deny the fundamental principle of “open access” that has animated telephone deregulation

merely because lawyers can disagree about how it should be implemented.


This is especially true for the FCC, because the FCC mandates that DSL offer

broadband under what is described as an “open access” model. How it is possible that there is no

concept of “open access” in the context of cable, but a concept of open access in the context of

DSL, frankly baffles us.1 8Certainly if the providers of DSL refused customers the choice of

ISPs, and then cited the Bureau’s findings as a defense to its actions, no court would recognize

the lack of a definition as any excuse.


In our view, “open access” is simply a short hand for a set of competitive

objectives. The objectives sought in the DSL context are perfectly adequate to apply in this

context, at least as a starting point. For the relevant question that the agency should address is

how to assure that customers have an easy choice among relevant competitors, so as to preserve

competition in the broadband market. The DSL requirements assure that.


The Commission can impose open access conditions on the AT&T/MediaOne

merger without replicating the complex regulatory scheme necessary to implement sections 251

and 252 of the 1996 Telecommunications Act. Interconnection to a cable modem network, even

by multiple ISPs, involves nothing more than a standard Internet connection between an ISP and

a router. It does not require collocation of equipment, nor would open access conditions require

AT&T/MediaOne to honor requests for interconnection at special locations within its network.

IMAGE fcc02.gif

18 Indeed, AT&T has argued vigorously in favor of imposing open access requirements on local telephone providers.
See Reply Comments of AT&T Corp. (CC Docket No. 98-147), filed October 16, 1998, at 37: “the most important
action the Commission can take to speed deployment of advanced telecommunications services is to vigorously
implement and enforce the market-opening obligations that Section 251 imposes on incumbent LECs.” Why
deployment is encouraged by open access in one context, but closed access in another, is unclear to us.


So long as unaffiliated ISPs are allowed to interconnect at the same placeand at the same

price — as unaffiliated ISPs, the End-to-End principle will not be compromised.


The Bureau report seems to suggest that it is enough if access is open in one

broadband context, and not in all. But in our view, a principle is respected if respected generally,

not occasionally. And the benefits of a principle come from the expectation that it will be

respected. Further, it makes no sense economically to argue that competition in a small subset of

the broadband market is an adequate substitute for competition in the entire broadband market.

This is particularly true if (as the Bureau report itself suggests) the characteristics of the media



Finding (3), (4) and (5): The core of the Bureau’s arguments, however, rest on

findings 3 through 5. These findings, we submit, are internally inconsistent. On the one hand, the

Bureau seems to assume that broadband cable will voluntarily adopt some form of open access.

Finding (4) states that “market forces will compel cable companies to negotiate access

agreements with unaffiliated ISPs.” Thus the future, in the Bureau’s view, will be much like DSL

is (because of regulatory requirements) today. The naïve assumption that AT&T will voluntarily

open the market to competition flies in the face of AT&T’s established policy, compounded by

the consolidation that is occurring in the broadband market. The Bureau does not explain exactly

what “market forces” will compel AT&T to open this market. How exactly will customers of a

certified natural monopoly exercise the power to “vote with their wallets?” The only plausible

disciplining effect the market might have on AT&T’s closed access policy is to slow the rate of

subscription to cable modem service, because the bundled service AT&T provides is less

attractive than an open alternative. But there is no reason to believe that AT&T, lacking effective

competitors in the broadband business in any given city, will recognize or respond to this market


threat. Further, if the Bureau’s hope is that AT&T will be forced into open access because

consumers will delay their switch to broadband in boycott of its closed access policy, it is a

supreme piece of irony to suggest that it is the threat of regulationthat will delay the deployment

of broadband technology.


If, however, the future is not a future of open access, and if cable becomes

dominant, then finding (5) suggests that “regulation might then be necessary.”19Thus the Bureau

threatens regulation if access is not open, after stating, in finding (3) that “the threat of regulation

ultimately slows deployment of broadband.” These three findings cannot go together. The

Bureau cannot consistently maintain it is not threatening regulation and then threaten regulation.

The Bureau creates more uncertainty than it removes, by conditioning this threat of regulation of

extremely vague notions of how extensive cable broadband must be, and how much open access

cable must provide.


Indeed, if the Bureau does in fact decide to regulate this industry because access

does not magically become open, we will end up with morerather than less regulation, because

the bureau will have to regulate not just access to the wires, but a whole host of industries that

could have been competitive but that ended up being bundled to the network itself. We will find

ourselves, in short, in a new era of regulation reminiscent of the old days of the Bell System.


The way to reduce uncertainty, and promote broadband adoption, would be for the

FCC to simply state a clear policy — that cable must be architected to facilitate open access to

cable customers. How quickly, and how precisely, are questions the agency can defer for now.

Just as the FTC has required online merchants to deal with privacy, or face regulation, so too


could the FCC require access providers with significant market power to provide open access, or

face regulation if they don’t. The policy — open access — should be clear, even if cable

companies control how it is implemented in the first instance.


The need for this policy is pressing. The Bureau’s evidence that cable will

negotiate open access contracts is both slight, and beside the point. The Bureau points to

negotiations with America Online, which it suggests is evidence that cable will provide

independent access generally. But the principle of open access, and the value preserved by End-

to-End architecture, is not that the largest and most powerful have the right to access. The

principle of open access, and the design of End-to-End, is that anyonewith a better mousetrap

gets access to the market.


Technological Limitations to Open Access


The Bureau repeats technological arguments about why open access is not

feasible in the context of broadband cable. These arguments are misleading at best.


First, the Bureau repeats cables claim that there is something technologically

impossible about giving ISPs access to the cable lines. Cable, it is claimed, is a “shared

medium,” while DSL is dedicated.


This is a fundamentally misleading argument. The Internet itself is a shared

medium. Its performance, as the report notes, “var[ies] depending on the number of actual

subscribers using the Internet connection at the same time.”2 0The only difference between DSL

and cable is the place where one enters the shared pool. It is true that cable is architected to share

IMAGE fcc06.gif

19See Broadband Today, Staff Report To William E. Kennard, Chairman Federal Communications Commission On
Industry Monitoring Sessions Convened By Cable Services Bureau 35 (October 1999).

20Id. at 19.


bandwidth among local users, whereas DSL does not. But whether that difference results in a

difference in performance is simply a function of how many users the cable company decides to

connect, and not upon whether the users it connects have different ISPs. Give a certain profile of

usage, cable broadband can guarantee an effective equivalent of unshared access simply by not

overselling the access they attach at any single node. More to the point, the cable companies can

control usage whether or not they also own the ISPs, merely by limiting the number and size of

network subscriptions. So the shared medium argument does not justify bundling of ISP service

with access to the network.


Second, the Bureau argues that security on a cable node is less effective than on a

DSL connection, since data from other computers passes by all computers on a network node (as

is the case, for example, with an Ethernet network). This argument too is misleading. There is a

difference in the security approaches necessary to implement broadband cable securely, since

users on a particular node are all exposed to the same network traffic. But cable companies are

already developing technologies to eliminate that security risk. There is no reason to believe that

a properly implemented cable system would be any less secure than a comparable DSL system.

And again, there is no reason to believe that cable control over ISPs is necessary to achieve this



Third, the Bureau makes much of AT&T’s expectations that it would be permitted

to run a closed network. The report sites the colorful mixed metaphor of one analyst, that an

open access requirement “puts a shotgun slug through two inches of Excel spreadsheets that

[cable companies] use to generate their rate-of-return calculations.”2 1The argument is apparently

21Id. at 34.


a point about economic justice or fairness — that it would be unjust or unfair to change the rules

just now.


If AT&T had these expectations, they were unreasonable. In an age that has

reaped extraordinary benefits from the regulations that deregulated the telephone monopoly, and

that is beginning to reap the benefits from similar regulations deregulating other local

monopolies — for example, electricity — no reasonable business could believe it likely that it

could sustain an old-world regulatory structure that protected monopoly. And if AT&T did build

its models on that assumption, doubtless Excel is quite capable of recalculating the returns on a

different set of assumptions. That, after all, is what an electronic spreadsheet is for.


Incentives to Build Broadband Connections


The Bureau repeats the threat of cable companies, that they won’t invest as

quickly if they are forced to open access. In effect, the argument is that we must grant cable

companies not just a monopoly over the wires, but a right to expand that monopoly into

competitive markets, in order to give them an incentive to implement broadband access. This

argument is simply wrong as a matter of economics. It is possible to grant whatever incentives

are needed by setting the appropriate price for control of the wires themselves. Allowing the

cable companies to gain that incentive by monopolizing a competitive market offers no

guarantee of giving the appropriate incentive, and (as discussed above) poses significant risks to

competition and innovation.


We also suggest that the cable companies protest too much. We have heard many

times the argument that an industry won’t ever develop — or will collapse — if it isn’t given

preferential treatment by the government. Most of those arguments turn out to be illusory. In the

late 1970s, Hollywood argued to Congress that the movie business would not exist in ten years


unless VCRs were banned. We wisely decided not to ban VCRs, and Hollywood is doing better

than ever. More recently, respected legal scholars argued as late as 1995 that no one would ever

put any valuable content on the Internet unless Congress passed special copyright protections for

Internet works. The amazing variety of useful material on the Internet today, despite Congress’

failure to give special perks to copyright owners, belies the argument. It may well be that cable

companies will provide broadband Internet access whether or not we give them special

incentives to do so. And if we are to grant such incentives, they certainly shouldn’t take the form

of the power to destroy a vibrant ISP market.


Further, the speed of investment in broadband is not the only economic and social

value at stake. There is as well the environment for innovation which is affected by the

competitive environment of the Internet. If the cost of a faster deployment of broadband is a

reduction in that competitive environment, then it is not clear the benefit is worth the cost.

Again, the extraordinary returns that AT&T enjoyed before the 1984 consent decree may well

have sped its investment in its conception of what a communications network should be; it

doesn’t follow that there was a net benefit to society from that increased incentive to invest.


Regulation as a Backstop


As an alternative to its argument that the government should do nothing now, the

Bureau argues that if things turn out for the worse — if cable does in fact implement a closed

system as they say they intend, and if cable becomes an important aspect of the broadband

market — then the government can pursue open access to cable after the fact, through, one

presumes, antitrust litigation.


This is an extraordinary argument. Whether one believes the government is

justified in its suit against Microsoft or not, one cannot avoid the conclusion that the existing


systems for dealing with monopoly problems in the networked economy ex post are extremely

inefficient. Among the costs of using antitrust litigation to design markets are precisely the costs

of uncertainty that the Bureau discusses in relation to cable. To say there is no reason to use a

seatbelt because there is always the care of an emergency room is to miss the extraordinary costs

of any ex post remedy. There is little evidence that the government is in a position to intervene to

undo excess monopoly power in an efficient and expeditious manner.


Moreover, the costs of dislodging an existing monopoly power are always

significant, and always higher ex post. This is particularly true in this context, where if we must

regulate ex post we will face integrated, bundled broadband providers that will have to be broken

up, and ways will have to be found to recreate the competition the FCC will have allowed to



Conclusion: The Appropriate Presumptions in the Internet Context


The Bureau is right about one important fact: We know very little about how this

market functions. Ten years ago, no one would have predicted how the network would matter to

the creation of the Internet; as late as 1995, Microsoft itself confessed it had missed the

significance of the Internet. We are faced in the Internet with a phenomenon we don’t fully

understand, but which has produced an extraordinary economic boom.


In the face of such uncertainty, the question we should ask is what presumptions

should we make about how this market is functioning. In our view, these assumptions should

reflect the design principles of the Internet. The Internet has been the fastest growing network,

crucial to our economy, because it has enabled an extraordinarily innovative competition. It has

enabled this competition in part because of its design. It has been architected, through the End-

to-End design, to enable this competition.



This principle of the initial Internet should guide the government in evaluating

changes to the Internet’s architecture, or acquisitions that threaten to change this effective

architecture. The presumption should be against changes that would interfere with this End-to-

End design. The aim should be to keep the footprint of monopoly power as small as it can be, so

as to minimize the threats to innovation.


These principles should guide the FCC in the context of mergers affecting

ownership of significant aspects of the Internet. If a merger threatens an architecture which is

inconsistent with the Internet’s basic design, and if that merger affects a significant portion of a

relevant Internet market, then the burden should be on the party making that merger to justify

this deviation from the Internet’s default design. The presumption should be against deviating

from these principles.


As with any principle, these presumptions should apply unless there is clear

evidence that displacing them in a particular case would be benign. The burden should not be

upon those who would defend the existing design. The existing design has done quite enough to

defend itself. If there is good reason to allow AT&T to change the cable network into a version

of the old telephone network, then it should bear a heavy burden in justifying this return to past.

In our view, it has not come close to meeting that burden.

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