Net Neutrality Could Harm Competition, Ex-FCC Chief Economist Says

Adding bandwidth can cure congestion but “bandwidth isn’t free, so there has to be some incentive to deploy,” said Simon Wilkie, another former FCC economist and now head of the Center for Communications Law and Policy at the University of Southern California. Arnie Berman, Cowen and Co. chief technology strategist, dove into the oft-invoked highway metaphor. Neutrality advocates talk about toll roads costing users more, Berman said, but a toll-free data highway would have to be a ridiculous 30 lanes across to accommodate buses -- that is, heavy video traffic -- which are three lanes wide. It’s expensive to lay more fiber to increase bandwidth, but with market-based pricing networks can use bandwidth more efficiently, so the government should avoid “ambitious micromanagement,” Hazlett said.

Networks should be barred from “foreclosure” of services with which a network has no agreement, Wilkie said, but before its regulates that way the FCC should “wait and see,” he said. By the foreclosure standard a provider could de- prioritize video traffic in general if it wasn’t “playing favorites” with some applications, Berman said. Wilkie said he could “live with” Comcast creating a theoretical competitor to YouTube and slowing that site’s streaming, “as long as it’s disclosed.” Proponents of regulation should have to show how their rules would help consumers, Hazlett said: “These markets have evolved in large measure without regulation of interconnection.”

Markets derive “tremendous efficiencies” -- and consumer benefits -- from discrimination, Hazlett said. Google got “the break of its corporate life” when, for a fee debated bitterly by Google management, AOL agreed to make it the default search engine in AOL’s old browsing client, Hazlett said. AT&T “gave away the store” to be the carrier with an exclusive on the iPhone, reversing the pattern of carrier dominance over phone design, he said. Verizon responded with a “kick-ass” phone that seems to mirror the iPhone’s design, but its walled-garden approach hasn’t done well against the iPhone’s open-browsing platform, Berman said. Ironically, Apple, the prime example of a closed platform, is a “hero” for spurring mobile Web browsing, Hazlett said.

The fixed-line telephony market has seen extensive competition because cable companies were allowed to dedicate a channel for “digital voice,” keeping companies like Vonage from getting such jitter-free service, Hazlett said. Japan’s DoCoMo basically created the market for wireless Internet with its popular i-mode service, a walled-garden approach Japanese rivals now are copying, Hazlett said. When a listener told Hazlett that Internet video startup Joost’s recent hiring of a Cisco executive was “somewhat incestuous,” he replied that Washington in general is incestuous, adding that such business deals bring “enormous dynamism.”

FTC Chief Economist Patrick Degraba sees no “empirical” consensus that the Internet access market is anticompetitive or will be without intervention, meaning it would be premature to engage in antitrust intervention, he said. Some lobbyists tell the FTC that wireless broadband to the home by new entrants is “just around the corner,” others are skeptical, and still others see sufficient competitive pressure between cable and telcos in each market, he said. If the old AT&T had gone into cahoots with American Airlines to keep people from using other phone companies to book flights, that would be an easy antitrust matter, Degraba said. Nothing like that exists in the Internet world, he said.

Network-management practice disclosure could resemble SEC corporate disclosure statements, a format every public company knows, Berman said. Wilkie proposed a “simple menu” by which networks could tell consumers in terms of use how they treat their networks: no management, some traffic- shaping using header data in packets, shaping based on type of traffic, or shaping based on identity, such as a formal relationship with an e-mail provider. -- Greg Piper

Internet Video Policy Symposium Notebook…

The FCC should have tackled broadband data collection “a long time ago, but I'm glad we're doing it now,” Commissioner Jonathan Adelstein said in a Tuesday night keynote at the Internet Video Policy Symposium. “We are making major improvements,” he said. Adelstein largely revisited previous themes, including a call for a national broadband strategy. “We are competing with people who are planning ahead,” he said. More U.S. broadband capacity would quell net neutrality concerns by eliminating the need for controversial network management, he said, citing Japan’s experience. Adelstein was pleased that the FCC held a hearing on net management last month in Cambridge, Mass., he said. Adelstein didn’t know who won the just-completed 700 MHz auctions, he said, adding that the FCC should have ensured the auction would create a third broadband pipe.