Competition, Innovation and Net Neutrality

Here we continue our conversation with Vinton Cerf and consider the implications of the current broadband market and FCC regulations on competition and innovation.

There are at least two areas where competition is of concern when it comes to the net neutrality debate. One involves the lack of competition among broadband providers (cable and telephone companies) in providing the physical connection to the Internet and the other involves the issue of discriminatory practices by broadband providers against competing applications or services online. Jeff Chester, executive director and founder of the Center for Digital Democracy explains that since cable and telephone companies provide more than 90 percent of the broadband connections in the United States, they “believe they are in a prime position to become the key Internet gatekeepers” (2007).

In a given community residents typically have a choice between only two broadband providers. Such duopolies are widely considered insufficient competition, but opponents of net neutrality argue that the “cable and telephone companies are competing aggressively with each other in an attempt to increase their market shares by improving service (higher speeds) and lowering prices” (Lenard and Scheffman, 2006). While cable and telephone broadband providers may be involved in an aggressive game of one-on-one, consumer choice remains limited. Vinton Cerf, Google’s Vice President and “Chief Internet Evangelist,” explained that “at least 10% of Americans have NO broadband access, 30% have a choice of only one provider, and no more than 60% have a choice of two. There isn’t a great deal of competition for broadband access in the US.” This lack of competition is largely due to the Federal Communications Commission’s (FCC) loosening of regulations which has allowed telephone and cable companies to consolidate, “in part because companies argued they would use the extra profits to modernize transmission lines” (Clemmitt, 2006).

In addition to the iron-grip that telephone and cable companies have on the market of providing broadband connections, they also maintain the ability to discriminate against competing online applications and services in favor of their own. Since the Internet has not been considered by the FCC to be a communication service but rather an information service, the common carriage requirements that govern telephone do not apply (Yoo, 2006). Vinton Cerf explains:

In the US, the FCC has declared that Internet is not a communication service but is an information service so it is not regulated under Title II of the 1934 and 1996 Telecom Acts. In choosing this characterization of Internet service, they ignore the layered structure of the Internet, its basic communications functionality at the lowest levels of protocol, and thus invite the potential for anti-competitive behaviors by broadband providers with substantial market share or even unique access to, e.g., residential users.

The anti-competitive behaviors Cerf refers to could set up barriers for innovators to enter and flourish in the Internet economy. Moreover, broadband providers would also like to set up a tiered Internet through which they would provide preferential treatment in the form of faster connection speeds to those who could afford and would be willing to pay a fee while others would be relegated to “slow lanes.” Even though Internet companies, such as Google, pay a fee to connect their applications and services to the network, they would potentially be double-charged, having also to pay additional fees to be in a “fast lane”, and possibly to the broadband provider of the consumers they are attempting to reach. “One could imagine that many if not all broadband providers might like a business model in which all application service providers have to pay not only to get onto the Internet but also to reach other subscribers by paying fees to the broadband service providers serving those subscribers,” Cerf said. “Google and other application service providers typically pay a great deal to ISPs to access the public network. Moreover the residential broadband users are paying for what they believe is access to the entire Internet, without discrimination.”

Overall, broadband providers seem to wield considerable power and stand to gain enormous benefits in their favorable position as near sole providers of Internet connections and as “gatekeeper” with the ability to created a tiered structure and discriminate against competitors. Under such conditions, “innovation of competitors might be stymied, leaching incentive for the development of new products and services,” said Cerf.

If the FCC is going to allow broadband providers near-monopoly status, it seems only prudent that they institute net neutrality principles safeguarding the Internet from discriminatory practices ensuring lively competition and un-stifled innovative efforts. Cerf hopes that “consumers will appreciate how important it is that their broadband access to the Internet not be constrained in an artificial fashion by the introduction of limits on their ability to reach services not supplied by their broad band carriers.” If a law is not enacted the “provision of software tools to detect unfair, discriminatory practices by broadband service providers may serve to keep inappropriate behaviors and practices from propagating,” said Cerf.

References

Chester, J. (2007). Net Neutrality and the Supermedia Monopolies. Extra!, 20 (2), 26-29.

Clemmitt, M. (2006). Controlling the Internet: Can it survive as an uncensored global network? CQ Researcher, 16 (18), 409-432.

Lendard, M. T. & Scheffman T. D. (2006). Distribution, Vertical Integration and The Net Neutrality Debate. In T.M. Lenard & R.J. May, Net Neutrality or Net Neutering: Should Broadband Internet Services Be Regulated? New York: Springer Science.

Woerner, P. (2007). Email Interview with Vinton Cerf. Conducted on October 10, 2007 for http://pwmedia.blogspot.com/

Yoo, C. S. (2006). Network Neutrality and Competition Policy: A Complex Relationship. In T.M. Lenard & R.J. May, Net Neutrality or Net Neutering:Should Broadband Internet Services Be Regulated? New York: Springer Science.