Transcript Liberalization and Market Structure

Policies for Next-Generation
Infrastructure
Dennis Weller
Chief Economist, Verizon
Trans-Atlantic Forum
IDATE, Montpellier
22 November 2005
Policies For
Next-Generation Infrastructure
 How do policy objectives from the old world
translate into the new world?
1) What does universal connectivity mean in
the new world, and how will it be achieved?
2) What does openness mean in the new
world, and how will it be achieved?
2
Universal Connectivity in the Old World
 Regulatory framework for the circuit-switched
world
Theodore Vail and the Kingsbury commitment,
1913
Obligation to interconnect
Regulation as a necessary result
Ensured that anyone who had a phone could
call anyone else with a phone, because
networks were interconnected
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Universal Connectivity in the New World
 Development of the Internet
 Huge value to consumers, the economy, society
 Income, jobs, productivity
 Worldwide connectivity on the Internet
 Achieved without any obligation to interconnect, or any
regulation
 How has this been possible?
4
Why has the market for exchange of traffic
worked on the Internet?
1) Different culture
2) Different structure
3) IP really is different
4) No regulation
5
When Worlds Collide..Interconnection
Traditional
Telephone
 Obligation to
Interconnect
 Heavily regulated
by FCC and
States
 Declining market
 Arbitrage, bad
incentives
Internet
 No obligation to
Interconnect
 No regulation
 Growing market
 Market
incentives to
invest, create
value
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Policies for Next-Generation Infrastructure
 What does openness mean in the new
world, and how will it be achieved?
 Openness to third party service provision in the
old world
 Services tied to the network platform
 Third party provider rents part of network
 Policy instruments have included open network
architecture (ONA), equal access, unbundling
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What does openness mean in the new
IP world?
 Openness to third party service provision in
the new IP world
Services can be independent of the network
platform
Openness means customer’s ability to reach
third party sites
8
Connectivity Principles
 Proposed by High-Tech Broadband Coalition two
years ago
 Broadband consumers should be able to:
 Reach content of their choice on the net
 Run any software
 Attach any device
 Obtain information about these abilities
 As the High-Tech Coalition predicted, the market
has observed these principles
 Adopted by the FCC in August 2005
 Without any ex-ante rules to enforce them
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Connectivity Principles in the market

Why has the market observed the connectivity
principles?
1)
Platform competition


2)
Broadband customers have choices
If a provider limits customer’s use of broadband, customer
will take business elsewhere
Added value


The value to the customer of the broadband connection is
increased by the vast array of choices available on the Net
Would the IBM PC have been a success if it only ran IBM
software?
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When Worlds Collide…Net Neutrality
Traditional
Telephone
 Services linked
to the network
 To provide
service, third
parties must rent
part of the
network
Next-generation
Networks
 IP-enabled
services can be
separate from the
network
 Customer can
reach services
over open pipe to
the Internet
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Broadband consumer chooses which services, and
what integration, to buy, and from whom
 Open pipe to the Internet
 Wireline: FiOS, DSL
 Wireless: EVDO card for laptop
 Best-effort services




VOIP
Video streaming
Shopping
Others
 Wireline services:
 FiOS TV
 Managed VOIP
 Shopping on our platform
 Wireless services:
 Get-it-now
 Vcast
Customer buys
Internet access
service from Verizon
Connectivity
principles apply
Customer chooses
proprietary services
from Verizon
Connectivity principles
don’t apply
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