Tuesday, September 13, 2011

A Fair Estimate of Network Neutrality Costs and Benefits

           Opponents of network Neutrality allege that imposing such regulation will result in lost jobs and value.  An example of losses is evidenced by the fact that when the FCC imposed open access requirements for reallocated, choice 700 MHz spectrum this segment generated less than half the proceeds (measured on a per capita, per MegaHertz) basis than other blocs lacking the open access requirement.  See Gerald R. Faulhaber and David J. Farber's 2010 paper The Open Internet: A Customer-Centric Framework and Randolph J. May and Seth L. Cooper, New FCC Regulations Reduce Investment and Hinder Job Creation, available at: http://freestatefoundation.org/images/New_FCC_Regulations_Reduce_Investment_and_Hinder_Job_Creation_091311.pdf.

            The authors of the above material imply that the open access requirement by itself triggered the loss, apparently not offset by any gain.  The analysis provides a quantifiable cost, easily inferred as a result of the FCC’s regulatory intervention. 

            Surely a more nuanced and less results-driven analysis is necessary here. 

            While not easily quantifiable, might there be some upside social gain in requiring an Internet Service Provider (“ISP”) not to discriminate?  Pro network neutrality advocates believe that the Internet has generated massive social benefits, at least some of which accrues from the ability of new ventures—many with limited financial resources—to secure access through the Internet cloud without upfront payments to any and all ISPs for last mile delivery to consumers.  Attributing zero social gain from open access comes across as both wrong and a deliberate attempt to overstate the net loss from open access rules.

            Additionally the analysis assumes absolute equal value in the 700 MHz A, B and C blocs, absent different regulatory requirements.  However, there is no such absolute parity between these three blocs of spectrum.  The blocs have different numbers of assigned licenses based on the geographical size of the service area covered per license.  Also the C block assigns a larger amount of spectrum 34 MHz versus 14 MHz for the A and B block.  See http://wireless.fcc.gov/auctions/data/bandplans/700MHzBandPlan.pdf.  It seems quite plausible that the cost per MegaHertz, per capita (“per pop” in the vernacular) should be lower if the auction bid is spread over a larger bandwidth.

            In this fractious and mean spirited time, it has become all too easy to provide “irrefutable” quantitative evidence how government rules burden operators and harm the national economy.  Numbers don’t lie, right?  Of course they do when the calculation forces a false return.

1 comment:

Ben Cramer said...

Also note that the Faulhaber/Farber paper namedrops "job creation" a few times but offers absolutely no evidence that the dollar amounts referenced would have been used for actual hiring.

The companies and their supporters would like regulations removed but are too disingenuous to admit that they only care about their own profits, so they whip out the tired old job creation argument.

But it's time to put up or shut up. IF the regulations they don't like are removed, WHEN will they create those jobs, and HOW MANY?

That's the type of quantitative analysis I'd like to see.

(And here's a modest proposal: If they don't create the promised number of jobs in the promised amount of time, the regulation will be reinstated.)