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February 22, 2007
‘The Dreadful Regulatory Model of the Past’
So says Adam Thierer on the PFF blog in one of a flurry of responses to an FCC petition by Skype, the principle of which is supported in a recent paper by Columbia University Professor Timothy Wu, that calls for network neutrality rules to be applied to wireless networks.
The best thing that could be said is that this development further sharpens the network neutrality debate—getting away from the “Save-the-First-Amendment” rhetoric and placing discussion on the real question: Should the government impose price controls, limitations third-party agreements, and other regulations on the transmission of Internet content in the name of protecting consumers?
Until now, net neutrality was aimed only at the wireline companies, which indeed were once neutral carriers, but by technical necessity, not law. By calling for regulation of wireless carrier business, Wu and Skype have opened a new front—against a network service where neutrality never existed. Their call for wireless net neutrality exceeds what’s contained in the Snowe-Dorgan Internet neutrality bill or the neutrality agreement the FCC extracted from AT&T in return for approval of its BellSouth acquisition.
Wu’s paper and the Skype petition take issue with the way wireless carriers work closely with both handset manufacturers and content providers to deliver voice and data services. They are correct in that carriers like AT&T, T-Mobile, Verizon Wireless, Vodafone and Sprint Nextel work closely with hardware and software vendors to design browsers and bundle services. But its highly questionable when. without any real evidence, they declare, as Skype does, that these agreements are “to the detrmint of customers.”
Their solution is to demand legal barriers between otherwise complementary players in the supply chain for mobile information services. Under the Wu-Skype model, a wireless carrier—even though it may be buying 1 million phones from a vendor such as Motorola or Nokia—and has heavily researched what customers want from a device—would not be able to specify the features or operating system those phones would use. It would not be able to approach companies like Jamdat or Disney to package their content and applications with their service, or make their over-the-air purchase and download easy (considering the limits of the typical 12-button telephone keypad). Under the Wu-Skype model, wireless carriers would be cut out of any role in the value chain form mobile services.
As Thierer writes:
“In essence, therefore, this proposal represents a call for the forced commoditization of cellular networks and would necessitate at return to the rate-of-return regulatory methods of the past. It would freeze network innovation in place and stop of the clock on one of the great American success stories of the past quarter century. For these reasons, I will argue that it is essential it be rejected.
“This static, zero-sum mentality dominates much of the thinking over Net neutrality regulation and explains why commons proponents are preoccupied with demand side concerns (i.e., who gets access and at what price) while they blithely assume away supply side considerations (i.e., how networks get funded, built, expand and innovate).”
Still, the biggest failure in the argument is to truly demonstrate either monopoly conditions or consumer harm. Wu and Skype would have you believe that the global wireless industry is a cozy little cartel--a “textbook oligopoly” in Wu’s words. Well, any economist will tell you that monopoly markets are characterized by stagnant growth, low investment and rising prices. Yet, according to the Telecommunications Industry Association, the current level of 67 percent penetration is expected to reach 88 percent by 2009. Elsewhere, TIA has reported that spending by the wireless industry is growing at double digit rates. Scott Wallsten shows here how per-minute revenues prices have declined from roughly 59 cents to 7 cents since 1992. Meanwhile, the annual 3GSM World Congress wrapped up last week in Barcelona after drawing 55,000 attendees and 1,300 exhibitors. Some cozy cartel, huh?
Far from stagnant or complacent, the telecommunications industry as a whole, and the wireless industry in particular, is as dynamic as ever. Customers choosing wireless in greater numbers, services are expanding to include Internet and video, revenues are growing and investment is accelerating.
Says Thierer:
“…Few sectors have been more innovative over the past decade than the wireless sector. New technologies and services have been developed in the past, and will continue to be developed in the future, but, again, only if the innovators: (1) believe they can reap the fruits of the significant investments they will need to make and, (2) are not directly or indirectly prohibited by government from entering new markets, providing new services or experimenting with different business models and even network architectures.”
Posted by steve.titch at February 22, 2007 12:50 PM
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