Academic journal article
By Spulber, Daniel F.; Yoo, Christopher S.
Harvard Journal of Law & Technology , Vol. 22, No. 1
TABLE OF CONTENTS I. INTRODUCTION II. OVERVIEW OF THE REGULATION OF ACCESS TO BROADBAND NETWORKS A. A Brief Description of the Leading Broadband Technologies B. The Early Regulation of Digital Subscriber Lines C. The Early Regulation of Cable Modem Systems D. The Current Regulatory Status of Last-Mile Broadband Networks III. THE INAPPLICABILITY OF THE TRADITIONAL RATIONALES FOR REGULATING TELECOMMUNICATIONS TO LAST-MILE BROADBAND NETWORKS A. Natural Monopoly B. Network Economic Effects C. Vertical Exclusion D. Ruinous and Managed Competition IV. EVALUATING THE DIFFERENT TYPES OF ACCESS TO BROADBAND NETWORKS A. Fundamental Principles in the Economics of Networks B. Applying the Framework to Last-Mile Broadband Networks 1. Retail Access 2. Wholesale Access 3. Interconnection Access 4. Platform Access 5. Unbundled Access V. CONCLUSION
Over the past few years, the technological environment surrounding the Internet has undergone a fundamental transformation. The widescale deployment of broadband technologies now allows end users to enjoy unprecedented speeds. (1) The increase in bandwidth has allowed the relatively simple applications that dominated the narrowband Internet, (2) such as e-mail and web browsing, to give way to more sophisticated and bandwidth-intensive multimedia applications, such as streaming video, music and movie downloads, and virtual worlds. At the same time, competition in last-mile Internet service has increased dramatically. (3) Cable modem service, which emerged as the early leader in the broadband industry, has faced increasing competition from digital subscriber line ("DSL") and fiber-based services provided by local telephone companies. Even more dramatic has been the rise of mobile wireless broadband technologies, which grew from having no subscribers as of the end of 2004 to capturing 35% of the market for high-speed lines by June 2007. (4) The planned 2011 redeployment of spectrum previously dedicated to broadcast television to wireless Internet services promises to intensify last-mile broadband competition still further.
The emergence of competition has rendered inapplicable the traditional justifications for regulating telecommunications networks, which have typically focused on the problems of natural monopoly, vertical exclusion, network economic effects, and the supposed dangers of ruinous competition. At the same time, the academic commentary on the economics of regulation has grown increasingly skeptical of the efficacy of regulations based on these justifications, questioning their implementability and identifying ways such regulations can end up harming rather than promoting consumer welfare.
Furthermore, the basic paradigm for regulating network industries has shifted from traditional rate regulation, in which regulators dictate the terms under which network owners sell outputs to consumers, to a new approach known as access regulation, under which regulators control the terms under which network owners must lease key inputs to competitors. This shift is perhaps best exemplified by the landmark Telecommunications Act of 1996, which requires telephone companies providing local service when the statute was enacted (which the statute calls "incumbent local exchange carriers" or "ILECs") to provide competitors with access to key elements of their networks. (5) Access regulation has also emerged as a dominant feature in the regulation of a wide range of other network facilities, including cable television systems, utility poles, natural gas pipelines, and electric power distribution grids. (6)
Unfortunately, policymakers have not yet fully incorporated the implications of these changes into our nation's broadband policy. When asked between 1998 and 2002 which regulatory regime should apply to broadband, the Federal Communications Commission ("FCC") temporized, repeatedly declining to address the issue. …