July 2009 -- Regulations governing broadband networks are being considered. Natural experiments conducted
with respect to “open access” rules yield probative marketplace evidence. Using the metric of
subscribership, policy regimes are compared. Prior to 1Q2003, cable modem service was
unregulated (and has remained so), while digital subscriber lines (DSL) were subject to network
unbundling mandates. Those rules were effectively lifted in 1Q2003 and 3Q2005. Across regimes,
subscriber growth appears significantly and negatively correlated with regulation. By year-end
2006, DSL subscribership was about 65% above the trend established in the regulated pre-1Q2003
era, a difference of eight to ten million households.
A debate is taking place over the optimal economic structure of computer networks. Citing
the dominance of two rival broadband networks in residential markets, net neutrality (NN)
advocates argue that Internet Service Providers (ISPs) will exploit “gatekeeper” positions
to decrease competition in complementary markets, punishing consumers. These
broadband networks are seen to be in a position to extract rents from customers or content
suppliers by blocking (and unblocking) the flow of e-commerce, a variant of the vertical
foreclosure argument (Farrell and Weiser, 2003and Economides, 2007).1
Some see the problem as best dealt with via existing antitrust policies (Kahn, 2007 and
Neuchterlein, 2008), while others advance new remedies. Rules are proposed2 to prevent
broadband ISPs from preferentially supplying improved access to particular applications
(particularly those owned by, or paying, the ISP). Whatever the merits of these policies,
such limits carry costs. The reduced flexibility afforded consumers, ISPs, caching services,
and content providers in contracting for services constrains the range of business models
over which markets may optimize.
Citation
"Natural Experiments in U.S. Broadband Regulation" by Thomas W. Hazlett & Anil Caliskan, Review of Network Economics, Vol. 7, Issue 4 (December 2008), Quick Links: Thomas Hazlett, Anil Caliskan
Related Scholarship
"Tragedy T.V.: Rights Fragmentation and the Junk Band Problem" by Thomas Hazlett, October 2, 2009 (forthcoming publication Spring 2010), Quick Links: Gridlock Economy Conference
"U.S. Wireless License Auctions: 1994-2009" by Thomas Hazlett, ACCC Conference in Brisbane, Australia, July 14, 2009, Quick Links: Thomas Hazlett"
A Welfare Analysis of Spectrum Allocation Policies” by Thomas W. Hazlett & Roberto E. Muñoz, 40 RAND Journal of Economics 424 - 454 (2009), Quick Links: Thomas Hazlett, Roberto E. Muñoz
"Property Rights and Wireless License Values" by Thomas W. Hazlett, 51 Journal of Law and Economics 563-98 (August 2008), Quick Links: Thomas Hazlett
"A Law & Economics Approach to Spectrum Property Rights: A Response to Professors Weiser & Hatfield" by Thomas W. Hazlett, 15 George Mason Law Review 975-1023 (June 2008), a response to "Spectrum Policy Reform and the Next Frontier of Property Rights" by Philip J. Weiser & Dale Hatfield, 15 George Mason Law Review 549-609 (Spring 2008), Quick Links: Thomas Hazlett
"A Rejoinder to Weiser and Hatfield on Spectrum Rights" by
Thomas W. Hazlett, 15 George Mason Law Review 1031-39 (June 2008), a rejoinder to: "Property Rights in Spectrum: A Reply to Hazlett" by Philip J. Weiser & Dale Hatfield, 15 George Mason Law Review 1025-30 (June 2008), Quick Links: Thomas Hazlett
"Optimal Abolition of FCC Spectrum Allocation" by
Thomas W. Hazlett, 22 Journal of Economic Perspectives 103-28 (Winter 2008), Quick Links: Thomas Hazlett
