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June 28, 2007

The FTC Says No to Net Neutrality Regulation

In a non-binding staff report, which the Commission voted to authorize the staff to issue, the Federal Trade Commission recommends against net neutrality regulation.  Despite a flaw in their analysis of the state of broadband competition in the US today, I agree with their conclusion because such regulation is likely to do more harm than good and could help entrench the existing telco/cable company duopoly and suppress innovation. 

They conclude that the FTC can act under existing antitrust law if there were demonstrated harm from and evidence of an uncompetitive market; I disagree with their conclusion that such harm is not amply demonstrated by the US’ rapid decline from an Internet access leader to a pathetic follower.

The report is right on in saying that more competition is the answer to fears of discrimination and anti-consumer actions by the existing suppliers.  Their premise that competition in broadband provision is increasing meaningfully in the US is premature; their assertion that there’s been no demonstrated harm from the current duopoly is just plain wrong.

The report points out that only one relatively small case of anticompetitive blocking has been documented (the Madison River Case – in which the FCC took effective action to stop a rural carrier and ISP from blocking VoIP).  However, the report does not deal with the threats of both at&t and Verizon to advantage their own services in the future nor does it attribute the miserable US showing compared to other countries in quality, price, and availability of broadband access to the ill-effects of duopoly.

The report does look at South Korea, Japan, and the Netherlands as examples of countries where broadband access is much better in all three of these dimensions than in the US.  It chronicles the fact that each of these countries forced its former monopoly carrier to open up its access lines on REASONABLE terms to competitors – something that didn’t happen here despite some gestures in that direction.  The report whimps out in using the greater population density of these countries as an excuse for their success.  Population density could be an excuse for poor service in rural areas (even though I don’t buy that this must be the case); but population density doesn’t explain why US cities fall far behind their foreign rivals in both availability of true highspeed broadband and in the price of what broadband is available.

It is important the FTC recognize harm when it sees it.  The report does say that, should there be anticompetitive harm, the commission can act under existing antitrust and consumer protection laws.  Trouble is that the FTC has so far chosen not to recognize the harm currently being done.

Optimistically, the report points to increased competition from muni projects, WiFi, fixed wireless and satellite.  Forget satellite – it does well in availability; it is insufficient for modern access needs and modern IP applications and will stay that way as long as light refuses to travel any faster than the laws of physics allow. There are instances like Burlington Vermont where muni-fiber is providing meaningful competition; that’s a start although Burlington is probably the minimum size for a city doing this on its own.  Vermont as a whole is making a public commitment to infrastructure build out.

Fixed wireless certainly can provide good service but its penetration is still low.  However, this is a case where it is crucial to recognize the existing duopoly and set the rules for the upcoming auction of 700MHz frequencies to assure that the result is heightened competition rather than increased concentration..

We do have a lack of competition in broadband provisioning; we are being hurt by it; the harm is not (yet) discriminatory treatment by the duopolists. Since there is harm, the FTC should look at acting under antitrust law; meanwhile, we need to encourage all forms of potential competition to the duopoly.

Related posts:

Internet Neutrality – Tough Issue

Time to Write the FCC (about the upcoming 700MHz auction)

Internet Alternatives; A Good Beginning

WISP to the Rescue (about fixed wireless)

Why Satellite Internet Access Sucks

Flash! Vermont Legislature Passes E-State Bill

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