Broadband Openness Rules are Fully Justified by Economic Research
Communications & Strategies, No. 84, 4th Quarter 2011, pp. 127-151
25 Pages Posted: 12 Jan 2013
Date Written: 2011
This paper is an outgrowth of the filings in the FCC's broadband openness proceeding that focused on the issue of networks neutrality. Newly available data confirm that competition in the broadband access marketplace is limited. Wireless broadband access services are unlikely to act as effective economic substitutes for wireline broadband access services and instead are likely to act as a complement. Nor will competition in the Internet backbone marketplace constrain "last mile" broadband access providers. The last mile's concentrated market structure, combined with high switching costs, provides these providers with the ability to engage in practices that will reduce social welfare in the absence of open broadband rules. Allowing broadband providers to charge third party content providers will not necessarily result in lower prices being charged to residential Internet subscribers. The effect of open broadband rules on broadband provider revenues is likely to be small and can be either positive or negative. Price discrimination by broadband providers against third party applications and content providers will reduce societal welfare for numerous reasons. This reduction in societal welfare is especially acute when price discrimination is taken to the extreme of exclusive dealing imposed on content providers. Antitrust and consumer protection laws are insufficient to protect societal welfare in the absence of open broadband rules.
Keywords: network neutrality, Internet, two-sided market, discrimination, prioritization, market power, broadband, access pricing, AT&T, Verizon, Google
JEL Classification: L1, D4, L12, L13, C63, D42, D43
Suggested Citation: Suggested Citation