New York regulators issued a white paper last week examining possible “remedies” in connection with the proposed Verizon-MCI and SBC-AT&T mergers. The white paper appropriately concludes that issues associated with the Internet backbone should be addressed at the national level. The Internet is an interstate network that cannot be subject to micromanagement by the public service commissions of 50 states, the District of Columbia, Puerto Rico and other territories and possessions.
The staff of the New York Dept. of Public Service, who drafted the paper, had been urged by New York’s Attorney General, Eliot Spitzer, and others to proceed on the assumption that there is a danger of market concentration in the Internet backbone. Spitzer’s analysis proceeded from an estimate that WorldCom (now MCI) was the top Internet backbone provider at the end of 2000, with 44 percent of all wholesale ISP revenues in the U.S. Spitzer urged the staff to seek more data, but appears to assume that the Internet backbone is still “relatively concentrated.”
In fact, Discovery’s George Gilder and Bret Swanson concluded that WorldCom’s share of the Internet backbone had declined to 8% in 2002. Michael Kende, in affidavits (Click here and here) filed with the FCC in the Verizon-MCI merger proceeding, states that there are now half a dozen backbone providers of “comparable size.” These include MCI but not Verizon. The combined company would carry less than 10 percent of total Internet traffic in North America, says Kende.
According to Gilder, the Internet backbone is the “most complex, decentralized network ever built.” The last thing the backbone needs is for Verizon-MCI, a company which possesses the capability and desire to invest in advanced services, to exit the business.
Also disastrous would be Spitzer’s proposal to force Verizon to propose performance standards in number porting, data transfer speeds and other quality of service criteria. Performance standards are a bureaucratic nightmare based on thousands of self-executing process measurements. Slight variations in service quality trigger automatic monthly payments to competitors. The concept breeds inefficiency and welfare-type dependency.
The Internet backbone is competitive, and the FCC should avoid these phony solutions.