Friday, June 30, 2006

A connectivity compromise

The effort to prevent US consumer broadband providers from charging anyone except end-users for improved quality of service has stalled in the Senate. Andrew Orlowski skewers the paranoia of the Neutralistas as only the Register can. He writes:

“Rather than confront the underlying, and very real problems it seeks to redress, the blogging wing of the US left has instead created an alternative cyber-reality - populated by phantom demons, imaginary conspiracies, and bogeymen. [...] The immediate consequence of the focus on "Neutrality" has been to permit the cable lobby to write the most anti-competitive bill for thirty years. Perhaps they knew the bloggers were only playing a game, and wouldn't think to look at the rest of the legislation.”

People may at last be in a mood for a compromise. Here’s one: wireline network operators may not block traffic but they can prioritize it, as long as any content provider can buy prioritized access on equal terms. The conditions can be lifted if true competition in consumer broadband materializes.

The situation

There is fear on both sides:

  • The content community fears that the network operators could use their market power to integrate vertically, lock out new entrants, and extract rents.

  • The operator community fears that anti-competition rules will have unintended consequences that suppress their profitability below sustainable levels.
  • One can address both sets of fears by recognizing that market power should be mitigated, while taking into account that competition in last-mile broadband would reduce the need for such actions.

    A solution: the Open Offer Internet

    I start with the premise that there is insufficient competition in last mile high speed broadband networks, and that this concentration is likely to suppress innovation and raise prices, thus decreasing consumer welfare. This situation justifies the imposition of "Open Offer" conditions on both telephone and cable companies that offer broadband access:

    1. No traffic blocking; all sites to be accessible to consumers

    2. The operator can enter into arrangements with 3rd parties to improve content delivery, but this offer should be available on reasonable and non-discriminatory terms (taking into account discounts etc.) to any comer.

    3. Operators shall interconnect with all other broadband networks on reasonable and non-discriminatory terms.

    This is not a perpetual mandate, and can change if the competitive situation improves. There would be a review every few years:

    • The FCC reports on compliance with the Open Offer terms. The FCC can get access to confidential company information to make this assessment, but may not make such information public.

    • Operators can request for Open Offer conditions on them to be lifted, if they can prove that the markets they operate in are all competitive.

    • The FCC can (re)impose Open Offer conditions on operators if they see anti-competitive behavior.


    Operators may offer tiered service tiers to consumers if they wish.

    I don’t use the FCC definition of broadband; saying that anything faster than 200kbps is broadband is just silly. Today, “high speed broadband” effectively means speeds faster than 2 Mbps. This will always be a moving target, so it’s better to define it in relative terms. For example: define the threshold of high speed broadband as the lowest speed provided to the top 20% of homes.

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