Monthly Archives: May 2008

Not for Sale: Canadian Internet

ralpic.jpg Net neutrality has become a political issue in Canada, where a small and very polite rally occurred in Ottawa the other day.
p2pnet news | Freedom:- Today is the day Canadians are gathering in Ottawa to tell the federal government what they think about Net Neutrality and bandwidth throttling.

Bell Canada was suffering under the delusion it could choke down accounts paid for by some of its customers, wrongly claiming they’re responsible for bandwidth congestion.

— Canadians rally for Net Neutrality, P2Pnet news, 27 May 2008

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Payola for the Duopoly

up-need_to_know.jpg ISP meddling with net neutrality could unite indy musicians and record labels against the duopoly:
For the music business, the failure of net neutrality presents several big problems. Musicians are at the vanguard of digital distribution of music files, video files, and other space-gobbling content. Traffic throttling will almost certainly result in placing severe limitations on the amount and kind of content musicians can put out there — and it’s pretty likely that musicians will then be forced into partnering with businesses that have fewer limits and greater access, no doubt for a fee, to get their gear online. Another issue is that, as covered recently in this column, we are seeing a whole new universe of music-related business models, and we need to see some predictability in terms of licensing methods and how artists and copyright owners get paid. One of the most compelling proposals is that P2P music sharing should be rendered commercially viable and copyright-legal by the imposition of a blanket license that would be paid at the gate (i,e., through the ISPs). Institutionalized throttling would take this plan out at the knees.

Another problem is that record labels, distributors and retail chains who are already in desperate jeopardy can’t compete with ISPs and cellular providers who, having launched their own music stores, have all the incentive in the world to steer music consumers to their own services rather than open the pipe for folks to shop elsewhere.

— Net Neutrality, By Allison Outhit, Need to Know, June 2008

This observation comes from Canada, where current attempts by some to pass legislation similar to the U.S. Digital Millenium Copyright Act (DMCA) has suddenly gotten noticed as a path to something music lovers have seen before:
McKie is referring to proposed changes modelled on the American Digital Millennium Copyright Act (DMCA), which call for a much heavier-handed approach to interpreting what kind of content uses are protected by copyright. At the same time a Canadian DMCA would accord “safe harbour” status to service providers to shelter them from a potential onslaught of copyright litigation provided they act quickly to block infringing and illegal actions on their networks. A Canadian DMCA could impact net neutrality by putting police power in the hands of the networks, while providing ISPs with strong incentives to prefer privately-negotiated content distribution deals over the chaos of user-generated traffic. The bottom line is that musicians have come to rely on the net as their number one go-to distribution and marketing tool. The net got that way by being neutral to all comers. Whether you were a platinum seller on Universal, or a couple of unknown basement-dwellers, your video had an equal chance of going viral. Without net neutrality, all the good pipe will get eaten up by whoever has the power to make the deal. Which sounds a lot like the payola days all over again.
Yep, that’s what we’ll get if we don’t have net neutrality: payola for the duopoly.

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Porter’s Five Forces and Net Neutrality: What If Distribution Channels are Open?

brief.jpg Here’s a take on why telcos so adamantly oppose net neutrality:
The eager and almost rabid application of Porter’s “Five Forces” (Supplier Power, Customer Power, Threat of New Entrants, Threat of Substitute Products, Industry Rivalry) to technology products and services has bred an entire generation of MBAs in marketing positions dedicated to developing and maintaining closed systems and closed hardware platforms. This is particularly egregious in the case of business models that are effectively based on distribution channels. In conventional analysis there is nothing wrong with making your living on distribution channels. Remember, that in 1979, when Porter developed the Five Forces framework, distribution channels were highly expensive to create and maintain and, owing to these costs, constructing them effectively presented a significant barrier to entry. Your product didn’t even have to be particularly good, because the threat of substitutes was reduced via the difficulty and expense of the competition actually getting those substitutes (however good they might be) to your customers. Suppliers, if they wanted access to your customer base as a proxy to sell their raw materials, had to go through you. New entrants had to build an entirely new distribution channel. Customers were stuck. You owned the market. But you had to guard this distribution channel carefully. And you had to make sure you hadn’t forgotten something simple and critical. That’s not part of a conventional Porter analysis. But why would it be? Conventional distribution channels are quite physical, antique and boring.

— The Five Forces/Circles of Hell, a Private Equity Professional, Going Private, 27 April 2008

The article goes on to detail how Blockbuster used the old Porter model of closed distribution channels and Netflix used an existing open distribution channel: the U.S. Postal Service.

To spell out the telco connection:

Continue reading →

Postal Hikes and Time Warner’s Role Discovered by New York Review of Magazines

ben_scott_140x140.jpg The New York Review of Magazines catches up with Time Warner and the postal rate hikes it lobbied for and got. First, the bottom line:
…the true price of letting corporations shape government policy: free speech.

— Going Postal, Callie Enlow, New York Review of Magazines, 2008

The NYRB gets into some of the underlying political machinations:
Even Time Warner was taken aback. Halstein Stralberg, co-creator of Time’s rate proposal, said, “There was a new chairman at the commission and there was a totally new environment, and they adopted it, to my surprise.”
The NYRM noted the sudden parachuting in of a new chairman just before the decision as unusual:
In the corporate world, The Progressive Populist would most likely be forced out of business. But should the same rules apply when the product is ideas and the conduit is a government-owned monopoly? To the current administration, the answer is yes, said Cullen. The president appoints the five commissioners that compose the Postal Regulatory Commission. Between the 2005 Time Warner complaint, when the PRC rejected the corporation’s proposed rate restructuring, and the 2006 rate hearings, when the PRC adopted the suggestions almost verbatim, two new commissioners joined the PRC. One of them, Dan G. Blair, replaced George Omas as chairman just one month before the end of the rate cases, a move that Bob Cohen described as “pretty unusual.”
However, the NYRM didn’t follow up on the other chairman, the chairman of the Postal Board of Governors from January 2005 to January 2008, James C. Miller III, and his 27-year-old theory:
“…none should be favored and none benefited. Each party pays the cost of service it consumes, not less, and does not bear the cost of others’ consumption.”
Curious how someone with that philosophy should be chairman just at the time the decision was made.

The NYRM does say what happened, why it was unusual, and who it affected: Continue reading →

Positive Externalities: What Yoo Ignores

frischmann.jpg It turns out Prof. Chris Yoo has been rebutted by legal scholars before:
Our article directly replies to a series of articles published by Professor Christopher Yoo on this topic. Yoo’s scholarship has been very influential in shaping one side of the debate. Yoo has mounted a sophisticated economic attack on network neutrality, drawing from economic theories pertaining to congestion, club goods, public goods, vertical integration, industrial organization, and other economic subdisciplines. Yet he draws selectively.

For example, his discussion of congestion and club goods is partial in that he ignores the set of congestible club goods that are most comparable to the Internet – public infrastructure. Yoo focuses on the negative externalities generated by users (i.e., congestion) but barely considers the positive externalities generated by users (he simply assumes that they are best internalized by network owners). Yoo appeals to vertical integration theory to support his trumpeting of ‘network diversity’ as the clarion call for the Internet, but he myopically focuses on the teaching of the Chicago School of economics and fails to consider adequately the extensive post-Chicago School literature. And so on.

In our article, we explain the critical flaws in Yoo’s arguments and present a series of important arguments that he and most other opponents of network neutrality regulation ignore.

— Network Neutrality and the Economics of an Information Superhighway: A Reply to Professor Yoo, BRETT M. FRISCHMANN, Loyola University of Chicago – Law School; Fordham University – School of Law, BARBARA VAN SCHEWICK, Stanford Law School, Jurimetrics, Vol. 47, 2007, Stanford Public Law Working Paper No. 1014691, Stanford Law and Economics Olin Working Paper No. 351

Hm, “positive externalities generated by users” as in participation and ad hoc content creation.

The authors also address David P. Reed’s point that competition is not the holy grail of networking:

By focusing only on the market for last-mile broadband networks, Yoo not only neglects the importance of unfettered application-level innovation for realizing economic growth and the role of a nondiscriminatory access regime in fostering the production of a wide range of public and nonmarket goods. His argument also neglects other ways to solve the problem of broadband deployment that would not impede competition and innovation in complementary markets.

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Fair Trade: Fixing Antitrust for the Internet

zoe_lofgren.jpg So suppose for the moment that net neutrality is an antitrust issue. Does this bill fix antitrust law enough to deal with it?
Federal lawmakers have introduced yet another network neutrality bill, but this time with a focus on fair trade issues.

This week, U.S. Rep. John Conyers, who chairs the House Judiciary Committee, has introduced legislation that addresses the issue by labeling it an antitrust matter. Conyers’ H.R. 5994 would ban discriminatory network management practices by amending the Clayton Act.

The bill, labeled the Internet Freedom and Nondiscrimination Act, would require carriers to promote competition and allow people to use any device they want to on the carriers’ networks. The bill makes exceptions for emergencies, criminal investigations, parental controls, marketing, and improvements to quality of service.

Under the Detroit Democrat’s proposed legislation, ISPs could give preference to certain types of data, but they must give the preference regardless of the data source. It would ban ISPs from discriminating based on content, applications, or services.

— Lawmakers Eye Net Neutrality As Anti-Trust Issue, The Internet Freedom and Nondiscrimination Act would require carriers to promot e competition and allow people to use any device they want to on the carriers’ networks. By K.C. Jones, InformationWeek, May 9, 2008 05:42 PM

And does this fix the problems Google and Ebay complain about?

Meanwhile, a cosponsor sums it up:

U.S. Rep. Zoe Lofgren, D-Calif., has co-sponsored the legislation.

“Recent events have shown that net neutrality is more than a hypothetical concern. We need a meaningful remedy to prevent those who control the infrastructure of the Internet from controlling the content on the Internet,” Lofgren said. “This legislation will help guarantee that the innovative spirit of the Internet is not trampled.”

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Critics, it’s Time to Stop the Quibbling: Broadband in Other Countries

bio_nate.jpg Ars technica sums it up:
One of the ironies of the current broadband situation in the US is that staunch free marketeers defend the status quo even though the result of their views has been duopoly and high prices. Meanwhile, other countries (including those with a reputation in some quarters for “socialism”) have taken aggressive steps to create a robust, competitive, consumer-friendly marketplace with the help of regulation and national investment.

Critics, it’s time to stop the quibbling: the data collection practices that show the US dropping year-over-year in all sorts of broadband metrics from uptake to price per megabit might not prove solid enough to trust with your life, but we’re out of good reasons to doubt their general meaning.

— Broadband: other countries do it better, but how? By Nate Anderson, ars technica, Published: May 11, 2008 – 07:37PM CT

That post includes a table of papers and reports on per-country broadband rankings with corresponding U.S. rankings, from 11 to 24.

Then it gets to lack of political leadership:

Despite the repeated claims of the current administration that our "broadb and policy" is working, the US act ually has no broadband policy and no aggressive and inspiring goals (t hink "moon shot"). The EDUCAUSE model suggests investing $100 billion (a third comes from the feds, a third from the states, and a third from compan ies) to roll out fiber to every home in the country. Whether the particular pro posal has merit or not, it at least has the great virtue of being an ambitious policy that recognizes the broad economic and social benefits from fast broadba nd. 

Here's hoping that the next president, whoever he (or, possibly, she) is, g ives us something more effective—and inspiring—than this. It's telling that the current administration's official page on the President's tech p olicy hasn't had a new speech or press release added since… 2004.

$100 billion may sound like a lot, but the federal government alone spends that much a year on the unnecessary Iraq war. The U.S. needs better priorities.

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Sensing History: Yoo Re Cherry

tortoise_and_hare.jpg Dave Farber posted a response by Chris Yoo to Barb Cherry’s post about myths and historical errors. Here’s Chris’s reponse in full. To me, it seems that he is conceding that she’s right about the history, that antitrust says nothing about ISP competition, and that a few ISPs control most of the Internet in the U.S. But read it for yourself:
From: Christopher S. Yoo [mailto:csyoo@law.upenn.edu]

I don’t pretend to be an expert on the history of common carriage regulation. Barbara has spent far more time thinking about this than I have, so I always appreciate hearing her reactions and learn from reading her work. That said, here are a few thoughts.

It is true that common carriage long predates both the Granger Movement and the Interstate Commerce Act of 1887. That said, one of the central problems is that the historic justifications for common carriage have not aged very well. Often times the common carriage obligations were regarded as a quid pro quo for a government grant of some economic privilege. Other times they were justified because the industry was “affected with a public interest,” a concept that is usually traced to the landmark Supreme Court case Munn v. Illinois (1876). The Supreme Court struggled to imbue that standard with content (along with a number of early treatises trying to make sense of the concept) and would ultimately abandon it as analytically empty in Nebbia v. New York (1934). Legal scholars, such as Thomas Nachbar and James Speta in addition to Barbara, have attempted to recover lessons from this era. I have never spoken to Barbara about this in particular, but both Tom and Jim have noted the difficulty in extracting any useful lessons from the history.

The rest after the jump. Continue reading →

Myths and Historical Errors: Cherry Re Yoo

cherry.jpg Dr. Barbara Cherry sent me a response to Dr. Chris Yoo’s “novel” opinion of her antitrust theory. Dave Farber posted Barb’s comments on his Interesting People list, although without her postscript with the pointer to her articles and book. Farber appended a response from Chris, which I’ll post separately.
From: “Cherry, Barbara” <cherryb at indiana.edu>
Date: Fri, 9 May 2008 18:28:04 -0400
Subject: Re: Prof. Yoo responds for Prof. Farber

John,

Christopher Yoo’s response unfortunately contains several historical analytical errors that I’ve repeatedly discussed in my writings. It is unlikely that he actually read my TPRC paper to which you provided a link in our blog, as he would have readily discovered some of them.

Perhaps the fundamental problem is that many economists and legal scholars commenting on the network neutrality debate DO NOT understand the history of common carriage. Under the common law, common carriage obligations were TORT obligations imposed on carriers (in their relationship with customers) simply by virtue of their status of engaging in the business. In other words, the obligations are STATUS-BASED and unrelated to the industry’s market structure. Attributing the imposition of common carriage obligations to natural monopoly is a MYTH, unfortunately so often erroneously repeated in the secondary literature that it is believed to be true.

The rest after the jump. Continue reading →

Social Welfare: Reed Asks Yoo

DPRPhotoSmall.jpg David P. Reed asks a question and Christopher S. Yoo responds on Farber’s Interesting People list. I’m posting both in full here, with my thoughts at the end; basically, law isn’t a science, and anecdotes can turn into legal cases; some have already regarding net neutrality.
From: David P. Reed [dpreed@reed.com]
Sent: Saturday, May 10, 2008 11:50 AM
To: David Farber
Cc: ip
Subject: Re: [IP] re-distribution of op-ed on Net Neutrality — a reaction and a reply from one of the authors

I read through the long comment by Chris Yoo below, and as a non-lawyer interested in policy, I ask the following simple question:

Is there a well-regarded (one might ask for scientifically reasoned) argument that antitrust law as currently interpreted and practiced has a substantial impact measured in some currency like $ on social welfare?

Otherwise this entire argument is about nothing more than vaporware proceeding from a faith that competition (however loosely defined) creates social welfare best. AFAIK, this is largely an article of faith, just as the “End of History” was a grand article of faith posited by many of the same people as “truth”.

It is just not fair to imply that the core of “today’s settled antitrust law” carries even the level of weight as Darwin’s Theory of Evolution. There have been no replicable studies of its practice.

Law professors and lawyers who don’t challenge its truthiness squarely are merely behaving as dogmatic mandarins always do – asserting authority of professional status, rather than rigor of reasoning, experiment, or argument.

I say this not as FOX News or Hillary Clinton would call an elitist, but as a person who genuinely is unconvinced by magical faith in authorities.

That’s Reed’s question. Yoo’s response, and my thoughts, after the jump. Continue reading →