Broadband Policy

Table of Contents

Published: May 10, 2014

This is a writeup of a shallow investigation, a brief look at an area that we use to decide how to prioritize further research.

In a nutshell

What is the problem?

There are a number of questions about how broadband internet providers should be regulated. U.S. consumers appear to pay more for slower internet access than European consumers partially because of a lack of regulation, and regulators are currently deciding whether and how to implement “network neutrality” rules that would prevent providers from discriminating between different types of traffic.

What are possible interventions?

The Federal Communications Commission (FCC) appears to have the authority to implement regulations to enforce network neutrality and open access to broadband networks. A funder could support a variety of advocacy or research efforts to encourage effective regulations.

Who else is working on it?

A number of nonprofits and major technology companies are advocating for the FCC to adopt regulations requiring network neutrality, and a smaller set of groups are advocating for regulation to address cost issues.

1. What is the problem?

We decided to look into the topic of broadband policy because of claims that:

  • Consumers in the U.S. typically pay more for slower access to broadband internet than in other countries.1
  • Network neutrality regulations (which prevent providers from discriminating between different types of network traffic), currently being discussed, are important for preserving the openness and vibrancy of the internet.2

Because broadband is a natural monopoly, it is plausible that a lack of regulation might lead to poor service and high prices.3 The Federal Communications Commission (FCC) does not publish enough data on broadband pricing to estimate a mean price paid by all American consumers, but estimates by the New America Foundation’s Open Technology Institute suggest that U.S. broadband subscribers pay roughly $15/month more than European broadband subscribers, though with significant variability.4 Under the somewhat heroic assumption that these costs are accurately estimated,5 reaching cost parity with Europe (which may not be possible) would shift around $15 billion/year from broadband companies to consumers.6 It is difficult to estimate the deadweight loss from natural monopoly pricing, and we have not seen any estimates of those costs for broadband services in the U.S.

The humanitarian importance of network neutrality regulations is also difficult to ascertain. To the extent that an unregulated internet architecture would impair the conditions that made the internet so successful in the first place, the issue could be quite important. However, it is not clear to what extent neutral networks are necessary to maintain the value of the internet or to what extent regulations are required to preserve neutral networks. Network neutrality violations have historically been rare even when they appear to have been legally permissible (which seems to have been for much of the history of the internet).7

2. What are possible interventions?

There are a number of policy options available to address both broadband cost issues and network neutrality. Most notably, the FCC could reclassify broadband as a “telecommunications service,” which would grant it the legal authority to enforce net neutrality rules by regulating internet service providers as common carriers and to enforce open access provisions (which are said to lower broadband costs in other countries).8 The FCC is currently considering reclassification, along with other policy options.9

Other policy options might include:

  • The FCC could propose some other form of network neutrality regulation.
  • The FCC could force “the nineteen states that currently limit or ban municipalities from building local networks” to lift their restrictions on local infrastructure investment.10
  • Municipalities could build open access local broadband networks to compete with private providers.11

A funder interested in promoting any of these policies might support advocacy or research organizations working in the field. We do not have a sense of which advocacy activities might be most helpful or how cost-effective they might be.

3. Who else is working on this?

A number of constituencies are advocating in favor of network neutrality regulations:12

  • Public interest technology and communications groups, including Free Press, Public Knowledge, the Center for Democracy and Technology, New America Foundation’s Open Technology Institute, the Benton Foundation, and the Electronic Frontier Foundation. A number of other advocacy groups have signed onto an open letter supporting net neutrality regulations.13
  • Community-focused institutions, including the Schools, Health, and Libraries Broadband Coalition and the American Library Association
  • Consumer protection groups, including the Consumers Union and the Consumer Federation of America.
  • Groups focused on social justice in the media, such as the National Hispanic Media Coalition and the Media Action Grassroots Network.
  • Foundations, including the Ford Foundation and the Knight Foundation.
  • Former FCC commissioner Michael Copps, who now serves as Special Advisor to the Media and Democracy Reform Initiative at Common Cause.

Though the most frequent mentions of “network neutrality” in lobbying disclosure reports have been by major telecommunications providers and trade associations that oppose net neutrality, a number of major technology companies (such as Amazon, Facebook, Google, Microsoft, Netflix, and Twitter) have also lobbied for and support net neutrality regulations.14

4. Questions for further investigation

Our research in this area has been relatively limited, and many important questions remain unanswered by our investigation.

Amongst other topics, further research on this cause might address:

  • How likely and how harmful are network neutrality abuses likely to be in the absence of regulation?
  • What degree of resources are for-profit and non-profit advocates for net neutrality and open access policies (which are designed to increase competition and reduce costs) devoting to the issue? Are there important gaps in the advocacy infrastructure on either issue?
  • What does the landscape for municipal broadband efforts look like? What are the benefits and costs of open access municipal networks?

5. Our process

We rely heavily on a conversation with Patrick Lucey and Danielle Kehl of the New America Foundation’s Open Technology Institute.

6. Sources

DOCUMENT SOURCE
Lee 2014 Source (archive)
Leichtman Research Group 2014 Source (archive)
Open Technology Institute 2013 Source (archive)
Notes from a conversation with Patrick Lucey and Danielle Kehl on March 19, 2014 Source
Organizations Supporting Net Neutrality May 2014 Source (archive)
Furnas and Drutman 2014 Source (archive)
Engine 2014 Source (archive)
Expand Footnotes Collapse Footnotes

1.

“Compared to consumers in other countries, Americans generally pay more for broadband internet, with smaller differences for lower speed plans and larger differences for higher speed plans, particularly those from large incumbent providers. Exceptions to this trend include high-speed plans provided over municipal broadband networks and Google Fiber.

In their research on the costs of connectivity, New America compared the price of low, medium, and high speed broadband in the U.S. and Europe and found that the U.S. median is significantly higher for all speeds, that U.S. ranges are generally more extreme, and that U.S. prices increase exponentially as speed increases, whereas European prices increase more linearly.” Notes from a conversation with Patrick Lucey and Danielle Kehl on March 19, 2014

2.“Network neutrality is the notion that internet service providers should treat all data equally, neither limiting nor expanding access to particular websites and services. Net neutrality has received a lot of attention lately, in part because of a recent DC circuit court decision striking down FCC net neutrality rules and the potential Comcast-Time Warner Cable merger, which would give the resulting network a very large share of the high-speed residential broadband market. New America believes it is important to protect net neutrality so that the internet remains a place where new ideas can flourish. Net neutrality is one of the founding conditions that contributed to the initial growth and success of the internet.” Notes from a conversation with Patrick Lucey and Danielle Kehl on March 19, 2014

3.In more economic language, for a natural monopoly, lack of regulation might lead to deadweight loss and to price-discrimination that allows broadband providers to capture a large share of the consumer surplus. Notes from a conversation with Patrick Lucey and Danielle Kehl on March 19, 2014:

“Generally speaking, U.S. regulation gives internet providers exclusive control over their infrastructure. Because building infrastructure is prohibitively expensive, this limits competition.”

“Very broadly speaking, U.S. prices are more competitive for slower speeds because of competition from DSL services and price discrimination by cable companies (i.e. companies are able to charge people who need faster internet more because of the lack of competition).”

4.

“The Federal Communications Commission (FCC) could publish more of the cost data it collects from service providers on an annual basis to allow researchers to calculate the average cost for different speeds of broadband, but it has not done so.” Notes from a conversation with Patrick Lucey and Danielle Kehl on March 19, 2014

 Open Technology Institute 2013

5.Note that the figure cited above is followed by: “(Note: the sample size in this comparison is small and not meant to represent national or continental prices in either the United States or Europe, but rather to provide a snapshot of pricing information in each city.)” Open Technology Institute 2013

6.

Leichtman Research Group 2014 estimates that there are roughly 90 million broadband subscribers in the U.S.: “Leichtman Research Group, Inc. (LRG) found that the seventeen largest cable and telephone providers in the US – representing about 93% of the market – acquired over 2.6 million net additional high-speed Internet subscribers in 2013. Annual net broadband additions in 2013 were 95% of the total in 2012.
These top broadband providers now account for 84.3 million subscribers – with cable companies having 49.3 million broadband subscribers, and telephone companies having 35.0 million subscribers.” If there are 84.3 million broadband subscribers in ~93% of the market, the total number of broadband subscribers is expected to be roughly 90 million.

90 million subscribers times $15/month times 12 months/year = $16.2 billion/year.

7.“Generally speaking, network neutrality violations have been rare, but a few controversies have occurred over the last decade….
In 2007, Comcast interfered with users’ peer-to-peer file sharing applications by sending fake reset packets that tricked each side of the connection into believing the other had hung up. When the FCC tried to punish Comcast for the infraction in 2008, the cable company sued, arguing that the FCC needed to go through a formal rule-making process before net neutrality rules could be legally binding. The court sided with Comcast in 2010.
Wireless carriers’ efforts to conserve bandwidth have sparked net neutrality controversies. In 2009, Apple limited Skype calls to wifi networks to save bandwidth on cellular networks…. Because the FCC’s then-current network neutrality rules largely exempted wireless networks, this did not trigger FCC scrutiny.” Lee 2014

8.“Generally speaking, U.S. regulation gives internet providers exclusive control over their infrastructure. Because building infrastructure is prohibitively expensive, this limits competition. In most other developed countries, open access provisions (such as local loop unbundling) let competitors provide services over networks owned by other companies at regulated rates. Open access was a historic principle in the U.S. that we’ve moved away from (in part because of issues about how broadband is classified). Some argue that one of the corollary benefits of Title II reclassification would be allowing the FCC to reinstitute open access provisions, which would spur competition….The Telecommunications Act of 1996 created two categories of services:

  • Telecommunications services, which are classified as common carriers and subject to requirements that include open access provisions. Common carrier requirements prohibit discrimination.
  • Information services, which are not classified as common carriers and are not subject to open access provisions. Broadband is currently classified as an information service.

Reclassifying broadband as a telecommunications service could:

  • Strengthen net neutrality by giving the Federal Communications Commission (FCC) the authority to regulate broadband providers as common carriers.
  • Help settle details regarding the business structure of open-access networks.
  • Make it easier for the Universal Service Fund (USF) to provide direct support for broadband access.

Although the FCC has the authority to reclassify broadband—as indicated in the January 2014 ruling on Verizon vs. FCC—political resistance from incumbent providers and opponents of government regulation will likely discourage the FCC from doing so. The FCC experienced strong pushback several years ago when it began discussing reclassification; critics denounced reclassification as “the nuclear option” and effectively ended the debate.” Notes from a conversation with Patrick Lucey and Danielle Kehl on March 19, 2014

9.“Although it is not likely that the FCC will pursue reclassification, carriers and public interest groups are, to some extent, preparing for the fight. However, public interest groups will likely be outspent on advocacy by incumbent providers by a wide margin.” Notes from a conversation with Patrick Lucey and Danielle Kehl on March 19, 2014

10.“Other actions that the FCC could take include:

  • Removing barriers to infrastructure investment, particularly in the nineteen states that currently limit or ban municipalities from building local networks. The FCC is actively discussing this option.
  • Modernizing the Universal Service Fund (USF) to focus more on broadband. This is currently being done with E-rate. The FCC’s current strategy for modernizing USF is to include broadband provisions in existing programs for phone service.”

Notes from a conversation with Patrick Lucey and Danielle Kehl on March 19, 2014

11.“Municipalities could also create more competition among internet providers by building open access networks to which retail service providers could lease access.” Notes from a conversation with Patrick Lucey and Danielle Kehl on March 19, 2014

12.“Groups supporting policies broadly in line with the public interest include:

  • Trade groups representing competitive and rural carriers
  • Content providers, particularly those that have been affected by weak net neutrality, such as Netflix
  • Companies and consumers interested in more affordable broadband services.
  • Public interest groups, including Free Press, Public Knowledge, the Center for Democracy and Technology, and the Electronic Frontier Foundation.
  • Community-focused institutions, including the Schools, Health, and Libraries Broadband Coalition and the American Library Association
  • Consumer protection groups, including the Consumers Union and the Consumer Federation of America.
  • Groups focused on social justice for particular constituencies, such as the National Hispanic Media Coalition and the Media Action Grassroots Network.
  • Foundations, including the Benton Foundation, the Ford Foundation, and the Knight Foundation, which runs the Knight News Challenge.
  • Former FCC commissioner Michael Copps, who now serves as Special Advisor to the Media and Democracy Reform Initiative at Common Cause.”

Notes from a conversation with Patrick Lucey and Danielle Kehl on March 19, 2014

13.Organizations Supporting Net Neutrality May 2014

14.

“Going back to 2005 (when the phrase “net neutrality” first shows up in lobbying disclosure reports) the biggest opponents of net neutrality (Verizon, AT&T, Comcast and their allies) have lobbied against net neutrality about three times as hard as the biggest proponents of neutrality (Level 3, Google, Microsoft and their allies)….
When we arrange the top 20 net neutrality lobbying organizations by amount of reports on the issue (Figure 1), the disparity is clear. The five most active organizations on the issue since 2005 – Verizon, AT&T, Comcast, the National Cable and Telecommunications Association and the National Music Publishers Association – are all opposed to neutrality. Verizon and AT&T are heads and shoulders above everyone else, with an estimated 119 reports mentioning net neutrality each.
Not only does the anti-net neutrality faction devote more lobbying attention to the issue. These top organizations also consistently have a much larger lobbying footprint. Figure 2 looks at the money that the top pro- and anti-neutrality organizations have spent lobbying since 2003. Consistently, the anti-neutrality groups have outspent the pro-neutrality groups by a more than a 5-to-1 margin, although this has narrowed to closer to 3-to-1 in recent years as Google Inc. has increased its lobbying presence.” Furnas and Drutman 2014

Engine 2014