Net Neutrality

Michael J. Copps Everyone agrees competition beats regulation, but we’re always told things aren’t competitive enough yet to justify deregulation. If eventually we develop a truly competitive marketplace with consumers enjoying broadband speeds like those available to our counterparts in other industrial countries, we can step back and rely on the genius of that marketplace. The words of FCC Commissioner Michael J. Copps. When they say “truly competitive,” I think people like Commissioner Copps have in mind the textbook definition of “perfect competition” (many suppliers in the market, each supplier so small that its actions have no impact, the product all of the suppliers provide is the same, all agents have perfect information, all firms have acces to all production Read More ›

Researchers at the Warrington College of Business Administration at the University of Florida have developed a “stylized game-theoretic model” to identify winners and losers under net neutrality regulation. Their conclusion: contrary to the conventional wisdom, broadband providers would actually have more incentive, not less, to upgrade their networks under net neutrality regulation. Here is part of the logic, according to Hearusnow.org, which quotes one of the researchers:

The whole purpose of charging for preferential treatment to content providers is that one content provider gains some edge over the other,” says Subhajyoti Bandyopadhyay, who co-authored the study with Cheng. “But when the capacity is expanded, this advantage becomes negligible.

In other words, if there is ample bandwidth there would be nothing to ration. Broadband providers would be able to charge more if there is artificial scarcity. But if private investors are willing to invest in abundance rather than in scarcity, we should encourage them to do that. In the real world, investors actually do pursue temporary advantages. It just depends on the total anticipated size of the return.
Bandyopadhyay’s point that the broadband providers’ ability to charge for preferential treatment declines as network capacity expands proves only that if we allow market forces to operate, we won’t need net neutrality regulation at all.

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Policy makers should recognize information technology as the centerpiece of economic policy and develop their plans accordingly, concludes the Digital Prosperity study published this week by the Information Technology and Innovation Foundation.
“In the new global economy information and communications technology (IT) is the major driver, not just of improved quality of life, but also of economic growth,” writes Foundation president, Dr. Robert D. Atkinson, author of the study.
Atkinson is a widely respected economist who formerly served as project director of the Congressional Office of Technology Assessment, and is the former director of the Progressive Policy Institute’s Technology and New Economy Project of the centrist Democratic Leadership Council.
Based on reviews of other studies, and Atkinson’s own research, the report maintains, “IT was responsible for two-thirds of total factor growth in productivity between 1995 and 2002 and virtually all of the growth in labor productivity” in the United States.

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Skype’s petition seeking wireless net neutrality regulation lists a couple specific “abuses” the company claims justify FCC intervention. The first one is handset subsidies. All of the leading cellphone carriers heavily subsidize cellphones, because up-to-date handsets utilize spectrum more efficiently. The carriers recoup the subsidies via two-year service contracts. Criticized for discouraging consumers from switching providers, these arrangements nevertheless do help hold down the cost of service. Skype doesn’t like the fact that the subsidies put the carriers in a position to control the software that can be loaded onto the phones. Cellphones will soon roam seamlessly between 3G, Wi-Fi and DSL. Skype would like to cut deals with manufacturers to embed its software as a default setting. According to Read More ›

More interesting estimates of the bandwidth requirements of certain Internet applications, which begs the question: Who’s gonna pay for the required network capacity? World-wide, spending on new telecom infrastructure is expected to rise to $240 billion in 2008, up 19% from 2005. Moreover, a greater proportion of that spending is expected to be plowed into accommodating capacity-hogging Internet traffic like video. The new files can be clunky and costly to handle. A typical Internet video file eats up 1,000 times as much bandwidth as an average email message. And while sending 100,000 emails costs a telecom company around 20 cents, transmitting 100,000 low-resolution videos costs around $15, and sending 100,000 high-definition movies costs around $10,800 (emphasis added), according to Infonetics Read More ›

How does Columbia Law Professor Tim Wu justify his proposal to impose massive new regulation on cellphone networks? Wu is finishing a paper in which he proposes the following: (1) Allow any consumer to attach any safe device to their cellphone, and (2) use the applications of their choice and view the content of their choice. (3) Require cellphone providers to disclose, fully, prominently, and in plain English, the following information: * Limits on bandwidth usage; * Devices that are locked to a single network; and * Important limitations placed on features; and (4) reevaluate their “walled garden” approach to application development, and work together to create clear and unified standards to which developers can work. “Oligopoly” Wu acknowledges critics Read More ›

Besides pointing out that the Internet is anything but neutral and that net neutrality regulation would be a boon for lawyers and bureaucrats, as Bret noted, Peter Huber also points to a favorite theme of mine, i.e., net neutrality regulation would prohibit network operators from from providing free or reduced-price broadband connections supported by advertising (see, e.g., this, this, this and this). Not long ago Google successfully bid to deploy a municipal Wi-Fi service for the city of San Francisco. As one part of that proposal, it promised to offer a free tier of wireless access to all. Free means paid for by advertisers, whose pitches will be the first thing you see whenever you log on to San Francisco’s Read More ›

As usual, Peter Huber clarifies a complex topic — how the Net actually works. The Net isn’t “neutral” — never has been…and shouldn’t be in the future. “Neutrality” laws, says Huber, would be a boon for telecom lawyers like himself but a huge source of frustration for Internet companies and consumers. -Bret Swanson

Patients, adept at using the internet to schedule travel, conduct business, and access information with the click of a mouse, are now driving changes in the way state and federal policymakers address health care reform.
“Health IT” is the new buzzword for health care, and information technology proposals for healthcare reform are sprouting like daffodils in April!

Tennessee Gov. Phil Bredesen
So far this year, the National Governor’s Association has announced the creation of the State Alliance for E-Health, co-chaired by Tennessee Gov. Phil Bredesen and Vermont Gov. Jim Douglas. Their purpose is to bring together office holders and policy experts to, “address state-level health information technology (HIT) issues and challenges to enabling appropriate, interoperable, electronic health information exchange (HIE)”.
As quoted in the National Journal’s coverage of the event, Gov. Bredesen explained, “…the states can move much more quickly….I don’t trust the federal government to actually do anything on my watch.”

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Bob Kahn, a key developer of the early Internet, says net neutrality is just “a slogan.” “If the goal is to encourage people to build new capabilities, then the party that takes the lead is probably only going to have it on their net to start with and it’s not going to be on anyone else’s net. You want to incentivize people to innovate, and they’re going to innovate on their own nets or a few other nets….” “I am totally opposed to mandating that nothing interesting can happen inside the net,” (hat tip: Don Luskin) -Bret Swanson