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25
Organizing the Issues
Francis Dummer Fisher
University of Texas at Austin
Summary
The following should be kept in mind as the rich submissions to
the NII 2000 project are synthesized:
1.
Division of markets. The local
telecommunications markets should be differentiated; the
residential broadband market should be distinguished from the
downtown business market and from the rural market. The downtown
market is likely to take care of itself, and the rural market has
unique problems. In view of the importance of universal coverage,
the residential market should be emphasized.
2.
''Competition" and the closed character of
cable TV. It should be clearly recognized that cable TV, since
it controls both network and content, has a strong economic
interest in excluding other content suppliers from unrestricted
access to the cable TV broadband network. Even were there to be
more than one vertically integrated broadband network reaching
homes, openness would not be assured without either regulation or
antitrust litigation. Confusion between "competition" and
"openness" should be avoided.
3.
State and local regulation. Federal
regulation was emphasized in the NII 2000 project white papers and
discussion. Yet federal power to force openness may be limited, as
suggested by the claim of those supplying video that the First
Amendment confers rights to select whatever video messages the
network owner wishes. It may ultimately be the power of local
governments to place conditions on use of their rights-of-way that
must be invoked to achieve universal and open use of broadband
networks.
4.
A broadband connection to the Internet. A
connection to the Internet for anyone who is served by a local
broadband network would achieve many of the goals of the national
information infrastructure (NII) initiative.
The Residential Home Market
The phrases "local exchange" and "local telecommunications
market" can gain from greater precision. It is particularly
important to distinguish between the market in the downtown
business area and the residential market. The residential market
can be defined as those homes and businesses that are passed by
cable TV but that are not located in the downtown market. In the
downtown market, traffic is great and distances small, and the
relative cost of entry to serve the market is low. Many different
networks and services will be provided. Hence, there is no problem
of "openness." In the residential market, traffic is much lower in
relation to the area covered. The problems in the residential
market will be to assure universal open service by at least one
provider and to arrange that the network will be open.
One reason for distinguishing the residential market from the
rural market (customers not served by cable) is that the technology
for providing broadband service in the former seems much clearer at
this time. Indeed, for the residential market, there was in the NII
2000 project activities substantial agreement on the probable
technology: a digital service over largely fiber networks with the
ability to increase two-way bandwidth as demanded. Special problems
in the rural market, besides providing the technology of choice,
include difficulties in providing bandwidth "symmetry" and the
likely need for subsidies to assure universal service in sparsely
populated areas.
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Since many of the most important policy issues that must be
faced in constructing the NII are presented in assuring universal
broadband communications to the home, it will help to address these
issues in the specific context of the residential market.
"Competition" and the Closed Character
of Cable TV
The wire broadband network that exists today in the residential
market is that of cable TV. It is especially important, therefore,
in considering how it might evolve as part of the NII to recognize
the strong economic interest of cable TV in continuing to operate a
closed network. The problem in designing the NII is only partially
technical; it is equally economic. And unless we attend to it,
economics may dictate technology.
"Openness" is easy to define. A network is open if it permits
users, at their choice, to be connected to competing sources of
information and permits providers easy access to users. In a truly
open network, users and providers cannot be distinguished, although
those connected to the network can be distinguished by the amount
of bandwidth they require. The phone network is an example of an
open network.
For cable TV, an open network would permit a customer to connect
to packaged TV programs offered by firms that compete with the
network owner and the packages it offers.
Cable TV is a closed, vertically integrated system. The existing
cable TV system is well described in the white papers in this
volume. What is important here is that the same company owns the
network and sells, or arranges for the sale of, the content moving
over the network. As contrasted with common carriage or an "open
system," suppliers of content over cable TV do not compete directly
for the business of customers, striking with customers whatever
deal the market demands. The business arrangements are, rather,
first between content producer and the cable company and then, for
those products that cable TV decides to offer, between the cable TV
company and those connected to its network.
It could be argued that the profits of cable TV flowing from its
monopoly character are necessary to raise the money with which to
upgrade the home network, but that harsh argument has not been
advanced in the papers.
Perhaps understandably, the papers do not make clear the closed
character of vertically integrated networks in the absence of
regulation. Bailey and Chiddix state that "while companies such as
Time Warner will be one of many content providers, these PC
networks that the industry is building will be networks that
success in a competitive world will demand be kept open." Rodgers
contends that "where the network provider faces competition" it has
"an incentive to make interconnection as easy as possible." These
comments ignore the profit maximization behavior of competing
virtually integrated companies. Powers et al. postulate that where
there is unbundling and resale on a fair basis, providers of
services can compete, but the additional statement that "effective
competition can bring about those results'' is not supported.
In Brugliera et al., one paragraph stands out:
It is further arguable that regulation should
work to inhibit or even prohibit any single entity from owning or
controlling both program production and program delivery
operations, if such control results in the customer being denied
access to any available program source. Consumer access should be a
[sic] prime consideration.
Yet the general scenario presented in that paper is that of the
"500 channel" technology that satisfies what is described as "the
consumer's primary desire for passive entertainment, and not
interactivity." One wonders how the writers would decide, if forced
to choose for their homes today, between the telephone or the TV as
a single permitted technology. Would not interactivity and choice
be reasons for their likely preference for the phone? Why should
those considerations diminish as bandwidth grows?
Of course, if one of the network competitors offers an open
system, as does the phone company for transporting voice and data,
cable TV as a competitor will probably offer equally open transport
as to those services. According to Bailey and Chiddix, "Regardless
of whether PC interconnection ultimately flows through a number of
competing national on-line services or through the laissez-faire
anarchy of the Internet, cable intends to offer a highly
competitive avenue for local residential and business access to any
viable service provider." Personick states, "All RBOCs have
expressed a commitment to deploy broadband access services as
quickly as
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the market demand, technology cost trends, and regulatory/legal
environment permit." These comments seem to apply to voice and
data, and not to video. Phone companies entering the video market
claim that they, like cable TV companies, have the right to use
their video network to capture customers for those particular
content services offered by them in their video-supplying role.
The interest of cable TV companies in closed systems is
reflected not only in the fact that cable TV companies trade for
much more than the capital costs of the network investments. It is
shown also by the reluctance to be clear about "openness" as even
an eventual goal for video networks. In Austin, Texas, where the
city is offering access to its right-of-way (poles and conduits
owned by the municipal electric utility) to any firm willing to
operate an open network, the local cable company, far from applying
for the resources that it could use in its investment program, has
sought to block the city-sponsored effort to achieve openness.
Competition does not imply openness. Even if competing networks
did develop in the home market, it does not follow that customers
would have the option of being connected to any information source
of choice, or that suppliers of content would be able to access the
network, if the competing companies were vertically integrated. For
it would probably be in the interest of both such "competing" video
providers not to open their networks to other content providers.
For example, each network might offer an alarm service, but a third
alarm service might well be denied access over either network.
Huber et al. consider the possibility of overbuilding local
networks and estimate that the savings would "swamp" the
unnecessary costs of overbuilding. Their paper provides little
support for this estimate, and its comparison between monopoly and
oligopoly probably applies to the monthly charges for those content
services offered. It does not follow that a competing deliverer of
content could even gain access to either network.
If one cable network could handle all the traffic in the
residential market and were open to all, the competition between
services envisaged by Huber et al. could still take place, just as
it can take place by firms using common poles or conduits and
without the cost of overbuilding. This illustrates that it is
important to be precise in specifying exactly what it is that is in
competition: the services of local carriers (alarm services, voice
mail, etc.), the content provided, or merely two largely identical
fiber cables.
In sum, the economic interests of cable TV are at present in
opposition to achieving the goal of the NII in an open network; to
achieve the desired openness on these important broadband networks
will require public action.
Federal, State, and Local
Regulation
Interconnection and Regulation
Some of the papers in this volume intimate that the regulation
required to achieve openness is fairly minimal. Arlow recommends
that all providers of telecommunication services should be required
to interconnect with each other, "but there should be no other
day-to-day regulatory oversight or standards to which providers are
obliged to adhere." Mohan urges the public sector to "remove
impediments to the deployment and interconnection of competitive
local exchange and access capabilities." These authors, and Huber
et al., exemplify the tendency to treat deregulation and
interconnection as feasibly consistent. In fact, however, mandated
interconnection, without regulation of interconnection charges,
would be meaningless, and with such price regulation closely
resembles common carriage regulation, the heart of traditional
government intervention in wired telecommunications.
Role for States and Localities
In both the papers and the discussion of them at the forum,
there was a strong tendency to identify government action as the
action of the federal government. But it may well be that by
applying the First Amendment to video content, courts have
substantially reduced the federal power to prescribe the kind of
openness for video that pervades the voice and data system of the
telephone network and, to date, of the Internet.
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As Ithiel deSola Pool presciently forecast, it may ultimately be
the power of local government to control its right-of-way that
provides the governmental lever to open up the cable video
networks.
A Mandate for Broadband Connection to
the Internet
In this political climate, it could be that openness and
switched access to competing content suppliers might be more
readily achieved through connection to the Internet than by what
might sound like a backward invocation of common carriage
regulation of video.
In view of the unsettled constitutional basis for a federal
mandate of openness in broadband networks, it could be that a
simple statement by the National Research Council urging localities
to make broadband connection to the Internet a condition of
renewing municipal cable franchises could be an important step in
achieving the goals of the NII.
Representative terms from entire chapter:
broadband network
