Economics, Regulation

Broadband competition in the internet ecosystem: A conflict of visions

Image credit: Peretzp (Flickr) (CC BY-SA 2.0)

Image credit: Peretzp (Flickr) (CC BY-SA 2.0)

Are broadband networks part of the Internet ecosystem? If it seems like a silly question, you haven’t been paying attention to what passes for liberal thinking about the Internet these days. According to some—including Cardozo Law School professor and former Obama Administration official Susan Crawford—the Internet is comprised of companies like Facebook and Google. The broadband infrastructure, she explained at a Brookings Institution event last week, is something else again.

Specifically, Crawford explained, broadband networks are like the “highways,” while Facebook and Google operate the “trucks.” The highways are a “natural monopoly,” deserving of regulation if not (indeed, preferably) outright government ownership. At a minimum, fellow Brookings panelist and professor at Loyola Law School in Chicago, Spencer Waller, suggested that broadband networks may be “essential facilities,” and thus appropriately subjected to “open access” requirements.

As I have explained elsewhere, the “broadband is a monopoly” argument doesn’t stand up to the facts. The vast majority of U.S. households and businesses have broadband services from two or more wireline providers and three or more wireless providers — and wireless is getting a lot more robust thanks to the rapid deployment of ultra-fast LTE wireless data networks.

Moreover, countries that have pursued open access policies — including most of the European Union — are suffering from reduced investment and slowing broadband uptake. Back in 2009, Professor Crawford was especially enamored of Australia’s decision to spend over $30 billion on a government-owned fiber-to-the home network. Three years later, the “National Broadband Network” is behind schedule, over budget, and falling far short of the subscribership levels needed to break even.

In a paper released by AEI today, I argue the other side of the case — that is, that broadband is part and parcel of the Internet ecosystem, and ought to be treated like other Internet sectors — applications, content, devices — from the perspective of competition policy. Specifically, rather than treating broadband as a public utility and subjecting it to common carrier requirements, as proposed by the current Federal Communications Commission, broadband ought to be subject to antitrust law.

The competitive dynamics of high-tech markets are complex, involving dynamism, modularity, network effects, and multi-sidedness, and there are no simple rules for when government intervention is appropriate. But one thing is certain: As I explain in my paper, “it is no longer possible to distinguish meaningfully between the competitive characteristics of broadband markets and other [information technology] markets.” In particular, like other high-tech markets, the rapid innovation seen in broadband is due to ongoing investments in R&D and infrastructure. Imposing open access requirements destroys the incentive to engage in innovation by, in effect, privatizing the risk and socializing the profit.

At an AEI event earlier this month on “Google and Antitrust,” it was clear that high-tech industries continue to pose challenges for antitrust enforcers. But no serious person thinks we need a Federal Search Engine Commission, a Federal Social Networks Commission, or a Federal Operating Systems Commission. By the same token, it’s time to start transitioning broadband networks away from public utility regulation by the FCC and into the far less intrusive arena of antitrust.

One thought on “Broadband competition in the internet ecosystem: A conflict of visions

  1. Here’s the basic question framed in already existing infrastructure – our electric grid.

    How much of the country would have never been wired if it was purely a economic business decision?

    How about roads? do electric (cable and internet) companies own the land along the road where they string their lines?

    If they had to actually buy that right-of-way how many more areas would be lacking electricity because it’s not economic?

    Have electric companies benefited from govt subsidies to expand their network?

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