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Open Un-Neutrality – Will FCC Re-Distribute Internet Opportunity? For Consumers? Businesses? Investors?

In effectively reversing fifteen-year bipartisan U.S. communications policy from promoting competition and reducing regulation to promoting regulation and reducing competition, the FCC’s coming “Open Internet” regulations are anything but neutral; they pick sides and strongly skew outcomes.

  • First, the FCC is proposing new preemptive business bans mid-game, the harshest most disruptive form of economic regulation possible.
  • Second, the FCC is arbitrarily discriminating among increasingly similar and converging businesses resulting in the arbitrary punishment of some businesses for what they allegedly might do, while rewarding others with protection from competition for what they allegedly might not do.
  • Third, the FCC is arbitrarily mandating one-way technology convergence without any supportable justification, i.e. banning distribution convergence into applications/content, while encouraging application/content convergence into distribution.

 

The Many Vulnerabilities of an Open Internet

What an "Open Internet" does not mean is as important as what it does mean.



  • Surely an "Open Internet" is not intended to mean what it certainly can mean: un-protected, unguarded, or vulnerable to attack. 

  • Thus, it is essential for the FCC to be explicit in defining what the terms -- "Open Internet," "net neutrality," and Internet non-discrimination -- don't mean, as well as what they do mean.

The word "open" has 88 different definitions per Dictionary.com and the word "open" has even more different connotations depending on the context. While the term "open" generally has a positive connotation to mean un-restricted, accessible and available, it can also have a negative or problematic connotation if it means unprotected, unguarded or vulnerable to attack.  


    Uneconomics and Texting

    George Ou's good post yesterday on "Being Rational on Text Pricing" rightly takes to task the complaint that text messaging should be priced at marginal costs and ignore total costs, upgrade costs, or competition. It also prompts me to join in to address the issue.

    Lets get to the quick here. 

    The folks arguing for text pricing to be based on marginal costs are trying to politically redefine traditional economics in the datatopian Chris Anderson vision of the "economics of abundance" -- that because the marginal cost of computer processing, storage, and bandwidth are getting increasingly small -- the price should be free!

    • I call this political thinking that "information wants to be free" and the "economics of abundance" school of thought -- simply -- uneconomics.
    • It ignores the real world, real economics, the reality of private property, market forces of incentives and disincentives, etc.  

    Does anyone think that the infrastructure that enables the instantaneous reliable delivery of roughly a billion text messages every day wherever one happens to be -- costs basically nothing to pull off and thus should be free?  

     

     

     

     

    Top Ten Pitfalls of Wireless Innovation Regulation

    Analysis of the potential pitfalls of wireless innovation regulation is a necessary complement to the FCC's upcoming Notice of Inquiries into wireless competition/innovation and the DOJ's review of wireless competition, in order to ensure policymakers get a balanced view of the big picture.  

    What are the Top 10 Pitfalls of Wireless Innovation Regulation? 

    #1 Pitfall: Losing focus on universal broadband access.

    "Wireless innovation" appears to be the latest rebranding iteration of "net neutrality" and "open Internet" as the net neutrality movement searches for more mainstream support of their views. 

    Why Broadband is Not a Public Utility

    The data and evidence show that broadband is not a public utility warranting economic regulation of prices, terms and conditions; this is contrary to the assertions of net neutrality proponents: the Markey-Eshoo Bill, FreePress, the Open Internet Coalition, and Google's Internet Evangelist Vint Cerf, among others.

    Why is broadband not a public utility? 

    First, it is a competitive service, not a natural monopoly service.

    A public utility presumes "natural monopoly" economics where economies of scale and scope preclude the possibility of competitive facilities/services. 

    • The roughly $200b in private risk capital invested in financially-successful U.S. competitive broadband facilities over the last several years is incontrovertible evidence that broadband does not enjoy natural monopoly economics.

    Second, users have choice of access providers.

    Where does choice come from?

    Choice, having the benefit of a selection of different alternatives to choose from, springs from the risk and opportunity of market competition  -- not from Government economic regulation.

    Voting with dollars: American Wireless Consumers Pay Much Less, Use Much More than Other Countries

    Kudos to Steve Pociask of the American Consumer Institute for his research reminding regulators that American consumers enjoy the most competitive, useful, and innovative wireless market in the world.

    In reviewing the stats that matter most, the U.S. is far ahead of the rest of the world.

    • Americans use 600 more wireless minutes a month than the average OECD country, which is 2-5 times more usage to put it in perspective.
    • Americans also pay 10 cents per minute less than the average European does.

    We constantly hear from anti-competition forces that competition doesn't work.

    • The evidence that they are dead wrong is overwhelming.
    • Competition works!

       

       

       

    Special access facts show more not less competition

    Pat Brogan of USTelecom and Evan Leo of Kellog Huber have produced an outstanding new report on special access that is the single best and most up-to-date survey and analysis of publicly available information on the status of competition in the special access market. 

    Special Access Nostalgia for Telecom's Bronze Age is No Path to 21st Century Broadband Leadership

    The supreme irony of the special access* issue is that competitors, who want to avoid investing in next generation broadband access facilities, are demanding that the FCC... (whose top priority is a National Broadband Plan to encourage the rapid build-out of modern broadband facilities to all Americans) ...regulate copper access prices in a way that surely would discourage investment in the exact next generation facilities that the FCC wants to get built.

    • * "Special access" is basically the business-to-business leasing market of the copper wire connections that link many buildings and cell towers to the Internet backbone at DS1 (1.5 Mbs) and DS3 (44.7 Mbs) speeds.
    • Bronze is 90% copper and 10% tin.

    DOJ will find vibrant competition in reviewing telecom industry

    The DOJ has opened an initial review of the telecom industry, per WSJ reports, as part of the Obama Administration's and the Varney Antitrust Division's "aggressive stance on antitrust enforcement."

    Antitrust enforcement is fact-driven, since it ultimately must be proven in court. The competitive facts in the telecom industry will speak for themselves; the industry is clearly and overtly competitive and trending more competitive. 

    This review will not be difficult or take long since the DOJ has vast and deep experience with the U.S. telecom industry -- having overseen the AT&T Consent Decree 1984-1996, been intimately involved with the drafting and implementation of the 1996 Telecom Act including the detailed development of local competition and Bell entry into long distrance. The DOJ also has reviewed and approved a number of telecom mergers over the last several years, most recently the approval of Verizon-Alltel and Centurytel and Embarq.

    • It is important to note that the scrutiny standard of approving a merger is a dramatically tougher standard than that of a Sherman antitrust action.
    • Generally as a rule of thumb, the DOJ prevents proposed mergers that would create combined market share of over 30%, while the market share standard to prove a Sherman antitrust case generally requires at least a 50% share and more likely 70-90% share.    

    Moreover, the DOJ will examine the telecom marketplace to see if it exhibits the core characteristics of a competitive market:

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    Q&A One Pager Debunking Net Neutrality Myths