Democracy & Technology Blog Consumer groups issue dire prediction and renew their call for network neutrality

A report by S. Derek Turner for Free Press, the Consumers Union and the Consumer Federation claims that,

Other countries’ broadband success can be largely attributed to their successful implementation and use of non-discriminatory, open access policy.

Scott Wallsten at AEI has already looked into this and concluded that, “Most economists and most studies conclude that unbundling in the U.S. reduced incentives to invest in high-speed Internet infrastructure.” He points out that Korea became the world leader in broadband connections per capita before it required local loop unbundling in 2002, and that broadband penetration in Korea has “barely changed over the last few years.” Wallsten concludes that population density is the most important determinant, and that some regulations appear to be beneficial while and others are harmful. For example, if regulators price something below cost, the incumbents will have little incentive to upgrade it when they have to sell it at a loss to competitors. Wallsten also compares the benefits and harms of particular regulations. It’s interesting, but the problem is few regulations are perfectly calibrated. Most lead to unintended consequences, and create new constituencies who constantly clamor for more.

The report also concludes that there is a relationship between price and demand for broadband services:

The results of this study show that median household income and poverty rate are by far the most important factors explaining the difference in broadband penetration rates between OECD member nations ….
The relationship between price and broadband adoption is apparent in the OECD: Countries with lower monthly costs for broadband have significantly higher levels of broadband penetration.

This seems logical. I wonder why Turner didn’t consider the impact of video franchise fees, free televisions for city officials, telecom taxes that rival alcohol and tobacco taxes in many jurisdictions, free studios and equipment for public, educational and governmental programs, sports stadiums and the other add-ons. In other countries, the government subsidizes broadband — in the U.S., broadband subsidizes government.
Another finding is that ample bandwidth would do away with the need for net neutrality regulation:

High-capacity and robust competition in other nations’ networks have made the debate over nondiscrimination (or Network Neutrality) moot in these countries. Congestion issues have been met with greater bandwidth, and any temptations to distort the content market are undercut by competition between multiple broadband providers.

Rep. Ed Markey (D-MA), FCC Commissioner Jonathan Adelstein and Rep. Rick Boucher (D-VA) all make a similar point. If we only had abundant bandwidth, packet prioritization would be superfluous. The issue is how to stimulate the investment needed to get there. Don’t forget the Open Video System (which I discuss here and which Solveig Singleton discusses in more detail here). It was the ultimate concept in open access/network neutrality, and it proved that the government can’t force people to invest. No one built an Open Video System.
Everyone seems to agree there will be no need for net neutrality regulation when we get to something like an all-optical Internet. The only area of disagreement is whether regulation can aid the transition. But, of course, the regulation always survives long after the transition. The Interstate Commerce Commission survived decades after airlines and trucks decimated the railroads, for example.
Finally, the report also notes,

The United States has the fourth-highest level of students who have never used a computer, exceeded only by Turkey, Slovakia and Mexico.

Again, this is interesting. And I am not against calculators, computers and broadband for schools. But I suspect this observation is totally irrelevant, because, I’m guessing, we are way ahead of the competition which really matters: China and India. Neither of these countries are OECD members and thus are not on the list. But I would be surprised if they exceed any of the wealthy countries who are OECD members.
See: Turner, S. Derek “Broadband Reality Check II: The Truth Behind America’s Digital Decline,” Aug. 2006
See: Wallsten, Scott “Broadband and Unbundling Regulations in OECD Countries,” Jun. 2006

Hance Haney

Director and Senior Fellow of the Technology & Democracy Project
Hance Haney served as Director and Senior Fellow of the Technology & Democracy Project at the Discovery Institute, in Washington, D.C. Haney spent ten years as an aide to former Senator Bob Packwood (OR), and advised him in his capacity as chairman of the Senate Communications Subcommittee during the deliberations leading to the Telecommunications Act of 1996. He subsequently held various positions with the United States Telecom Association and Qwest Communications. He earned a B.A. in history from Willamette University and a J.D. from Lewis and Clark Law School in Portland, Oregon.