Old-style Utility Regulation for New-style Cloud-TV?

The paper will explore the role and methodologies of traditional telecom economics to the issues of internet policy. For many years, these methodologies were basically those of utility regulation; in consequence, they have achieved a reputation of legacy and bureaucracy, hardly suited to the age of the internet. And yet, developments push the internet-based data communication towards that model, even if these developments zigzag based on the politics of the moment. Issues include: • The emergence of net neutrality – whatever its form might look like in the future — brings back principles of non-discriminatory pricing, as well as non-monopolistic pricing. • The extension of broadband infrastructure to rural areas is an issue of traditional universal service and its subsidization. • The extension of broadband to lower income Americans raise issues similar to those of lifeline service • The inter-operation of various networks — CDNs, backhaul, etc — raise interconnectivity issues. • Mergers raise issues of market power, market definitions, and the treatment of oligopoly. • Security, privacy, service quality, and consumer protection become regulatory issues • There are issues of vertical integration and separation. • Wireless spectrum and networks continue a reliance on licensing, and raise issues of rights of way. • The significant fluctuations in investment lead to attempts to stabilize the sector • The revenue needs of governments lead to a taxation regime of Internet activities and platforms • The economic growth goals of governments lead to industrial policy initiatives • The pro-competitive goals for markets lead to rules for the access to ducts, conduits, and rights-of-way • “Social compacts” of regulatory relaxations in return for investment commitments will emerge • Infrastructure sharing by competitors is likely • Government ownership of infrastructure is returning, as for example in Australia • Providers will be held responsible for the content they offer, even by third parties • Market power of large internet providers might be dealt with through structural breakups and separations, and separations of wholesale and retail functions • Non-discrimination rules require pricing rules and cost-based analyses. In examining these issues it is striking how many of them are those of the old system of telecom regulation. Have we come full circle? Is internet policy merely a high-speed version of the original telecom regulatory system, extended across the borders of countries and media, and supplemented by oligopoly, at best? In a dynamic, volatile, and even cyclical environment, policy will not stand still, but will also be dynamic, volatile, and cyclical. It means that as these internet issues emerge, as they inevitably will or already have done, their analysis will inevitably draw upon the accumulated experience — both positive and negative — of traditional telecom regulation. Of course, the terminology might differ, such as “net neutrality” instead of “common carriage”. At a minimum, there is a significant body of economic analysis that has been developed over decades in the various regulatory proceedings of Computer I,II, and III; the Open Network Architecture proceedings; the creation of Unbundled Local Loop Elements; the system of fully separated subsidiaries; and the TELRIC pricing models. The time has therefore come to engage in a new discussion over regulatory principles for internet-based activities. This is not easy. The rivals in the debate over the treatment of communications networks at times exhibit a messianic fervor and are quick to slay messengers of unwanted news. One side invokes a danger to either the survival of diversity, democracy, and the internet; while the other side predicts a grave damage to technology, national competitiveness, and the economy. The paper will discuss these themes, try to identify the telecom economics treatment of the various issues, their methodologies, and their conclusions. It will provide the lessons that can be applied, as well as where failure provides lessons for the future.