Is There a Role for Common Carriage in an Internet-Based World?

Abstract

During the course of the network neutrality debate, advocates have proposed extending common carriage regulation to broadband Internet access services. Others have endorsed extending common carriage to a wide range of other Internet-based services, including search engines, cloud computing, Apple devices, online maps, and social networks. All too often, however, those who focus exclusively on the Internet era pay too little attention to the lessons of the legacy of regulated industries, which has long struggled to develop a coherent rationale for determining which industries should be subject to common carriage. Of the four rationales for determining the scope of common carriage — whether industry players (1) hold themselves out as serving all comers, (2) are “affected with a public interest,” (3) are natural monopolies, or (4) offer transparent transmission capability between points of the customers choosing without change — each has been discredited or is inapplicable to Internet-based technologies.

Moreover, common carriage has long proven difficult to implement. Nondiscrimination is difficult to enforce when products vary in terms of quality or cost and forecloses demand-side price discrimination schemes (such as Ramsey pricing) that can increase economic welfare. In addition, the academic literature has long noted that the obligation to keep rates reasonable is difficult to apply, has trouble accommodating differences in quality, provides weak incentives to economize, creates systematic biases toward inefficient solutions, raises difficult questions about how to allocate common costs, deters innovation, and requires collusion by creating entry barriers, standardizing products, pooling information, providing advance notice of any pricing changes, and allowing the government to serve as the cartel enforcer. Three historical examples — early local telephone companies known as competitive access providers, the detariffing of business services, and Voice over Internet Protocol — provide concrete illustrations of how refraining from imposing common carriage regulation can benefit consumers.

Keywords: telecommunications regulation, common carriers, competition, monopoly, market power, price discrimination, infrastructure, information services, Comcast Corp. v. FCC, Open Internet Order, VoIP, product differentiation, allocative efficiency, just and reasonable rates, market failures

JEL Classification: K23, L51, L96, L98, O31, O38