The Public Interest in Open Communications Networks
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THE PUBLIC INTEREST IN OPEN COMMUNICATIONS NETWORKS Mark Cooper July 2004 TABLE OF CONTENTS I. SUMMARY ...........................................................................................................................1 A CRITICAL POLICY DECISION ................................................................................................1 OPEN COMMUNICATIONS AND THE DIGITAL INFORMATION REVOLUTION...............................2 ROBUST NETWORKS AND TECHNOLOGICAL CHANGE..............................................................4 THREATS TO OPEN COMMUNICATIONS NETWORKS.................................................................5 THE IMPORTANCE OF ISPS IN THE COMMERCIAL SUCCESS OF THE INTERNET .........................6 INTERNET PROTOCOL-ENABLED SERVICES ..............................................................................8 CONCLUSION .........................................................................................................................11 II. OPEN COMMUNICATIONS AND..................................................................................13 THE DIGITAL INFORMATION REVOLUTION .................................................................13 PUBLIC POLICY AND THE INFORMATION REVOLUTION.........................................................13 THE STRUCTURE OF THE DIGITAL COMMUNICATIONS PLATFORM........................................15 THE BROADER IMPACT ..........................................................................................................18 OPEN COMMERCE AND COMMUNICATIONS NETWORKS:A CORNERSTONE OF CAPITALISM .23 CONSTANCY OF THE PRINCIPLE, EVOLUTION OF ITS IMPLEMENTATION...............................25 III. NETWORK THEORY......................................................................................................29 COMPLEX NETWORKS ...........................................................................................................29 Network Elements............................................................................................................29 The Architecture of Ultrarobust Networks.......................................................................33 INNOVATION IN HIGH TECHNOLOGY INDUSTRIES ..................................................................35 The Technology of Technical Change .............................................................................35 A Broad-Based, Transformative Revolution....................................................................39 Pinpointing the Key Technologies and Interfaces............................................................40 CONCLUSION .........................................................................................................................43 IV. THREATS TO OPEN COMMUNICATIONS NETWORKS..........................................44 THE THREAT OF MARKET POWER .........................................................................................44 FROM THEORY TO PRACTICE ................................................................................................48 CONCLUSION .........................................................................................................................54 V. INTERNET SERVICE PROVIDERS..............................................................................55 THE ROLE OF INTERNET SERVICE PROVIDERS IN THE COMMERCIAL SUCCESS OF THE INTERNET ..............................................................................................................................55 THE MONOPOLIZATION OF THE HIGH-SPEED INTERNET .......................................................63 SQUEEZING INTERNET SERVICE PROVIDERS OUT OF THE MARKET ......................................67 CONCLUSION .........................................................................................................................71 i VI. THE LAYERED APPROACH TO DEFINING SERVICES UNDER THE TELECOMMUNICATIONS ACT OF 1996...........................................................................73 TELECOMMUNICATIONS AND INFORMATION SERVICES UNDER THE 1996 ACT ....................73 Legal Definitions ..............................................................................................................73 Characteristics Of Services That Indicate How They Should Be Categorized .................76 REMOVING REGULATION UNDER THE 1996 ACT ..................................................................80 Legal Criteria ....................................................................................................................80 Forbearance at the Physical and Code Layers..................................................................81 CONCLUSION .........................................................................................................................85 VII. CONCLUSION................................................................................................................87 ENDNOTES .............................................................................................................................88 LIST OF EXHIBITS Exhibit II-1: Layers of the Digital Communications Platform................................................16 Exhibit II-2: The Internet As A Bearer Service........................................................................21 Exhibit III-1: Network Configurations .....................................................................................32 Exhibit III-2: The Original Proposal For The World Wide Web .............................................36 Exhibit IV-1: Unique Characteristics Of Communications Platforms.....................................45 That Raise Special Market Power Concerns ............................................................................45 Exhibit IV- 2: Anti-Consumer/ Anticompetitive Elements Of TheCable Industry Communications Platform................................................................................................51 Exhibit V-1: ISPS, Internet Subscription And Home PC Penetration......................................56 Exhibit V-2: Density Of Internet Service Providers By Date ..................................................57 Exhibit V-3: A Map Of The Internet, Mid-1999......................................................................59 Exhibit V-4: The Internet And The Web Were ‘Killer Apps” For The PC .............................61 Exhibit V-5:Average Price Of Home Personal Computers......................................................62 Exhibit V-6: Restrictive Conditions In High Speed Internet Consumer Contracts..................65 Exhibit V-7: Density Of Dial-Up And High-Speed ISP By Date ............................................68 Exhibit V-8: Density Of Dial-Up And High Speed ISPs By National Market Size ................69 Exhibit VI-1: Layers of the Digital Communications Platform Compared to the Definitions in the Telecommunications Act of 1996...............................................................................74 Exhibit VI-2: Indicia of Distinction between Telecommunications & Information Service Across Layers of the Digital Communications Platform .................................................77 Exhibit VI-3: Forbearance Determinations in Relation to the Layers of the Digital Communications Platform................................................................................................79 Exhibit VI-4: Indicia of the Type of Service: AT&T v. Pulver ...............................................82 Exhibit VI-5: Indicia of the Type of Service: Vonage .............................................................83 ii THE PUBLIC INTEREST IN OPEN COMMUNICATIONS NETWORKS I. SUMMARY For almost two decades, consumer advocates have been among the leading proponents of open communications networks. Unlike most consumer issues, where price is the advocates’ central concern, in the matter of communications and the Internet, their primary focus has been on another aspect of market performance: innovation. They view open communications networks as an environment friendly to innovation driven by consumer choice and decentralized decision-making. Their analyses have demonstrated the benefits of open communications networks in terms of core Internet services, computer development, and broad spillovers into the economy. This Issue Brief summarizes the public interest in open communications networks by providing an analytic framework for evaluating the impact of open communications. It applies the framework to two critical public policy issues currently being considered by the Federal Communications Commission (FCC or the Commission) and the courts – nondiscriminatory access to telecommunications networks and oversight of services delivered by Internet protocols (IP-enabled services). A CRITICAL POLICY DECISION In the last quarter of the twentieth century, the convergence of computers, communications, and the Internet, all deployed under design principles of open architecture, created a digital communications platform that became a uniquely important platform or “bearer service.” It supports a broad range of economic activities in the 21st century digital economy and revolutionized the environment for innovation. Nations, regions, industries, and firms that seized the opportunity presented by the open digital communications platform have enjoyed much more vigorous economic growth than those that did not. Policy choices that required open architecture and nondiscrimination in access to communications