FCC NET NEUTRALITY MANDATE WOULD HURT COMPETITION, REPORT SAYS

Mandating network neutrality can have the “perverse effect of dampening incentives to invest in the alternative network capacity that remains the only solution to the problems of broadband policy that is sustainable in the long run,” Yoo wrote in the paper: “It raises the real danger that regulation would become the source of, rather than the solution to, market failure.” He said neutrality proposals were “rooted in concerns about vertical integration” that were “more imaginary than real.”

Yoo argued in the report that the residential broadband market wasn’t concentrated, because it was a national geographic market not a local one. But MCI Senior Dir.- Global Policy & Planning Richard Whitt said that was “contrary to established precedent at the FCC, as well as common sense.” For example, he said the FCC concluded in its AOL-Time Warner merger order that “the relevant geographic market for cable modem services is local.” He said end users experienced the market as local: “It doesn’t help a consumer to know that Verizon offers DSL in Maryland if they happen to live in SBC territory in Illinois.” Whitt said “just because some of the larger ISPs are national in scope does not mean that their purchasing decisions about broadband platforms can be made on a national basis. The essence of a local broadband platform is that it is local.”

Whitt insisted there was “indeed significant concentration and power” in residential broadband market and the wholesale access requirement -- or open access -- was “the most effective and least intrusive remedy.” He said open access should be coupled with “vigorous FCC action to promote alternate broadband platforms.” Whitt is an author of a paper produced by MCI last Dec. (CD Dec 18 p9), which proposed that IP services should be regulated based on horizontal layers. It suggested that the lower network facilities layer should be regulated based on market power, while the higher applications and content layer shouldn’t.

Yoo said even if the market was concentrated, there was a “host of other technologies waiting in the wings,” such as 3G, WiFi, fixed wireless and satellite broadband. But Whitt said while those “modalities may be well in the wings… in our view they are still nowhere near center stage.” He said “much of the excitement about new broadband platforms, particularly spectrum based platforms, runs headlong into the harsh reality of physics.” He said it was “highly doubtful” that there was “enough spectrum available to create a robust, ubiquitous, mass market wireless alternative to DSL or cable modem service.”

Yoo said in the paper market concentration shouldn’t be a serious issue because vertically-integrated companies could provide real benefits to consumers. Whitt said MCI agreed that companies with market power at the physical broadband layer should still be allowed to provide services and applications in the other dependent layers: “We think this principle is faithful to the deregulatory nature of the layers framework.” But he said “policy-makers should still be concerned enough about this kind of concentration to consider some tailored remedy focused narrowly on the physical layer.”

Vertically-integrated broadband providers could cause significant potential harms by imposing restrictions on their end users, Whitt said: “We should adopt a wholesale access requirement to remedy that market concentration, unless and until sufficient intermodal competition emerges.” But Verizon vp-Internet & Technology Policy Development Link Hoewing disagreed, saying no regulation was necessary at the physical layer.

FCC Media Bureau Chief Kenneth Ferree, who spoke at PFF’s luncheon, said he felt Yoo’s paper was in line with his own thinking. Stressing that he was speaking only for himself and not for anyone at the FCC, Ferree said he believes the role of the regulator is to remove barriers to investment and the FCC has “an historic opportunity to bring multiple pipes to consumers,” such as broadband over powerline, satellite, Wi-Fi, wireless and satellite broadband. Ferree said doing so would alleviate any “last- mile bottleneck.” He said he believes the best way to promote infrastructure development is to allow network differentiation, allowing networks to compete on functionality as well as price. Proprietary applications will drive adoption, he said, and “the content and applications that most people rely upon and desire will continue to be available on most or all platforms for the simple reason that the market will insist upon it,” Ferree said, adding that network owners will have strong incentives to allow broadband platforms to remain “open.” More competition, he said, will only lead to broadband providers’ being more responsive to their customers’ needs. Heavy- handed regulation that treats broadband as a commodity that should be mandated as neutral may “impede investment and stifle innovation, thereby undermining achievement of the goal all of us are aiming for -- ubiquitous broadband services that meet consumer needs. I, therefore, will continue to be skeptical of net neutrality regulation,” Ferree said.