January 5, 2010 5:42 PM

A House Divided? The Broadband Plan vs. Net Neutrality

[Note: Yesterday, the Department of Justice, Antitrust Division ("DoJ") filed an ex parte presentation in the National Broadband Plan proceeding, which focused on ways to increase the number of broadband service offerings and broadband competitors.  Most public attention has been focused on the DoJ's spectrum recommendations, which are largely designed to promote further spectrum availability.  One controversial recommendation, which was heavily caveated by the Department, was that there may be situations where the highest bidder for spectrum may not provide the most valuable use for the spectrum.  In other words, in an auction model for scarce, but essential, inputs, the hypothetical monopolist is always willing to pay the highest price in order to keep supply off the market.  The facts that would support such a theory as a basis for foreclosing carriers from spectrum auctions are not present now, or even imminent.  For example, the largest spectrum holder in the country is a new entrant, Clearwire, and the biggest "winner" in the 700 MHz auction--Verizon--spent almost $10 billion on spectrum that it knew would be subject to an "open access" requirement. Therefore, given the attention that this one aspect of the DoJ filing has attracted, this post will not discuss the Department's spectrum recommendations.]

For a long time, opponents of "Net Neutrality" (however they chose to interpret the concept at the time) have argued that, conceptually, Net Neutrality was at odds with the national policy goal of increasing broadband deployment and penetration.  The typical argument against Net Neutrality was as general, and loosely-defined, as the concept of Net Neutrality.  A good example of the Net-Neutrality-Broadband Policy tradeoff is this 2004 paper by Professor Christopher Yoo for the Progress and Freedom Foundation.   This is old news, and not surprising coming from a pro-business group like PFF.  So, why bring up an old argument?

Well, because "Net Neutrality" is no longer an amorphous, generalized, mean-what-you-want-it-to-mean, concept.  No, the FCC has now given Net Neutrality a very specific meaning in its NPRM and proposed rules.   This is what makes yesterday's ex parte filing by the Antitrust Division of the Department of Justice ("the DoJ") in the FCC's Broadband Plan proceeding so interesting. The DoJ's ex parte is interesting for several reasons, but the main one is that it highlights the tension between the goals of the Broadband Plan (as seen through the "consumer welfare" eyes of the DoJ) and the policy and proposed rules set forth in the Net Neutrality NPRM. 

For example, in the Net Neutrality NPRM (See ¶¶ 103-117), the FCC proposes a "non-discrimination" rule that is tantamount to a "non-competition" standard/line of business restriction.  The Commission proposes that broadband Internet access providers, with limited exceptions, should not be allowed to offer applications or content providers differentiated access services to reach the consumers the applications/content providers are seeking to serve (¶ 106), though the Commission does not disapprove of broadband Internet access providers charging different prices to consumers for different services.  

The DoJ, in its Broadband Plan ex parte, communicates a different, but fairly non-controversial point--that the essence of competition is offering consumers individual price discounts off the advertised price for the same service being offered by a competitor. (See, p. 27 of DoJ ex parte).  Instead, and much like the Yoo paper referenced above, the DoJ sees value in protecting all Internet consumers (subscribers and applications/content providers) by promoting competition among the various network providers using competing technologies (i.e., wireline, competitive wireline (limited), cable, and wireless).

Another distinction between the DoJ Broadband Plan ex parte and the FCC's Net Neutrality NPRM, is in how the two agencies view the market.  In the Net Neutrality NPRM, the Commission seems to assume that price and network service discrimination are both technically feasible, and potentially profitable, at virtually any geographic delineation. (See, NPRM, ¶¶ 67-74). 

The DoJ, on the other hand, never asserts that price discrimination is possible, much less probable, in any specific product or geographic market. As explained in its ex parte, the DoJ defines markets using its Horizontal Merger Guidelines. It is notable that, in the Merger Guidelines, the Division allows for the definition of product and geographic markets "in the Presence of Price Discrimination" differently than its "standard" product and geographic market definitions.  Yet, in its Broadband Plan ex parte, the DoJ refers to product and geographic market definition for broadband services using the "standard" definitions (i.e., without price discrimination).  Moreover, while the DoJ does acknowledge that competition varies by location, this is not the same as saying that the same provider will (or can) tailor price or network capabilities to the level of local competition in any given area.  

Indeed, the DoJ uses the analogy of video market entry by satellite providers to note that, although satellite providers have not been able to successfully discipline cable prices, satellite entry forced cable providers to improve overall network service on a nationwide basis (See DoJ, p. 16).  Thus, the general tenor of the DoJ Broadband Plan ex parte is consistent with the DoJ's prior competition advocacy: that more competitors are better than fewer, and that the FCC should encourage new technologies, like wireless broadband, while also promoting output expansion by incumbent broadband providers.  

What is most interesting is that the Congress and the President have mandated the development of a National Broadband Plan, as part of the Recovery Act.  Congress, and the President, did not require the Commission to develop Net Neutrality rules--especially not rules that exceeded the Commission's broadband principles in existence at the time the Recovery Act was adopted.  To the degree that the premiere competition authority of the Executive Branch believes that broadband output (i.e., jobs and productivity) will be maximized by promoting, rather than constraining, the options available to network operators, it seems prudent for the Commission to adopt a more "flexible" approach to "nondiscrimination"--much more akin to the "unjust and unreasonable" ex post standard of Title II.  Either way, I'm willing to go out on a limb and predict that yesterday's DoJ ex parte in the Broadband Plan proceeding will have an influence in the Net Neutrality proceeding.

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