Seconds out, the internet gloves are finally off

Well, after many years of fretting about the net neutrality debate, I see that the combatants have now begun the move into battle formation.  Presumably encouraged by the FCC’s recent set-back in its attempt to enforce net neutrality principles, and the FCC chairman’s rather limp response,  Comcast has exploited the virtual vacuum by establishing something like ‘most favoured nation’ commercial terms with Netflix. 

There is no shortage of doom-mongers to proclaim that the (internet) sky is falling but, however controversially, I’d like to put forward a contrary, albeit rather simplistic hypothesis.  Another recent Washington Post article by Timothy Lee is right to focus on competitive dynamics in its analysis of how Comcast and Netflix reached this new negotiation but I would argue that an ISPs’ exercise of market power needs to be regarded in the same light.  Why does Comcast have market power over Netflix – and other content providers?  Simply because Comcast has chosen to invest in the – hitherto – least rewarding segment of the value chain, the local access network.  There is, in principle, nothing to prevent another player - or Netflix itself – exploiting these economic rents if it is prepared to make a similar long-term investment in infrastructure.  It won’t, of course, and the chances are that the wounded FCC will still find some way to minimise rent-seeking by the ISPs but the clash between these leading internet players may yet prove to have been a useful reminder of basic economics.

 

Steady as she goes?

After a good deal of reflection, I’ve slowly been coming round to the view that the UK’s ‘broadband experiment’ has been going pretty well – always assuming we’re content with the limited FTTC architecture mandated by BT. It came as little surprise, therefore, that a recent report led by Richard Cadman’s SPC Network on the future of regulation in EU telecoms markets was highly complimentary, e.g. 

“The European broadband story, like that of European telecommunications, is generally one of success.  Consumers have benefited materially from increasing broadband competition over the past ten years: access speeds have increased, retail prices have fallen, while choice has expanded and European consumers enjoy faster access speeds and lower prices than their American counterparts.….. The picture for investors and for investment in the industry in the EU is also a positive one”. 

Where I felt less comfortable with the report was in its affirmation of existing regulatory policy.  In particular:

 

“From our evidence-based review of the performance of the market to date we conclude that there is no case for an extensive overhaul of the current regulatory framework…. It is also our view that the ladder of investment remains a valid concept and is critical to the continued development of the market”. 

OK, I think we all accept that LLU has played a vital part in the diffusion of consumer broadband, and the report is careful to stress the importance of developing new forms of unbundling in an NGN environment, but I always thought the ladder of investment concept was about more than access to incumbent infrastructure…

Sure enough, digging around in Martin Cave’s original papers, I came across this:

“The ladder of investment approach articulated by Martin Cave in 2006 suggests that access regulation is not only pro-competitive per se as it reduces barriers to entry but also is an indirect device to promote facility-based competition” 

Happily, we’re seeing more and more examples of new network being developed, most of it fibre-based, but I’ve seen very little evidence that these new networks owe their origin to the report’s acclaimed ‘ladder of investment’ philosophy..