The Structure of the Argument (and Qs about Wireless)

The argument made in the speech interestingly tracks an antitrust-like, foreclosure story. I say "interestingly" because not all arguments for network neutrality base the case on foreclosure that injures consumers. (Of course, that's the best argument, and one we know how to deal with, as I argued here.)

Thus, the speech says (1) that the broadband market is concentrated (p. 3), (2) that broadband providers have economic incentives to engage in foreclosure (p. 3), (3) that discrimination is anticompetitive and hurts consumers (throughout), and (4) that procompetitive/pro-consumer justifications for discrimination (while they exist) do not outweigh the costs. I find the speech too grudging on (4), but recognize that this argument is built as an antitrust argument.

But, to begin to engage with Tim on wireless, the argument in that market seems to me to be more difficult, for two reasons. First, I think it is more difficult to make argument (1) -- that the market is concentrated in a way that suggests foreclosure strategies are rational. (The speech is clearly referring to wireline.) We have four nationwide carriers seemingly engaged in serious competition, and more spectrum coming to market. Second, I think the balance on (4) might be harder to make -- that because of bandwidth and other technical limitations, the benefits of more active management might be greater.

There is also an important policy argument above this framework: to the extent the wireline market is concentrated, the FCC might not have any other policy levers (other than competition regulation) to deal with that. It cannot change the economics of density that are so important, or the cost of digging trenches (or at least not much). But, in wireless, the FCC (or, more accurately the government as a whole) does have an additional policy lever -- and that is getting more spectrum into the market so that any concentrated market structure evaporates (or at least relevantly evaporates). Faulhaber and Farber have offered the view that this could change market structure, and it seems preferable to regulation. UPDATE: Of course, if wireline and wireless broadband are in the same market (are effective substitutes), then releasing more spectrum is a policy lever that could be used if wireline is concentrated.

For those looking for references, here are a couple: Tim's great "Wireless Carterfone" paper and to a very good response by Marius Schwartz and Federico Mini.