more on Two notes on Network Neutrality

[David Farber <dave () farber net>]

Begin forwarded message:
From: "David P. Reed" <dpreed () reed com>
Date: November 1, 2006 12:12:30 PM EST
To: dave () farber net
Cc: ip () v2 listbox com
Subject: Re: [IP] more on Two notes on Network Neutrality

Faulhaber is just wrong on the facts about DSL being slowed by  
regulation of rates.   There were no tariffs on DSL - it's a data  
service!   It was just that you could only sell DSL internet service  
for a price less than what cable was already offering multimegabit  
Internet service - a market-based cap!   So it slow-rolled because  
DSL is a very inefficient architecture competitively compared to  
HFC.  The async DSL systems archtiecture Verizon was considering was  
designed for pay-as-you-go TV.

A Verizon VP (I can find his name in my rolodex) told me that they  
would never do DSL until they were allowed to sell cable TV - the  
Internet access business was not viewed as profitable enough.  When  
asked why cable MSOs seemed to be making money, he expressed  
confusion and declared that they must be losing money hand over fist.

The slow roll was a business decision set in the context of the view  
inside Verizon that Verizon was entitled to capture a share of the  
profits the new content distributed over their network - the network  
that they were allowed to build because states give them exclusive  
franchises on poles, service subidies, etc.

Yeah, they made a big mistake in not going after the Internet, which  
is driven by iTunes and YouTube and MySpace and Facebook.  Now they  
want to make up for it by a huge "national franchise" handout made  
because the Congresscritters can use the "cable is a monopoly" argument.

Oh, and along the way, re-acquire the right to tax anything that  
comes over their pipes or block it if they want.

>



Begin forwarded message:
[for IP]
I think David misunderstood "slow roll of DSL to DLECs".  What this
means is that the ILECs dragged their feet in provisioning DSL lines for
DLEC use, through a number of obstructionist tactics that took the FCC
years and years to contravene.  I agree they did this; it was in their
interest to do so.  Different situation with net neutrality, however,
which was the point of my previous post.

David thought I meant how long it took the ILECs to roll out DSL to
begin with, relative to cable.  I have criticized the ILECs about this
in print and in speeches several times in the past.  But the criticism
is of the form: this is what regulation does to you, it makes you
totally impervious to market signals and opportunities.  It is a story
about the tragedy of regulation and regulated firms, of which the ILECs
are an example.  I also agree that DSL is a pretty lame technology,
especially for US deployment (long loops, etc.), and fiber is about the
only long term response to cable that these guys can make, expensive
though it is.


Professor Gerald Faulhaber
Business and Public Policy Dept.
Wharton School, University of Pennsylvania
Philadelphia, PA 19104
Professor of Law
University of Pennsylvania



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