March 6, 2007

Public Interest Comment on Net Neutrality

Key materials
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The Federal Trade Commission seeks public comment on "Broadband Connectivity Competition Policy" in conjunction with a workshop it held on February 13 and 14, 2007. The FTC's Internet Task Force will likely produce a report analyzing the case for and against different forms of "net neutrality" policies intended to prevent broadband providers from treating different types of traffic differently.

Our Findings

The appropriate analytical framework for evaluating net neutrality should take into account competing public policy values, dynamic competition, and anticompetitive effects of government policies. Whether a "duopoly" behaves like a competitive market depends on the particular facts and circumstances of the market. Putting "-poly" at the end of a word does not automatically prove consumers are harmed. There is substantial evidence of dynamic competition in broadband. Dynamic competition reduces the likelihood of collusion and increases the likelihood of entry by new competitors. Entry barriers -- such as limits on the amount of spectrum available for commercial wireless services, local cable franchising, absence of a state framework permitting broadband over powerlines, or outright prohibitions on entry - make broadband access markets less competitive than they could be. Competition will not guarantee "net neutrality," but it will help ensure that departures from neutrality occur only when they benefit consumers on net.

By the Numbers

High-speed Internet service ranges from 200 k (kilobits per second) all the way to 30 mb (megabits per second). Between 2004 and 2005, many major broadband providers increased download speeds by between 25 percent and 200 percent. Further increases occurred in 2006. Cable modem's share of high-speed lines fell from 60 percent in 2004 to 44 percent at midyear 2006. New DSL subscriptions outpaced new cable modem subscriptions in 2005 (5.7 million DSL, 4.2 million cable) and the first half of 2006 (3.1 million DSL, 2 million cable). High-speed mobile wireless had a market share of 6.2 percent at year-end 2005 and 17 percent at midyear 2006.

Our Recommendations

The FTC could significantly improve the quality of the net neutrality debate by producing a report that: conducts a thorough regulatory analysis that defines specific outcomes that broadband policies are supposed to produce, assesses evidence of market failure, identifying the uniquely federal role, compares the effectiveness of alternative policies, examines the costs of alternative policies, and compares costs with outcomes; assesses the likely speed and effects of entry in the absence of government-imposed entry barriers; takes account explicitly of the effects of dynamic competition when assessing the competitiveness of broadband access markets; conducts a thorough analysis of the effects of alternative policies on consumer welfare; and includes an evidence-based economic analysis of the effects of alternative policies on other important values articulated by stakeholders in the net neutrality debate. In addition, the FTC should aggressively pursue research and advocacy initiatives that would remove barriers to entry into broadband access markets.