Updated on July 11th, 2011
Many have noted that net neutrality regulations are in essence price controls. (See this post at The Technology Liberation Front.) In his statement proposing a “third way” to achieving net neutrality, however, Chairman Genachowski said his net neutrality regulations would “not [regulate] broadband prices or pricing structures.” Given the negative history of Title II pricing regulation, sidestepping the implicit price regulation issue has been critical to the pro-net neutrality movement’s narrative. Netflix CEO David Hyman must have missed the memo.
In a recent op-ed in the Wall Street Journal (subscription required), Mr. Hyman urged regulators to prohibit usage-based broadband pricing and bandwidth caps. (Well, to be fair, he used a metaphor about a frog and a pot of boiling water in lieu of an express request for regulation, but strip away the metaphor, and the intent is the same.) Of course, there is nothing anticompetitive or anti-consumer about usage-based pricing: Mr. Hyman admits that usage-based pricing is a standard pricing mechanism in other contexts, e.g., electricity. So what is his real complaint?
Mr. Hyman’s real complaint is that usage-based pricing and bandwidth caps don’t maximize consumer access to the particular service his company provides. Unfortunately for Netflix, that’s not the relevant question. The government doesn’t (or rather, shouldn’t) regulate pricing to maximize the profits of particular companies or services, and it shouldn’t intervene in the market for broadband access service to maximize the profits of Netflix.
TANSTAAFL, and adding more pricing controls to the existing net neutrality regime would impose costs on everyone. As I’ve posted previously, the business case for fiber deployment already entails considerable risk. Further reducing broadband infrastructure investment incentives to boost Netflix’s profits, when millions of Americans still don’t have access to the best broadband technologies available, would be absurd. In its letter to shareholders describing its Q1 2011 results, Netflix showed 95% growth in operating income and 94% growth in net subscriber additions. That hardly sounds like a company that needs government intervention to “compete.”
At the end of the day, those who oppose net neutrality might be thanking Netflix for making its request for Internet price regulation so transparent – a transparency that often appeared lacking in last year’s net neutrality debates. Net neutrality advocates, however, might be wishing they’d gotten Mr. Hyman the memo.
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Updated on April 26th, 2011
It’s ironic that the FCC is planning on giving the industry a failing grade again this year on broadband rollout (see Electronista article here). While the FCC points its finger at industry, the FCC has been busy adopting policies that discourage broadband deployment. Let’s take a look.
Net Neutrality: Last December, the FCC adopted net neutrality regulations (see order available here). These rules shift potential Internet revenue from service providers – the companies that actually deploy broadband infrastructure – to software companies and device manufacturers. The obvious result is to discourage investment in costly broadband infrastructure.
Incentive Auction Authority: Making more spectrum available through incentive auctions would promote significant broadband deployment. The FCC is now working toward this goal, but in 2010, the FCC made net neutrality its top priority rather than incentive auctions. Had the FCC focused on the need for more spectrum in 2010, the FCC might have obtained incentive auction authority already by striking a deal with Congressional Republicans opposed to net neutrality. Instead, the FCC is fighting with broadcasters over incentive auctions in 2011, with the election cycle looming ahead.
Universal Service: Universal service reform is one of the most important regulatory actions the FCC could take to promote broadband deployment. But, while the FCC was busy working on net neutrality regulations last year, universal service reform languished, and another opportunity to promote broadband deployment now was lost.
Roaming: The FCC found in 2007 (see order here), that mobile wireless roaming regulation discourages infrastructure-based broadband deployment if roaming is required in markets in which the requesting service provider holds spectrum licenses. In 2010, however, the FCC changed its mind (see order here), and in 2011 (see order here), it imposed new roaming requirements on broadband service providers. It’s difficult to see how allowing one provider to use another provider’s infrastructure rather than build its own network will promote more infrastructure deployment.
If broadband deployment is lagging, the FCC should point the finger at itself. The FCC needs to get back to the task of implementing policies that promote broadband deployment rather than imposing heavy handed regulation. For starters, the FCC can focus on making more spectrum available and reforming the Universal Service Fund. That would go a long way toward reversing the FCC’s troubling trend of discouraging broadband deployment.
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Updated on February 16th, 2011
Today’s House Commerce Committee hearing highlighted the current existential crisis at the FCC. Market analysis has been the primary driver of FCC decision-making. Although there has often been sharp disagreement among the Commissioners, that disagreement has typically centered on the reliability of the market analysis supporting regulatory action. In the open Internet order, the FCC didn’t rely on market analysis to reach its decision (or at least, not one that any reasonable economist would view as reliable). At today’s hearing, some said that market analysis isn’t necessary to regulate.
If market analysis isn’t necessary, then what is the empirical basis for imposing regulation? What provides a limiting principal for framing the debate? When asked for evidence of a problem with the Internet justifying regulation, Commissioners relied on the opinions of commenters who expressed concern in the proceeding. But nobody said whether these commenters offered any empirical evidence for their opinions (i.e., any market analysis) or whether these commenters constituted a statistically relevant sample.
This is the crux of the FCC’s existential crisis: the reliance on subjective perception to impose regulation. Reliance on anecdote is the antithesis of a data-driven approach. This is in part why nobody knows what a “net neutrality” violation looks like. “As Eliza Krigman said in a recent PoliticoPro article (no link available), “Internet service providers and consumer watchdogs disagree on what constitutes a net neutrality violation.” Without some empirical framework for analysis, it’s anybody’s guess.
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Updated on January 4th, 2011
It’s the New Year – a time when we take stock of last year’s events. Below is my list of the top ten communications decisions of 2010. Like last year, these aren’t presented in order of significance.
1. Net Neutrality (a/k/a “Open Internet”)
This was the big one in 2010. The FCC delivered a late December Christmas present to broadband providers by imposing net neutrality obligations. Among other things, the order signaled that this FCC does not believe market analysis is necessary to impose significant regulation – regulation that will affect the very markets the FCC declined to analyze. This is a major departure from Congressional direction and FCC practice for nearly two decades. The FCC’s willingness to regulate without evidence of market failure represents a major triumph for public interest groups, who have long argued that market failure is not a prerequisite to regulation.
2. “Bill Shock”
Another NPRM makes the list. The FCC is proposing rules that would require mobile service providers to provide usage alerts and information intended to assist consumers in avoiding unexpected charges on their bills. Like the net neutrality order, the FCC doesn’t do any market analysis here, because this FCC doesn’t believe competition is sufficient to protect consumers. (If the FCC keeps this up, there are going to be a lot of economists out of work.)
3. SkyTerra (a/k/a LightSquared)
A trio of Bureaus granted the transfer of SkyTerra’s MSS license, including its ancillary terrestrial component authority, to Harbinger Capital. As I noted in a previous post addressing this order at length, the Bureau trio decided to accept ostensibly voluntary conditions related to Harbinger’s plans to implement a terrestrial LTE network without assessing the state of terrestrial competition. As noted above, this is part of a trend at this FCC of ignoring market analysis. Perhaps more importantly, this order paved the way for Harbinger to deploy a massive terrestrial network using un-auctioned (i.e., free) satellite spectrum. It turns out that cellular providers were right back in 2003 when they argued that ancillary terrestrial component would ultimately become ancillary satellite component. Read the rest of this entry »
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Updated on October 4th, 2010
At the last FCC meeting, Free Press handed out waffles to signify their distaste with Chairman Genachowski’s net neutrality deliberations. I think their waffles were distasteful; I also think they were unfair. In his most recent statement on net neutrality, the Chairman said, “the issues are complex, and the details matter.” Could it be that what Free Press perceives as “waffling” is actually thoughtful deliberation in the wake of extended negotiations and comment regarding net neutrality issues? I think so. Read the rest of this entry »
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