Transcript The Digital Advantage: How Nations Win and Lose the Silicon Sweepstakes A Presentation at the December 5, 2008 Rob Frieden, Pioneers Chair and Professor.

The Digital Advantage: How Nations Win and Lose
the Silicon Sweepstakes
A Presentation at the
December 5, 2008
Rob Frieden, Pioneers Chair and Professor of Telecommunications
Penn State University
email: [email protected]; web site: http://www.personal.psu.edu/faculty/r/m/rmf5
blog site: http://telefrieden.blogspot.com/
The Law of Unintended Results
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Converging technologies and markets in information, communications and
entertainment (“ICE”) present new regulatory and development challenges.
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Despite demonstrating global best practices in some areas the United States
woefully lags in others, including:
broadband infrastructure access and affordability—the U.S. ranks 1519th globally in terms of market penetration; a “Digital Divide”
persists;
regulatory reform—Congress and the Federal Communications
Commission (“FCC”) have created a regime that either deregulates
prematurely, or imposes uneven regulatory burdens on competitors;
and
competition—false estimates of market competitiveness support
bogus justifications for approving mergers and acquisitions.
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Stakes and Mistakes

Politics, economic doctrine, lobbying and sponsored research combine to
erode this nation’s comparative advantage in ICE technologies and services.

The conventional wisdom and party line belies the facts that:
The FCC has expanded its regulatory wingspan instead of reducing it;
The U.S. ICE wired and wireless infrastructure lacks competition and
technological superiority;
The FCC has triggered a lack of parity in regulatory burdens between
competitors;
Excessive deregulation in some areas, coupled with excessive oversight in
other areas combine to erode opportunities for startup ventures and little
known content providers to reach critical mass.
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How does this threat to Internet freedom affect you?
Small businesses—The little guy will be left in the "slow lane" with inferior Internet service, unable to compete.
Innovators with the next big idea—Startups and entrepreneurs will be muscled out of the marketplace by big corporations that pay Internet providers for the top
spots on the Web.
Bloggers—Costs will skyrocket to post and share video and audio clips—silencing citizen journalists and putting more power in the hands of a few corporate-owned
media outlets.
Google users—Another search engine could pay dominant Internet providers like AT&T to guarantee another search engine opens faster than Google on your
computer.
Ipod listeners—A company like Comcast could slow access to iTunes, steering you to a higher-priced music service it owns.
Online shoppers—Companies could pay Internet providers to guarantee their online sales process faster than competitors with lower prices—distorting your choices as
a consumer.
Telecommuters—When Internet companies like AT&T favor their own services, you won't be able to choose more affordable providers for online video,
teleconferencing, Internet phone calls, and software that connects your home computer to your office.
Parents and retirees—Your choices as a consumer could be controlled by your Internet provider, steering you to their preferred services for online banking, health
care information, sending photos, planning vacations, etc.
Political groups—Political organizing could be slowed by a handful of dominant Internet providers who ask advocacy groups to pay "protection money" for their Web
sites and online features to work correctly.
Nonprofits—A charity's website could open at snail-like speeds, and online contributions could grind to a halt if nonprofits don't pay Internet providers for access to
"the fast lane."
What They've Got Planned
The threat to an open internet isn't just speculation -- we've seen what happens when the Internet's gatekeepers get too much control. These companies, even, have
said as much about their plans to discriminate online.
Ed Whitacre of AT&T told BusinessWeek in late 2005:
Now what they would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it. So
there's going to have to be some mechanism for these people who use these pipes to pay for the portion they're using. Why should they be allowed to use my pipes?
It's Already Happening
Such corporate control of the Web would reduce your choices and stifle the spread of innovative and independent ideas that we've come to expect online. It would
throw the digital revolution into reverse. Internet gatekeepers are already discriminating against Web sites and services they don't like:
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In 2004, North Carolina ISP Madison River blocked their DSL customers from using any rival Web-based phone service.
In 2005, Canada's telephone giant Telus blocked customers from visiting a Web site sympathetic to the Telecommunications Workers Union during a
contentious labor dispute.
Shaw, a major Canadian cable, internet, and telephone service company, intentionally downgrades the "quality and reliability" of competing Internet-phone
services that their customers might choose -- driving customers to their own phone services not through better services, but by rigging the marketplace.
In April, Time Warner's AOL blocked all emails that mentioned www.dearaol.com -- an advocacy campaign opposing the company's pay-to-send e-mail scheme.
This is just the beginning. Cable and telco giants want to eliminate the Internet's open road in favor of a tollway that protects their status quo while stifling
new ideas and innovation. If they get their way, they'll shut down the free flow of information and dictate how you use the Internet.
Expanded FCC Regulatory Wingspan
While the FCC has deregulated (possibly too aggressively) in some areas,
e.g., telephone services, the Commission ironically expands its Internet
reach on questionable legal grounds.
The FCC must apply service definitions that create a dichotomy between
regulated telephone services and largely unregulated information services.
Despite a regulatory safe harbor for information services, the Commission
has invoked “ancillary jurisdiction” to impose burdens on Internet Service
Providers (“ISPs”).
The FCC recently rejected Comcast’s claim of a right to thwart, delay and
degrade service as legitimate “network management” even when
congestion did not exist. The Commission invoked Title I of the
Communications Act as well as several specific sections specified as
applying to telecommunications, or cable service providers.
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Limited Competition in the
Wired and Wireless Infrastructure
At every opportunity the FCC claims the U.S. has robust competition.
Ample empirical evidence disproves this claim, but the government, and
sponsored researchers attempt to “shoot the messenger.”
Vertically integrated cable television and telephone companies control
90+% of wired broadband access.
Four national wireless carriers control 88%+ of the market and true
broadband does not exist in this country despite the iPhone hype.
Congressionally mandated efforts to promote local telephone service
competition have failed and ratepayers contribute over $7 billion annually
to remedy market failure and promote universal service.
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Lack of Regulatory Parity
The FCC expresses concern about tilted competitive playing fields, yet it
blunts competitive advantages.
Cable television operators bear regulatory burdens not applied to telephone
company provided video services.
The FCC applies most telephone service regulations on Internet startup
ventures like Vonage, even though these ventures have minimal market
share, no market power and arguable qualify for the information service
safe harbor.
A 1968 policy that entitled consumers to own and attach telephones to
networks does not apply to wireless subscribers.
Skillful players can exploit regulatory arbitrage opportunities, e.g., rural
Iowa telephone companies offer “free” international long distance and
conference calling.
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Impact on Content Providers
Positive Impact
Despite bad policy, Congress and the FCC cannot prevent the Internet from providing great
new opportunities to eliminate gate keepers/intermediaries and to showcase talent, e.g.,
streaming WWOZ via the Web; live webcasts of JazzFest and Mardi Gras events.
Web creators and consumers often can resort to legal or illegal “self help.”
The information service classification creates a presumption of limited regulation that has
spawned innovation, entrepreneurship and creativity.
Negative Impact
“Walled Gardens” of easy access to content not likely to support struggling new artists.
Last mile domination by two operators with incentives to favor affiliates and more effectively
recoup their Internet investment.
Unclear whether the FCC has lawful authority to require non-discrimination and remedy
abuses.
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