The Empirical Case Against Asymmetric Regulation of Broadband Internet Access

35 Pages Posted: 14 Mar 2003

See all articles by J. Gregory Sidak

J. Gregory Sidak

Criterion Economics, L.L.C.

Robert W. Crandall

Brookings Institution; AEI-Brookings Joint Center for Regulatory Studies

Hal J. Singer

Econ One

Abstract

The United States has asymmetric regulation of the provision of broadband Internet access service. A cable television system operator is not regulated in its sale of cable modem service. In contrast, an incumbent local exchange carrier (ILEC) that offers digital subscriber line (DSL) service faces price regulation as well as the obligation to offer competitors the use of its broadband network on a wholesale (or, unbundled) basis so that they may offer, in the retail market, DSL services that compete with the ILEC's own retail offering to consumers.

The social costs of asymmetric regulation are by now familiar. Such regulation leads not to deregulation, but to an enduring managed competition far more complex to administer than traditional regulation of a monopoly service provider ever was. The alternative to asymmetric regulation is either symmetric regulation or symmetric freedom from regulation. Assuming that the latter alternative is preferred, what actual steps would be taken to abolish asymmetric regulation of ILEC provision of broadband Internet access?

The Federal Communications Commission (FCC) could remove asymmetric regulation that the agency itself previously imposed. The FCC could declare that broadband Internet access service is not a telecommunications service, subject to numerous regulations applicable to ILECs, but rather an information service, which is free of such regulations. Amid considerable controversy, the FCC invited public comment on such a reclassification in February 2002. Or the FCC could use its power under section 10 of the Communications Act to forbear from regulating ILEC provision of broadband Internet access.

A third, and more incremental, approach would be for the FCC to declare ILECs nondominant in the provision of advanced services, such as broadband Internet access. Non-dominant carriers are exempt from price-cap or rate-of-return regulation, as well as the obligation to file tariffs and to establish the reasonableness of those tariffs through the submission of cost data.

Much, if not all, of the economic analysis required to determine whether a carrier is nondominant also would be relevant to the FCC's decision whether to forbear from regulating a particular service or whether to reclassify the service in question as unregulated. Although the FCC did not receive its authority under section 10 to forbear from regulation until 1996, the agency has evaluated petitions for nondominance for a longer time and consequently has distilled a body of law on the subject.

In this Article, we evaluate the case against asymmetric regulation of broadband Internet access through the lens of the FCC's approach to deciding petitions for non-dominance. We examine the economic evidence relevant to whether ILECs are non-dominant in the provision of mass-market broadband services, the most familiar of which is DSL service. We use a nested-logit discrete-choice model to produce econometric estimates of the own-price elasticity of demand for DSL service and the cross-price elasticity of demand for cable modem service with respect to DSL service. Our findings suggest that demand for DSL service is price-elastic, that DSL and cable modems are in the same product market, and that DSL providers lack market power. The FCC would advance the public interest by ruling that the ILECs are non-dominant in the mass-market broadband services market.

JEL Classification: K00, K20, K23, L4, L5, L51, L9, L96, L98

Suggested Citation

Sidak, J. Gregory and Crandall, Robert and Singer, Hal J., The Empirical Case Against Asymmetric Regulation of Broadband Internet Access. Berkeley Technology Law Journal, Vol. 17, No. 3, pp. 953-987, Summer 2002. Available at SSRN: https://ssrn.com/abstract=302876 or http://dx.doi.org/10.2139/ssrn.302876

J. Gregory Sidak (Contact Author)

Criterion Economics, L.L.C. ( email )

1717 K Street, N.W.
Washington, DC 20006
United States
(202) 518-5121 (Phone)

HOME PAGE: http://www.criterioneconomics.com

Robert Crandall

Brookings Institution ( email )

1775 Massachusetts Ave. NW
Washington, DC 20036-2188
United States
202-797-6291 (Phone)
202-797-6181 (Fax)

AEI-Brookings Joint Center for Regulatory Studies

1150 17th Street, N.W.
Washington, DC 20036
United States

Hal J. Singer

Econ One ( email )

805 15th Street
Suite 501
Washington, DC 20005
United States
202.312.3065 (Phone)

HOME PAGE: http://https://www.econone.com/staff-member/hal-singer/

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