Economists to FCC: Wireless and Wired Broadband Are Equal

productShot_01bEconomists gathered in Washington, D.C., this morning to debate how the wireline duopoly affects the market for broadband in the U.S. at an open meeting held by the FCC. The majority of the speakers, including representatives from the Federal Trade Commission and the Department of Justice, insisted that when it comes to broadband access regulators need to also look at the wireless market. While typically a region will be served by one DSL provider and one cable provider, explained Marius Schwartz, a professor of economics at Georgetown University, there are also four national wireless carriers that can provide broadband service as well.

If the FCC is going to view the wireless providers as a true nationwide substitution for wired broadband, then I suppose it’s good that it’s trying to bring the same set of rules and standards for net neutrality to play for wireless operators. However, believing that wireless is a credible substitute for wired broadband is like believing that Molly McButter’s powdered flakes are a credible substitute for the real thing.

Sure, if you’re in a place with no wireline access, a 3G card and down the road possibly a 4G wireless service is better than nothing. But you’d pay considerably more for less, in terms of speed as well as download capabilities. Not that wireline carriers aren’t trying to take some of the pricing packages from the wireless world and apply them to the wireline one.

Another big point of debate at the meeting was the issue of transparency, especially when it comes to how a network operator or ISP discloses their network management policies as well as their various pricing plans. Schwartz argued against disclosure, citing consumers’ limited willingness and ability to process all that information while also referring to network management as a competitive secret — a carrier’s “secret sauce.” Though as two other panelists pointed out, that “secret sauce” has been used in the past by Comcast to throttle P2P traffic, a fairly egregious example of how a lack of disclosure can cause harm to both consumers and those in the software industry.

The panel also briefly mentioned the need for more data on what types of service packages consumers were buying and what speeds and products they actually had access to. The need for more spectrum was addressed as a way to bring wireless networks closer to parity with wired networks. Shane Greenstein, Elinor and Wendell Hobbs Professor of Management and Strategy at the Kellogg School of Management at Northwestern University, tried to engage regulators with information on how today’s market affects entrepreneurs and small business, but his efforts fell flat.

The best line came from Joseph Farrell, director at the FTC’s Bureau of Economics, who noted that the broadband market “is not exactly a monopoly and it’s not exactly competitive — it’s somewhere in between.”

Exactly. So instead of having long debates over whether wireless is a substitution for wired broadband and if consumers can handle disclosure, let’s get the data needed in order to determine where in our country broadband is a monopoly and figure out policies to address that. Transparency will help, and everyone’s favorite panacea of more spectrum will, too, but until we have one nationwide network, this will remain a local issue. As such we have to get into the weeds and figure out how to deliver competition to those poor souls who have no choice but to use the equivalent of butter-flavored flakes.

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