Arguing with Harold is a great fun because he is so terrifically passionate and articulate as an advocate. For those who don’t know Harold, imagine a one man army—think Rambo—being ready to take on the world. So call me crazy for joining his turf to tussle, but here goes.
Harold’s perspective on network neutrality is clear and relies on a powerful premise—a vertically integrated firm cannot be trusted to allow competition at the applications layer. For Harold, then, the solution is either enforced modularity—confining the transport provider to pure connectivity—or a virtual modularity where the interfaces are standardized and open.
The problem with Harold’s vision is two-fold—(1) it underestimates the considerable logic in favor of openness that will lead most companies to allow rival applications to ride on their platform (yes, there are exceptions to this principle, but I will get to that); and (2) it underestimates the possibility that some applications if not delivered on a vertically integrated basis will not be delivered at all. Under the Computer Inquiry regime Harold praises, for example, consumers did not get the benefit of voicemail services because it was not economic for independent providers to offer them and, for many years, the incumbent phone companies were prevented from offering it.
If one agrees with my critique of Harold’s vision (the details are here), the next question is what type of regulatory regime should one adopt. My vision, as Harold notes, does not dismiss that broadband providers with market power may well have incentives to discriminate and undermine applications providers (particularly those that threaten their core revenues). It does require, however, that regulators find ways to focus on the competitive harms without adopting rules that will give rise to unintended consequences, foreseeable inefficiencies, and potentially pick winners and losers. As my most recent post notes, however, there are real questions as to whether the FCC is institutionally prepared to oversee an antitrust-like model of regulation.
Well said. We'll just
Well said. We’ll just have to see what the next few years bring here and in other developed nations. Empircal reality has a way of settling theoretical disputes.
This is what makes public policy so complex; it is a question of what factors you think will predominate. There are some things I can say are clearly wrong (the PFF argument that a completely deregulated market is a perfectly competitive market, for example). Other things are more difficult to call. We both agree there are risks to a public policy prescription here, but which yields the better trade offs of potential risk v. potential gains?
In the end, I have a very real problem betting the future of the infrastructure on a theory that the positive incentives for openess overcome the traditional incentives for incumbents to seek lock-in and seek to leverage their locked-in base to extract additional rents from upstream providers. The history of the broadcasting industry (“we don’t need Fin-Syn, we have incentive to buy the best programming”) and the cable industry (“we don’t discriminate against independent programmers because people would switch to DBS if we did”) make me extremely reluctant to repeat this approach in the broadband industry.