Broadband: Should We Regulate High-Speed Internet Access?

Business Economics, Oct, 2003 by Bruce Kratofil

Edited by Robert W. Crandall and James H. Alleman 2002. Washington DC: Brookings Institution Press. Pp 338, paperback $22.95.

This collection of papers was presented at a conference October 4-5, 2001 at the AEI-Brookings Joint Center for Regulatory Studies, plus two more papers from a later conference at Columbia University. The book tackles two main tasks. The first is to explain some of the technological complexities of broadband, or high-speed Internet access, for people who don't know DSLAM from DOCSIS. The second is to discuss the theoretical regulatory framework, as well as the specific policy proposals in Washington to regulate or deregulate this field, for the people who can't tell the difference between Tauzin-Dingell and the Telecommunications Act of 1996.

This diverse group of papers includes a good mix of descriptive, theoretical, and empirical work, including some experimental economics. Sponsored by both AEI and Brookings, there is also a mix across the political spectrum. The book is a success in that it does manage the tasks listed above. The only problem, unfortunately a major one, is its timeliness. Not only has technology moved quickly in this field since the conference was held, but there have been big changes in the business world and Washington as well.

Hal Varian illustrates the technology lag, in what appeared to be a promising paper. It provided the results of an experiment to determine the demand for broadband Internet access via a controlled market experiment. Unfortunately, the experiment took place in 1998 and 1999, and the "broadband" was a 128 K ISDN line, less than one-twentieth the speed of the broadband connection used in sending this review to the Business Economics editors. In that time frame, before Napster and Kazaa and with streaming video in its infancy, there wasn't an overwhelming reason to demand higher speeds. While the methodology and reasoning in the article are quite interesting, the results are no longer meaningful. (To be fair, the editors do point out that the study is from "an ancient era in Internet time.") Another article, by Paul Rappoport, Donald Kridel, and Lester Taylor, provides a more recent demand estimate, with data from dial-up and broadband users from mid-2001.

The next group of papers describes the actual technology of broadband. A paper by Charles Jackson covers the wired technology of digital subscriber lines (DSL), which provide broadband over phone lines and cable modems, which use the wires of the cable company. The technology is more than just background information, since most regulatory or pro-competition plans call for the granting of access or divestitures at particular points in the broadband flow. To understand the regulatory schemes, you need some understanding of where they are in the technology.

A companion article by Jerry Hausman looks at the technology of wireless connections, and given its 2001 origins, looks almost exclusively at a discussion of Internet services via 2G and 3G (generation) cellular systems. Fast-forward to 2003 and the action has moved elsewhere. While the cellular companies have cell phones that browse the web and receive email, if you ask most industry people today what they think of when you mention the words "wireless" and "Internet," they think of something else entirely. The hot topics now in wireless broadband are WiFi and public hotspots. The former word hadn't been invented in 2001, but in 2003 it is only the marketing term for 802.11b wireless networking. The technology was around in 2001 but was pricey and unreliable. Now it is cheap and standardized (with more advanced standards on the way) and operates in what is now an unregulated part of the electromagnetic spectrum. People are making serious business plans to provide public access to networks of WiFi devices in places as varied as airports, hotels, Starbucks, and McDonald's. (None of the authors envisioned that we could get fries with our broadband.) A check of the book's index shows no entry for 802.11b. That's not a fault of any of the authors; it is just an indication of how quickly things move in Internet time.

The last half of the book focuses directly on regulation. While some of the articles focus on what were the legislative current events of the time, others provide a broader framework for discussing regulation, de-regulation and their effects on the broadband providers. A good introduction to this is Jerry Hausman's article "Internet-Related Services: The Results of Asymmetric Regulation" which points out that the two broadband technologies, DSL and cable modem, reside in two different industries and face two vastly different regulatory frameworks. Also of value was the last paper in this section, "The Benefits of Broadband and the Effect of Regulation" by Robert W. Crandall, Robert W. Hahn, and Timothy J. Tardiff. They summarize others' research on the benefits to the economy of broadband, and also provide a guided tour of much previous regulation and de-regulation in communications (including telephone, television, and cable). They also point out many of the unintended consequences that were a result of this regulation.