The Semi-Vibrant Internet

The Washington Post has an editorial opposing network neutrality. Berin Szoka likes it. Tom Lee doesn’t. Tom says it’s misleading to talk about a “vibrant and well-functioning marketplace” for connectivity:

In truth, it’s stagnated: in North America, prices remain steady — at a rate above what much of the developed world pays — while ongoing improvements in speed show little hope for of catching up with the networks of countries significantly poorer than the US. If the Post wants to argue that net neutrality will make the situation even worse, fine. But they don’t even seem to realize that by global standards our domestic broadband marketplace is an underperformer.

I haven’t analyzed the cross-country data closely, but I do think that network neutrality opponents sometimes exaggerate the level of competition in the broadband marketplace (conversely, network neutrality supporters sometimes understate it). Two competitors is much better than one, but it’s not as good as four or six or twenty.

But I think it’s a mistake to focus too much on residential broadband access. Let’s say Tom’s right that the the residential broadband market is a stagnant duopoly in which American firms lag far behind their peers in other developed countries. This might be an argument for mandating network neutrality for residential broadband. But Genachowski is proposing something much more ambitious. He appears to want to regulate, among other things, the mobile market and the Internet backbone. The wireless market is significantly more competitive than the wired market (4-6 national carriers depending on how you count), and the backbone and commercial connectivity markets are even more competitive than that, with dozens of firms in direct competition with one another.

The fact that Comcast has only one serious competitor in Philadelphia is not an argument for regulating Level 3 or T-Mobile. If the argument for network neutrality has to do with a lack of competition, then any regulations that get passed should be focused on the areas where competition is lacking and can’t easily be increased. The backbone market is extremely competitive already, so it’s hard to see an argument for expanded regulation there. And if the wireless market is uncompetitive, the right policy response is opening up more spectrum, not burdening the spectrum holders we already have with red tape.

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2 Responses to The Semi-Vibrant Internet

  1. quanticle says:

    In lieu of regulation, could it be feasible to take measures designed to increase competition in the home broadband marketplace? It seems to me that the common point shared by both supporters and opponents of network neutrality is that there’s insufficient competition in the home broadband market. The difference between the two camps seems to be on what to do about it. Supporters of network neutrality regulation view the home broadband market as a failed one, or one where natural monopolies exist. Therefore, to them, government intervention is necessary to level the playing field. To opponents of network neutrality, the home broadband market is not a failed one, but a still fledgling market, where not all means of delivering broadband have been tried. To them, the government should not intervene in the home broadband market, since that would essentially “freeze” it in its current state, stanching further innovation.

    My thought is that perhaps the government should intervene in the form of subsidies, not regulations. Perhaps making it easier for new entrants in the broadband market would increase competition, making the network neutrality debate moot. At the same time, if competition did not significantly increase, even with government support, it would demonstrate that the home broadband market is a natural monopoly and would make the political case for regulation easier.

    What do you think?

    – quanticle

  2. Tom Lee says:

    I agree: I don’t think that the underperforming U.S. marketplace is much of a positive argument for net neutrality. My point was just that the negative neutrality argument premised on a well-functioning U.S. marketplace is built on sand.

    But improving existing market efficiency isn’t the argument for neutrality, which is why the presence of robust competition at the backbone level isn’t really relevant. Rather, the argument is that there are good reasons for believing that the class of “innovations” that are likely to arise in the absence of neutrality regulation would produce substantial negative externalities for consumers and non-ISP business operators.

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