Regulation & The Internet: 1999-2019 Thomas W. Hazlett H. H. - - PowerPoint PPT Presentation

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Regulation & The Internet: 1999-2019 Thomas W. Hazlett H. H. - - PowerPoint PPT Presentation

Nov 25, 2023 238 likes •796 views

Regulation & The Internet: 1999-2019 Thomas W. Hazlett H. H. Macaulay Endowed Professor of Economics ACCC/AER Conference Brisbane, Australia August 1-2, 2019 The Beauty of Brisbane Rated 8 th most beautiful city in the world It

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Regulation & The Internet: 1999-2019

Thomas W. Hazlett

  • H. H. Macaulay Endowed

Professor of Economics

ACCC/AER Conference Brisbane, Australia August 1-2, 2019

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The Beauty of Brisbane

  • Rated 8th most beautiful city in the world
  • It was once a point of shame that Australia was

settled by convicts, but today

  • locals are embracing their crime-ridden past.
  • Jan 26, 2012 BBC.com

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20 Years of Broadband Regulation

  • Markets yield surprises

– and the disruptions yield growth

  • Joseph Schumpeter right about dynamics

– optimizing over time  “imperfect competition”

  • New structures provoke old policy arguments

– demanding rigorous and analytically symmetric comparisons (Insert: Ronald Coase citation here)

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The 1999 Broadband Internet

  • there was no residential broadband market
  • dial-up  mass market Internet
  • waiting for deployment of Bell Labs’ ISDN
  • “It Still Does Nothing”

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And we worried about this--

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AOL Buys Time Warner for $162 billion

  • Jan. 10, 2000
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The AOL-Time Warner Monopoly

  • America Online (AOL) is the largest, and in

some aspects dominant, firm in the aggregation and distribution of content and services over the Internet.

  • AOL is also the largest provider of Internet

access in the U.S. This is a business that AOL essentially invented, and no other firm has been able to compete effectively with AOL.

– Jeffrey MacKie-Mason, Federal Trade Commission (10.17.00)

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AOL’s Revolution

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AOL not a Common Carrier

  • Deregulation in the 1980s allowed AOL

– escaped access charges, licensing, taxes, mandates

  • Without this freedom, the “tens of millions of

Americans today who enjoy unlimited use of the Internet for around $20 a month, and who invest, shop, learn and otherwise benefit from home Internet access, might never have experienced this extraordinary tool.” (FCC 1999)

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Walled Garden

Regula ng Broadband ISPs * Western Carolina University

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That Model Did Not Control Broadband

  • but was disrupted and terminated by

broadband

  • in a very informative way

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Three U.S. Regulatory Regimes

Period Cable Modems Telecoms/DSL before 2003-1Q unregulated regulated with “line sharing” obligation 2003-1Q to 2005-3Q unregulated regulated but no “line sharing” 2005-3Q forward unregulated deregulated

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Three U.S. Regulatory Regimes

Period Cable Modems Telecoms/DSL before 2003-1Q unregulated regulated with “line sharing” obligation 2003-1Q to 2005-3Q unregulated regulated but no “line sharing” 2005-3Q forward unregulated deregulated

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1st Period: Cable Dominates

2 4 6 8 10 12 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 ADSL (in millions) Cable Modem (in millions)

Subscribers (in millions)

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2nd Period: DSL Surges

  • 5

5 10 15 20 25 30 35 1Q99 3Q99 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 DSL Cable

DSL 'Line Sharing' Dereg 65% above trend Number of Subscribers (in millions) 11% above trend

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3rd Period: DSL Spikes Again (Less)

  • 5

5 10 15 20 25 30 1Q99 3Q99 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 DSL Cable

DSL Dereg II Trend II DSL 'Line Sharing' Dereg 12% above trend Number of Subscribers (in millions) 1% above trend 'Line Sharing' Trend

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Source: Hazlett-Caliskan, Natural Experiments in US Broadband Regulation, REVIEW OF NETWORK ECONOMICS (Dec. 2008)

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Disruptions in Fixed Broadband

  • not via common carrier regulation
  • not via common carrier business models
  • yet markets evolved to “openness”

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1999: Wireless Web

  • NTT DoCoMo’s iMode
  • “strong vertical integration”
  • bandwidth optimized by carrier rules
  • content, prices and services “co-ordinated”
  • 25 mil. subscribers, Feb ‘99 to Sept ‘01

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POCKET MONSTER (9.01)

  • How DoCoMo's wireless Internet service went

from fad to phenom - and turned Japan into the first post-PC nation.

  • So far, the wireless Internet has flopped

spectacularly in every part of the world except Japan.

  • https://www.wired.com/2001/09/docomo/

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Vertical Restrictions

  • At the heart of all this is a paradox: i-mode

depends on outside providers for everything from handsets to content, yet it's managed so carefully that nothing is left to chance.

  • Critics see a walled garden, more mobile mall

than wireless Web.

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Business Model Rivalry

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Liberalization allowed this

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Beyond iMode

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Sometimes with Walls

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"Closed" v. "Open" (c. 2009)

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Google challenges record $5 billion EU antitrust fine (OCT. 9, 2018)

… Google’s illegal practices included forcing manufacturers to pre-install Google Search and its Chrome browser together with its Google Play app store

  • n their Android devices.

The EU antitrust authorities said the company also paid manufacturers to pre-install only Google Search and blocked them from using rival Android systems.

https://www.reuters.com/article/us-eu-alphabet-inc-antitrust-idUSKCN1MJ2CA

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Internet’s Wild Ride, 1999-2019

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Reality v. Meme

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Layers of the Internet

Physical Layer Logical Layer Content Layer

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Hipster Antitrust

  • platform creators endemically foreclose

– Broadband ISPs with content – Amazon with independent vendors – Wireless carrier with applications

  • per se non-discrimination rules pro-consumer
  • gains from rivalry to create markets dismissed
  • net neutrality and ”antitrust activism” popular

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Whopper Neutrality

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For the purposes of this example

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=

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Outraged Customers, Forced to Wait

  • - or Pay a Fee for Faster Service

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What you won’t wait for at Burger King

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BUT…. you will pay extra for speed.

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No common carrier rules needed.

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Corporate Happy Meal?

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How ‘Whopper Neutrality’ Became the Perfect Combination of Entertainment and Education

(and Burger King's most shared ad) Ad Week (June 20, 2018) “We believe the internet should be like Burger King restaurants, a place that doesn’t prioritize and welcomes everyone,” says Fernando Machado, Burger King’s global chief marketing

  • fficer. “That is why we created this experiment, to call attention

to the potential effects of net neutrality.” Ad Week (Jan. 24, 2018)

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New Learning and Old Rhythms

  • Liberalization has opened markets
  • Business model rivalry disrupts & discovers

– battling on the “open/closed” frontier

  • New Learning is powerful and contagious
  • But so are old beliefs and political coalitions
  • Policy economists are not yet obsolete

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Thank You.

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And also in 1999

  • Amazon offered to buy Netflix for $12M
  • Following year  Netflix tried to sell for $50M
  • to Blockbuster

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A Brief History of Netflix

  • launched 1997 as online mail-order video casette rental service
  • Blockbuster dominant with 9,000 stores renting VHS tapes

– blocked by FTC from acquiring Hollywood Video (1999, 2004)

  • attacked Blockbuster with DVDs, marketing tactics, price war
  • Netflix launched streaming in 2007
  • Blockbuster  bankrupt in 2010
  • Battled for network neutrality regulation, circa 2010-14

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Netflix CEO makes stand for net neutrality

If there is one company that would benefit from the upholding of net neutrality, it is Netflix.

https://www.zdnet.com/article/netflix-ceo-makes-stand-for- net-neutrality/ (March 20, 2014)

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Source: Netflix 2014

Netflix Says: Foreclosure

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APRIL 13, 2018

Comcast Will Start Bundling Netflix Into Xfinity TV Packages U.S. cable giant to launch packages that include Netflix subscriptions later this month

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OECD Broadband Rankings (12.2013)

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OECD Broadband Rankings (12.2018)

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5 10 15 20 25 30 35 40 45 50 55

DSL Cable Fibre Satellite Fixed wireless Other

OECD Fixed broadband subscriptions per 100 inhabitants, by technology, December 2018

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Pay more for faster service?

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Net Neutrality Explainer Video (2.26.15)

https://www.youtube.com/watch?time_continue=3&v=p90McT24Z6w

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Federal Express a common carrier.

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UPS is not a common carrier and reserves the right in its absolute discretion to refuse carriage to any shipment tendered to it for transportation.

https://www.ups.com/media/en/gb/terms_carriage_eur.pdf

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Lawrence Page was born in East Lansing, Michigan, and received a B.S.E. in Computer Engineering at the University

  • f Michigan Ann Arbor in 1995. He is currently a Ph.D.

candidate in Computer Science at Stanford University. Some of his research interests include the link structure of the web, human computer interaction, search engines, scalability of information access interfaces, and personal data mining. Sergey Brin received his B.S. degree in mathematics and computer science from the University of Maryland at College Park in 1993. Currently, he is a Ph.D. candidate in computer science at Stanford University where he received his M.S. in 1995. He is a recipient of a National Science Foundation Graduate Fellowship. His research interests include search engines, information extraction from unstructured sources, and data mining of large text collections and scientific data.

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Ads placed with Search Results

  • Currently, the predominant business model for commercial

search engines is advertising. The goals of the advertising business model do not always correspond to providing quality search to users.

  • It is clear that a search engine which was taking money for

showing cellular phone ads would have difficulty justifying the page that our system returned to its paying advertisers.

  • [W]e expect that advertising funded search engines will be

inherently biased towards the advertisers and away from the needs of the consumers.

  • Since it is very difficult even for experts to evaluate search

engines, search engine bias is particularly insidious.

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