Constructing An Effective Statutory Regulatory Framework for Broadband

Constructing An Effective Statutory & Regulatory Framework for Broadband Networks Chuck Goldfarb Congressional Research Service Phoenix Center Symposium December 1, 2005 Disclaimer: Views presented here are personal & do not necessarily reflect those of Congressional Research Service

The Objective • Construct statutory & regulatory framework that fosters innovation & investment in both physical broadband networks and in applications that ride over those networks… • While also meeting the many non-economic objectives of U. S. policy, such as universal service, homeland security, public safety, etc.

Where We Appear to Be Today • Current statutory & regulatory framework must be reformed • Market convergence is technological spillover reducing entry costs so firms already having single-use networks can use those networks with relatively inexpensive upgrades to offer multiple services over single platform • Huge sunk up-front fixed costs will limit number of efficient broadband networks

Where We Appear to Be Today • Cable & telephone companies pursuing business plans & regulatory strategies with same key elements: • • Deployment of asymmetric proprietary IP network driven by demand for video services, which represent “killer application” Video services require Quality of Service assurances not available on public Internet

Where We Appear to Be Today • • Broadband network providers must control access to their networks to manage bandwidth needed to assure quality of their own video (and other) service offerings Hence access to proprietary network should not be regulated • Form control takes will affect/determine ability of independent applications providers to compete with integrated network providers

The Issue: • If allowed to control access, broadband networks providers might have both incentive & ability to constrain competitive provision of applications • What market constraints or incentives exist to keep broadband network providers from making strategic capacity, access, and/or pricing decisions? • Duopoly broadband network market structure is unlikely to provide market incentives & constraints needed to foster efficient innovation & investment in both physical

What are Statutory & Regulatory Options? • Network neutrality and/or open access requirements • Policies to foster competitive entry by wireless or other alternatives

Network Neutrality and/or Open Access Requirements: Some Questions • Possible to construct simple, but operational, network neutrality or open access requirements that will neither create opportunities for strategic litigation nor require FCC to get involved in thousands of network provider/applications provider negotiations?

Network Neutrality and/or Open Access Requirements: Some Questions • Can simple pricing rule (stating network providers cannot restrict customer access to any application, but can charge for bandwidth usage) work? • • How would rule address situation of broadband provider reserving so much network bandwidth for its own services that competitors had too little bandwidth available to offer service of equality? Would it matter if broadband network provider charged end users less for bandwidth when they purchased that provider’s video & voice services than when they purchased independent

Network Neutrality and/or Open Access Requirements: Some Questions • Are network neutrality requirements focusing on end user access to applications sufficient or do applications providers need guaranteed access to broadband providers’ proprietary networks?

Competitive Entry • Who has incentive & ability to provide competitive alternative to cable & telco broadband networks in reasonable time frame? • • Can Wi-Fi make enough difference at margin to constrain cable and telephone companies? Does Google (or Yahoo or some other edge entity) really plan to acquire dark fiber to connect nationwide broadband Wi-Fi network capable of carrying its new bandwidth-intensive applications?

Competitive Entry • • • Will there be federal or state prohibitions on municipal ownership of Wi-Fi or other broadband networks? Is it in interest of any major independent wireless carrier to pursue competitive entry rather than partnering with cable companies? Do content owners believe it is easier to fight piracy in duopoly broadband network market structure than in competitive market structure?

Solutions to Other Issues May Affect Innovation, Investment, & Competition for Broadband Networks & Applications • • • Digital rights management CALEA E-911 Intercarrier compensation Universal service