An Examination of the Economics of Whitacre Tiering

Today’s lecture in my occassional “Economics of Market Power” series comes from the hot policy debate over whether we should let dsl (and cable) providers charge third parties for “premium” speeds to reach their customers. I call this behavior “Whitacre Tiering” (as distinguished from other sorts of tiering traffic or bandwidth) in honor of AT&T CEO Ed Whitacre, a chief proponent of the concept.

Last time, I explained why permitting Whitacre tiering would be a disaster for democracy. This time, I’ll explain why Whitacre tiering produces really, really awful results from an economic perspective. It gives actors all the wrong incentives, adds new layers of uncertainty and inefficiency to the market generally, and discourages investment in bandwidth capacity at every stage of the network (thus aggravating the broadband incentives problem you may have read about recently, rather than solving it, as some defenders of Whitacre tiering maintain).

But hey, don’t blame me, I’m just the messenger! Go do the math yourselves. All you need is a basic knowledge of Econ 101. OTOH, if you have a religious belief, possibly supported by self-interest or fueled by PAC money, that all deregulation is good and all regulation is bad, mmmkay (not that Senator Enisgn is likely to ever read this), I expect you will remain unpersuaded. Rather like passionate believers in Ptolemy’s geocentric model of the cosmos, I expect the true believer neo-cons, the companies whose self-interests are implicated, and their wholly owned subsidiaries in state and Federal legislatures, to devise theoretical models and epicycles to explain away all the nasty empirical problems and assure me I live in the delightful world of competition and frictionless switching to competitors.

It moves, it moves . . . .

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What the $#@! is the “Public” Internet

So here I am, at one of these DC discussion fests between “stakeholders” on “network neutrality.” Net neutrality is what we talk about post Brand X . It means the provider can’t mess with the packets (other than to screen malware or engage in network management). Needless to say, the incumbent wireline providers are not happy with this thought, while all the time proclaiming they will never, ever mess with content.

So what incumbents float instead is the concept of providing “enhanced service” to those with content who will pay extra to be given “priority” to the broadband provider’s subscribers. (“Hey, nice packets you got there. Be a shame if anything . . . happened to them on the way to the customer. But good news. We’re here to offer you a ‘premium’ service that gaurantees you speedy delivery! I suppose I shouldn’t mention this, but your competitor has already signed up . . .”)

This is being justified, in part, as offering premium service on the “private internet” as opposed to the “public interent.”

What the #$@! is a “public internet?” Unless there is some remnant of the NSF backbone out there, or we’re talking about the government funded root servers, there is no such thing as a “public” internet and never was. “The Internet” (back when everyone always used to capitalize it) is a “network of networks” which, since the mid-1990s, have been private networks.

So why are wireline incumbents pushing the “public internet” meme? See below . . .

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My Take on WSIS and DNS

I will be the first to acknowledge that some good came out of World Summit on Information Society (WSIS) last week in bringing together a lot of people to talk about important issues. On the key item in the news, what would happen to ICANN and management of the domain name system, the U.S. won hands down. And while I have no desire whatsoever to see the DNS run by some UN-type organization, I understand why the U.S. is not exactly popular in other countries.

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My Day With the Supremes

There are advantages to being a member of the Supreme Court Bar. One is, you get to go and hear the arguments from the Supreme Court Bar section. Guess what I did today! While you will get tons of info from other websites, this is probably the only place you will see someone say that Justice Rehnquist now sounds like a bad combination of Darth Vader and the Emperor from “Return of the Jedi”….

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TotSF: Industry Mobilizes to Stop Philly WiFi

Surprise! Surprise! Surprise! As recorded in this article about last night’s community meeting in Philly, Verizon has mobilized to squash municipal wifi in Pennsylvania. This little gem, called House Bill 30, is a classic: it provides huge new public subsidies for Verizon while squeezing out competitors. My analysis below.

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