Convergence and a Case for Broadband Rate Regulation

Abstract

There is an important but underappreciated tension between transmission-layer services and application-layer services in the design of prior telecommunications statutes. These statutes were designed for a different technological era, one where discrete networks served distinct purposes—e.g., coaxial cable for television, copper wires for telephony. But these distinct physical networks have since converged into a single multipurpose internet, making nonsense out of some statutory provisions. These rules, conflating applications with transmissions services, yield illogical outcomes—including both deregulated monopoly markets and overregulated competitive ones.

One consequence of such persistent, deregulated monopolies is a stubborn digital divide, driven by higher costs for critical transmissions services, such as broadband carriage. Indeed, this essay’s novel study reveals that consumers served by monopoly providers—about 20% of the American population—face significantly higher prices for comparatively worse internet access services, transferring billions of dollars in monopoly profits to broadband carriers annually. But this data also suggests that broadband rate regulation, where it exists, helps move rates and quality closer to competitive levels.

The next telecommunications statutes must thus better account for the convergence across physical networks, the distinctions between the applications layer and the broadband transmission layer, and the concomitant consequences for competition and regulation. Competition, where it exists (as in many applications markets) should thrive, and regulators should properly refrain from meddling in competitive markets for broadband carriage. Yet Congress and the Commission should protect consumers from monopoly carriers—including, most importantly, broadband carriers. Broadband rate regulation offers one promising path for doing so.

Keywords: broadband, rate regulation, Telecommunications Act of 1996, Cable Act of 1992, transmission layer, application layer