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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.

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:

What If Columbo Investigated Special Access?

A new coalition of some struggling broadband competitors, NoChokePoints.org, is making claims that the "special access" market is being "choked" by lack of competition and is urging the FCC to reverse course and regulate lower prices for these competitors.

  • "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.

To solve this controversy and determine who is actually "choking," or holding up whom, I thought it would be instructive and interesting to consider how the beloved TV detective Columbo would apply his common sense questioning to get to the bottom of this whodunit.

The Flawed Economics of Broadband Open Access in the U.S.

A post by a Google policy analyst yesterday attempted to make the economic case for open access in the U.S. and suggested reasons why American infrastructure providers should embrace a mandated open network model. This proposed theory warrants a strong practical rebuttal. This proposed case for the economics of open access does not hold up to close scrutiny, because it has fatal flaws in both logic and economics.

 

I.                   The fatal flaw in logic in the case for the economics of open access:

 

Since the post assumes broadband markets everywhere are basically the same, it concludes that the open access experience in some European countries is relevant and applicable to the U.S. situation. The fatal flaw in logic here is the core assumption that European and U.S. markets are factually analogous. They are not. They are substantially different factually and structurally as I will explain in detail.

Exposing the Biases in the Broadband Policy Debate -- My new white paper

Invited to speak at the ITIF forum on ITIF's white paper: "It's Time to End the Broadband Policy Wars" -- I so strongly disagreed with the framing bias of that white paper and the broadband policy debate in general that I decided I needed to counter it by writing my own white paper:


  • Don’t be Fooled by the National Broadband Policy “Straw Man”

     

    Exposing Three Hidden Policy Biases of Broadband Policy Proponents

The abstract of my six page paper is below:

More evidence no broadband industrial policy is needed

A recent study by the Leichtman Group found 70% of American broadband subscribers are very satisfied with their service, and relatively few are actually seeking faster Internet access.

  • This suggests the drumbeat for a national broadband industrial policy, because America's Internet is too slow and falling behind the rest of the world, is just empty rhetoric and wishful assertions by Big Government types.
  • As I have blogged before, the facts are not the friends of those screaming for de facto nationalizing the Internet.  

Bottom line:  The more one learns about the facts about what benefits American broadband consumers actually enjoy, and what they demand in the future, it is not what the Big Government folks claim.  

U.S. remains #1 in 2008 World Competitiveness Yearbook -- The U.S. isn't falling behind

The 2008 World Competitiveness Yearbook just came out and the U.S. is ranked #1 in world competitiveness again -- for the fourteenth year in a row.

  • This ranking by the Swiss IMD is the third major, world-respected, independent ranking that concluded the U.S. is not falling behind the rest of the world in competitiveness.
  • These three different independent assessments are in stark contrast to broadband critics' call for abandonment of free-market competition policies in favor of a more regulatory broadband industrial policy. 
    • In November 2007, the U.S. ranked #1 in the World Economic Forum's Global competitiveness Report for 2007-2008.
    • Last year, the Economist Intelligence Unit's latest Global Digital Rankings had the U.S. tied for second in the world.

Bottom line: Pro net neutrality and pro-regulation proponents love to jump on isolated data or studies like the OECD broadband rankings to justify a reversal of free-market competition policies in favor of more command and control government industrial policies.

However, facts are pesky things.

Dick Armey's clarity of thought and perspective on net neutrality

Be sure to read Dick Armey's succinct analysis and perspective on net neutrality in his op ed: "Spare the Net."

  • I am a big fan of Former House Majority Leader Dick Armey -- he is one of the true free-marketeer giants of our era.

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Q&A One Pager Debunking Net Neutrality Myths