Principles for a Successful IP Transition: Competition

Policies should encourage new entrants into the emerging IP-enabled network market. One of the core tenants of the Telecommunications Act of 1996 has been that competition enables consumers to benefit from lower prices, new services, new investment, and more innovation. In the National Broadband Plan, the Federal Communications Commission (FCC) said, “Competition is crucial for promoting consumer welfare and spurring innovation and investment in broadband access networks. Competition provides consumers the benefits of choice, better service and lower prices.” In our ongoing series highlighting our 10 interrelated principles to help policymakers guide the transition from traditional telephone service to emerging broadband networks, we turn today to Competition. Competition means deploying high-speed IP networks throughout the country and enabling many innovative, community-based broadband options. Policymakers should be wary of arguments that seek to advance IP networks and the IP transition merely by deregulating services at the expense of competition. One significant concern that stakeholders have raised is that the end of today's landline telephone networks will limit the number of carriers that provide both residential and business service, especially in rural and remote areas. As the National Broadband Plan recognizes, “Building broadband networks -- especially wireline -- requires large fixed and sunk investments. Consequently, the industry will probably always have a relatively small number of facilities-based competitors, at least for wireline service.” If companies replace their existing copper networks with fiber or just a wireless alternative, it will reduce choice for many. Some suggested it could also limit regulatory oversight and threaten consumer rights. amalia deloney, a senior policy director with the Center for Media Justice, said “We have seen time and time again that the monopoly and duopoly system does little for the consumer. We are very interested in seeing more networks and more choice.” Testifying before the Senate Commerce, Science and Transportation Committee in July 2013, Jerry James, Chief Executive Officer of CompTel, which represents the competitive carrier sector, said wireline networks are an “essential component” of the telecommunications market that must be protected for the good of business and residential consumers. Without competition, some said, there is the possibility that incumbent providers will just look at the IP transition as a way to bundle together services to sell to consumers. “Because companies are going to want to sell these new packages, they have conflicting incentives,” said Cheryl Leanza of the United Church of Christ’s Media Justice Ministry. “The new technology should not result in the degradation of services.” If consumers are forced to buy a bundled Internet and video service, for instance, that could dissuade them from using an online video competitor such as Netflix or Hulu. And that, in turn, will hurt competition, stakeholders said. Others stressed the need for rules to protect the rights of localities and public-private partnerships to build their own IP-enabled networks where local providers aren’t interested in investing. Supporters of such efforts, including the Benton Foundation, say allowing such “alternative” networks would not only bring better service, but, in many cases, lower prices for consumers. Nineteen states have either placed restrictions on or stopped the building of such networks. Matthew Rantanen of Native Public Media noted that some of the tribes served by Tribal Digital Village began to have a choice of providers about four years ago. He indicated he doesn’t fear the competition because he is confident that he provides a superior service. “If you want to create a network and you are doing it within the rules … you should be able to do it,” he said. “I don’t think there should be a restriction.” He said the broadband pipe should be treated as a utility service in the future. But rural advocates said competition is largely a dream in their areas where it is a struggle to get even one broadband provider. “The principle of ‘competition’ is only relevant in densely populated urban areas where market dynamics are operative,” said Wally Bowen of the Mountain Area Information Network. “Rural and underserved areas, by definition, lie outside the spheres of operative markets. Their lack of service is a product of market failure. Moreover, unqualified allegiance to the principle of competition obscures the true nature of the political economy in which rural and underserved exist.” As the Department of Justice describes the issue, the critical question is not “some abstract notion of whether or not broadband markets are ‘competitive’” but rather “whether there are policy levers [around competition policy] that can be used to produce superior outcomes, not whether the market resembles the textbook model of perfect competition. In highly concentrated markets, the policy levers often include: (a) merger control policies; (b) limits on business practices that thwart innovation (e.g., by blocking interconnection); and (c) public policies that affirmatively lower entry barriers facing new entrants and new technologies.” In addition to the consumer broadband market, to lay the foundation for America’s all-IP future the FCC should foster robust competition for American businesses. This competition requires particular attention to the role of wholesale markets, through which providers of broadband services secure critical inputs from one another. Because of the economies of scale, scope and density that characterize telecommunications networks, well-functioning wholesale markets can help foster retail competition, as it is not economically or practically feasible for competitors to build facilities in all geographic areas. Therefore, as the FCC considers the IP transition, it must keep in mind how wholesale access policies affect the competitiveness of markets for retail broadband services provided to small businesses, mobile customers and enterprise customers. As noted above, competition is one of 10 interrelated principles for a successful IP transition identified in our new report, The New Network Compact: Making the IP Transition Work for Vulnerable Communities. In previous posts, we've looked at Ubiquity, Accessibility, Diversity, and Openness. We'll look more closely at our five additional principles next week.

By Ted Gotsch.