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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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