real title of this piece should have been “Why Brand X is good for America” – referring to the Supreme Court’s decision in National Cable and Telecommunications Association v. Brand X, which Hazlett writes makes a “bigger property rights mark” than Grokster (the Grokster case largely followed from the logic of the Supreme Court’s earlier ruling against the file sharing service Napster).
The meat of the piece reads:

Marketplace evidence strongly rejects the hypothesis that broadband network sharing rules are pro-consumer, a conclusion bolstered by an interesting experiment. In February 2003, the Federal Communications Commission elected to substantially pare back the network-access obligations shouldered by phone companies. The terms on which independent Internet Service Providers could use telephone networks to provide DSL, were made much less favorable. Newspaper headlines announced that this would increase the price of broadband service and slow its deployment across the U.S.
The reverse occurred. With expanded property rights, and reduced regulatory overhang, phone carriers became much more ambitious in deploying and marketing broadband. DSL price cuts and build-out led to cable-modem price cuts and upward-spiking subscribership. DSL is now running even with cable-modem providers in terms of new subscribers, closing a huge market-share gap. Consumers, expressing their own choices in the marketplace, prefer the less regulated alternative.

Hazlett is referring to regulations in the 1996 Telecom Act that have saddled phone companies with the burden of having to share their networks with competing Internet Service Providers (ISPs). The FCC ruled last year that this regulation did not apply to the cable companies providing broadband Internet services. DSL providers then sued to get the FCC to either establish one standard for both DSL and cable or stop enforcing the regulation.
Brand X essentially returns the issue to the FCC, and hopefully to Congress, which has a duty to either reform or scrap the outdated rules. While most Americans on the Internet, as in 1996, still rely on slow dial-up connections, this is changing fast. Consumers now have more ways than ever to get online.
Even if DSL providers are being unfairly hobbled in competition with cable, the answer is not to hamstring cable Internet as well. Also, the cable ISPs now face stiff competition from rival cable companies in several major U.S. cities. Dionne Searcey’s piece focuses on the bidding war between SBC and Comcast, with independent websites highlighting the best deals for customers to take full advantage of their rising pricing power.

The U.S. Supreme Court’s ruling this week that cable companies don’t have to share their high-speed Internet connections with rivals prompted fears that cable broadband prices will rise in some markets that have few independent providers. But in competitive markets, the ripple effect of SBC’s broadband price cut has set the stage for lower prices as phone and companies look to reel in customers and offer them other services.

Furthermore, focusing on the legal sound and fury between lawyers for telephone and cable companies ignores the fact that both will quickly have to face new competition – from wireless ISPs. The wireless marketing strategy is simple – why should customers not prefer to have their Internet service follow them with their cellphones, laptops, and PDAs, rather than being tied to the home or office?
The FCC’s goal ought to be different avenues for getting onto the Internet competing for consumer dollars – in the same way that roads, rails and airlines compete for passengers and freight in the field of transportation.
The onrushing wireless revolution only makes the 1996 Telecom Act, and the fights over its interpretation at the FCC, appear more archaic with every passing day.

Bret Swanson

Bret Swanson is a Senior Fellow at Seattle's Discovery Institute, where he researches technology and economics and contributes to the Disco-Tech blog. He is currently writing a book on the abundance of the world economy, focusing on the Chinese boom and developing a new concept linking economics and information theory. Swanson writes frequently for the editorial page of The Wall Street Journal on topics ranging from broadband communications to monetary policy.