Mnet :: Network Neutrality and Industry Structure

WASHINGTON, April 24 /PRNewswire/ -- A new economic study released today by the Phoenix Center cautions policymakers about certain Network Neutrality proposals with the intent or effect of "commoditizing" broadband Internet access services. According to the study's findings, commoditization "is likely to deter facilities-based competition, reduce the expansion and deployment of advanced communications networks, and increase prices."

The study uses an economic model that illustrates how commoditization may reduce competition and increase prices in the presence of fixed and sunk costs. As the Paper explains, Network Neutrality rules that encourage commoditization of broadband service exacerbate a tendency toward concentration in an industry that already characterized by an inherently high equilibrium industry concentration level. The Paper cautions that when policymakers consider various Network Neutrality proposals, they "should be aware of the need to balance concerns about discrimination with the danger that commoditizing the market for broadband Internet access services may lead to the monopoly provision of broadband Internet access service in many markets. The result would be lower broadband penetration rates, due to higher broadband prices, and would certainly impede the expansion and technological advancement of broadband networks in the United States."

According to Phoenix Center Chief Economist and study co-author George S. Ford, "Network Neutrality policies present a trade-off. We do not take a position in the paper on the propriety of Network Neutrality rules. But our model shows that proposals which would make it difficult, if not impossible, for network firms to differentiate their products may reduce the chances of entry and competition. Our model also suggests that even in the absence of anticompetitive conduct, Network Neutrality rules are not costless, because they can adversely effect competition."

Phoenix Center Resident Scholar and study co-author Thomas M. Koutsky added, "When presented with a Network Neutrality proposal, the first question a policymaker should ask is: Will this proposal intentionally or unintentionally result in commoditization of the broadband Internet access market?"

"Proponents often say that the concentrated nature of the local market justifies Network Neutrality rules," said Phoenix Center President Lawrence J. Spiwak. "But certain Network Neutrality proposals that would create even higher levels of concentration may be a cure that worsens the disease."

A copy of the full study, Phoenix Center Policy Paper No. 24: Network Neutrality and Industry Structure may be downloaded free from the Phoenix Center's web page at: http://www.phoenix-center.org/pcpp/PCPP24Final.pdf.

In addition, Phoenix Center Chief Economist George Ford will be presenting Policy Paper No. 24 tomorrow, Tuesday April 25th, at the Phoenix Center's "Telecom Town Hall". The Telecom Town Hall will be held at the Conference Theater at the Grand Hyatt Hotel, 1000 H Street, NW, Washington, D.C. between 8:00 and 11:15 am. This event is FREE and open to the public. However, as space is limited, interested parties may either RSVP to the Phoenix Center directly at (202) 274-0235 or via e-mail at spring2006townhall@phoenix-center.org (please include all contact information).

The Phoenix Center is an international, non-profit 501(c)(3) organization that studies broad public-policy issues related to governance, social and economic conditions, with a particular emphasis on the law and economics of regulated industries. SOURCE Phoenix Center

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