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Page 206
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:
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
