June 28, 2005
Access Regulations Don't Work
(In the launch of our new IP debates series, we asked Tom Hazlett and Jonathan Taplin to answer a question: Do we need regulations that require broadband access providers to allow independent service or program providers to reach end users via their broadband networks?)
Update: See Tom Hazlett’s editorial on both the Brand X and Grokster decisions in the June 29 Wall Street Journal.
This is just the question to pose on the day after the Brand X decision has been delivered by the U.S. Supreme Court. While history may recommend this case for the deliciousness of a Justice Scalia dissent to a Justice Thomas opinion, its public policy verdict will serve our broadband appetites well.
The issue of network access is posed as striking a limit capping a communications operator’s market power, insuring that ownership of the connection does not creep ‘upstream’ to the applications that ride upon it. The physical network should be defined and then confined, ensuring that traffic flows freely. This, after all, is the architecture of the Internet.
Actually, not. The network of networks is comprised of myriad systems which restrict access in important dimensions (your enterprise Local Area Network, your favorite commercial website, your Internet Service Provider) and operate free of interconnection mandates. Traffic passes via negotiated agreements at market prices. The “open access” model is unregulated.
More... Posted by Tom Hazlett at 02:55 PM|Print |Comments(0) |TrackBackJune 28, 2005
The Case For Network Neutrality
Los Angeles is going through the cable franchise reauthorization process and so we are in the heat of a debate over what the Broadband network of the future will look like. On the one side are the proponents of an IP TV universe who believe that the Internet can totally transform the media distribution universe dominated by big media. On the other side are the cable companies who quietly pushed through the FCC last year the deregulation of cable broadband from a Telecommunications service to an Information service allowing them to legally construct “The Walled Garden”. Although the four giant cable companies that control home Broadband service will seek to cast the FCC decision as a narrow question of whether they need to share their networks with rival Internet Service Providers, the real meaning of the FCC rule lies in whether companies like Time Warner can control what Broadband content their subscribers can reach and what devices their subscribers can attach to their Broadband connection. Whether the ruling is allowed to stand will decide the fate of the profound change in media distribution brought on by the arrival of the Broadband Internet.
The pure essence of that change lies in the word “scarcity”. Before Broadband, the economics of the media business were governed by scarcity. There were a limited number of film and record distributors; a limited number of cable and satellite distributors; a limited number of broadcast networks and so the holders of those franchises had maximum leverage with the artists and producers of content.
More... Posted by Jonathan Taplin at 12:51 PM|Print |Comments(0) |TrackBackJune 29, 2005
Taplin on Hazlett: The Internet Changes Everything
(Editor’s Note: As part of our new IP debate series, we asked Tom Hazlett and Jonathan Taplin (see bios) to tackle a key question: Do we need regulations that require broadband access providers to allow independent service or program providers to reach end users via their broadband networks? In the spirit of those debates, the following is a response by Jonathan Taplin to Tom Hazlett’s article which argues that access regulations aren’t needed.)
While I appreciate Tom Hazlett’s knowledge of cable TV history and the immense fortunes that were built on the closed access model of the Walled Garden, the reality is that the profound disruptive change of the Internet was that it was built on a completely open standard.The work of men like Vint Cerf and Tim Behrners-Lee meant that no one owned the patent on TCP/IP, HTML or any of the foundational elements of the Internet. Just because four cable providers control over 60% of the home broadband in the U.S. does not give them the right to change the basic architecture of an open Neutral Network in which anyone with a server and an IP address can publish content. The problem with the Brand X Case was that it conflated the issue of whether a service like Earthlink could get a cheap ride on the incumbents network by reselling bandwidth with the far more important issue of Network Neutrality. This is not the debate about the old Big Media Bogeyman. Any content provider, including Disney or Viacom may find themselves outside Time Warner Cable’s Walled Garden looking in; or being asked to pay extortionate rents to become a preferred content provider whose video would stream at the best quality.
The Broadband Internet is a radical evolution in content distribution that unlocks the chokehold of the Gatekeepers. It should not hijacked by a few companies and a complacent FCC. It is up to the Citizens to let John McCain and the Senate Commerce Committee know that before they approve the next nominee to the FCC, he or she must take a public position in favor of the Four Freedoms of Broadband as expressed by Michael Powell last year. If he does that, there will be three votes in favor of Network Neutrality at the FCC and the Broadband Internet can be saved.
Posted by Jonathan Taplin at 02:46 PM|Print |Comments(0) |TrackBackJune 30, 2005
Hazlett on Taplin: Let Broadband Evolve
(Editor’s Note: As part of our new IP debate series, we asked Tom Hazlett and Jonathan Taplin (see bios) to tackle a key question: Do we need regulations that require broadband access providers to allow independent service or program providers to reach end users via their broadband networks? In the spirit of those debates, the following is a response by Tom Hazlett to Jonathan Taplin’s article calling for network neutrality regulation of broadband providers.)
Many thanks to my virtual colleague Jonathan Taplin for his kind remarks, as well as for the provocative argument. I take it that he concedes that economic incentives worked nicely for the bygone era, but are now rather quaint in the day of the Internet. This was a popular world view that reached its zenith about March 10, 2000, when the Nasdaq kissed 5,132, and all dot.com shareholders were visionaries.
Alas, that world was not to last, and the idea that the Internet was a creation of open access architecture - while still a wildly popular notion - will one day crash as well. The laws of physics are intact, and economics lives. Indeed, economics is breathing new explanatory life, as the fine tome by Hal Varian and Carl Shapiro, Information Rules, established even before the bubble burst.
The Internet is not a planned outcome, and its “architecture” has not been regulated. Rather, it evolves. “Open access” is observed in some parts, “walled gardens” in others. Both spring from the competitive process.
Look to the very market at issue in Brand X: cable modem service. The spontaneous evolution of the Internet is today being driven by the broadband race, wherein private access providers attempt to link users by offering high-speed local area networks. The application mix changes dramatically as bandwidth migrates from narrow to broad.
The leading U.S. technology providing such Internet-boosting investment is unregulated. Cable operators own their infrastructure and determine what traffic passes over it. Technically, one could say that access is not free. Operators require that users agree not to run commercial web pages or to otherwise hog bandwidth. In years past, some limits were placed on video streaming. But the practical result of market competition is that (a) high bandwidth connections are made available to well over 95% of households; (b) bandwidth is continually increasing; (c) residential users are not much restricted by the limits; (d) business users are charged more, and supplied higher bandwidth.
The idea that regulators could improve upon this scheme has been tested; consumers have rejected it, both in strongly favoring cable modems over DSL and then in switching to neutrality when DSL access rules were relaxed. Using the state to architect traffic flows is exactly what the striking success of the Internet counsels against.
Posted by Tom Hazlett at 12:27 AM|Print |Comments(0) |TrackBackJuly 05, 2005
Taplin on Hazlett on Taplin: Let's Stick to Powell's Four Freedoms
(Editor’s Note: As part of our new IP debate series, we asked Tom Hazlett and Jonathan Taplin (see bios) to tackle a key question: Do we need regulations that require broadband access providers to allow independent service or program providers to reach end users via their broadband networks? In the spirit of those debates, the following is a response by Jonathan Taplin to Tom Hazlett’s reply to Jonathan’s original post on this topic. For the full flow of the debate, please go to the debates section).
Tom, I’m enjoying the debate and I hope I’m not being accused rewriting the laws of economics. I never would suggest that cable broadband access is free. On the most recent Comcast analyst call, their CFO John Alchin mentioned that the cable modem service had the highest margin of any product they offer. To get a consumer to pay $45 per month for 6 Mhz of bandwidth with no programming costs was indeed a goldmine for the cable industry. The best per channel revenue they ever had before was $14 for HBO and they had to give 50% of that revenue to HBO.
On some level, we are talking about different aspects of “regulation”. I simply want to make sure that Michael Powell’s Four Freedoms of Broadband (see my original post) are real and not just some PR campaign. When the FCC slapped a fine on Wind River Telecom for blocking Vonage’s Voice over IP system, they were regulating on the side of the innovators and preserving a space for entrants with new products that consumers want. Certainly the current Republican notion of deregulation in the telecom space has caused us to fall farther behind much of the rest of the world in both wired and wireless Broadband.
Posted by Jonathan Taplin at 10:29 PM|Print |Comments(0) |TrackBack
Thomas
W. Hazlett is a Senior Fellow at the
Manhattan Institute for Policy Research,
Adjunct Professor of Business and Public
Policy at the Wharton School, and a
Columnist for the Financial Times. His
research focuses on law and economics,
with particular emphasis on
telecommunications policy. Dr. Hazlett
received his Ph.D. in economics from
U.C.L.A. From 1984 through June 2000 he
was a professor at the University of
California, Davis, where he taught
economics and finance and served as
Director of the Program on
Telecommunications Policy. In 1991-92 he
served as Chief Economist of the Federal
Communications Commission in Washington,
D.C. Dr. Hazlett's academic research has
appeared in numerous academic
publications. He served as a
contributing editor to Harper's, was a
columnist for Forbes ASAP, and wrote the
“Selected Skirmishes” column in Reason
Magazine, 1989-2000. Dr. Hazlett is a
Senior Adviser to Analysis
Group/Economics, and has provided expert
testimony in federal and state courts,
before the Department of Commerce,
General Accounting Office, and the
Federal Communications Commission, and
to committees of Congress. His book
(with Matthew L. Spitzer), Public Policy
Toward Cable Television, was published
by the MIT Press in 1997.
Jonathan
Taplin
is an Adjunct Professor at USC Annenberg
School of Communications. Jonathan
Taplin's areas of specialization are in
International Communication Management
and the field of digital media
entertainment. Taplin began his
entertainment career in 1969 as Tour
Manager for Bob Dylan and The Band. In
1973 he produced Martin Scorsese's first
feature film, Mean Streets which was
selected for the Cannes Film Festival.
Between 1974 and 1996, Taplin produced
26 hours of television documentaries
(including The Prize and
Cadillac Desert for PBS) and 12
feature films including The Last
Waltz, Until The End of the World,
Under Fire and To Die For.
His films were nominated for Oscar and
Golden Globe awards and chosen for The
Cannes Film Festival seven times.