Comments on Refreshing the Record in Restoring Internet Freedom and Lifeline Proceedings in Light of the D.C. Circuit’s Mozilla Decision - International Center for Law & Economics
Focus Areas:    Broadband | Consumer Welfare Standard | EU | FCC | Harm to Competition | Net Neutrality | Platforms | Privacy | Spectrum & Wireless

Comments on Refreshing the Record in Restoring Internet Freedom and Lifeline Proceedings in Light of the D.C. Circuit’s Mozilla Decision

In order to maximize the benefits of broadband to society, including through the provision of public safety communications and services, public policy must promote the proper incentives for broadband buildout. Both the 2015 Title II Open Internet Order (the “OIO”) and the 2017 Restoring Internet Freedom Order (the “RIFO”) were premised on this. But each adopted a different approach to accomplishing this objective.

The OIO premised its rules on the theory that ISPs are “gatekeepers,” poised to kill the golden goose of demand for broadband by adopting business practices that could reduce edge innovation.

The key insight of the virtuous cycle is that broadband providers have both the incentive and the ability to act as gatekeepers standing between edge providers and consumers. As gatekeepers, they can block access altogether; they can target competitors, including competitors to their own video services; and they can extract unfair tolls. Such conductwould, as the Commission concluded in 2010, “reduce the rate of innovation at the edge and, in turn, the likely rate of improvements to network infrastructure.” In other words, when a broadband provider acts as a gatekeeper, it actually chokes consumer demand for the very broadband product it can supply.

The RIFO, on the other hand, properly conceives of ISPs as intermediaries in a two-sided market that aim to maximize the value of the market by adopting practices, like pricing structures and infrastructure investment, that increase the value for both sides of the market.

We find it essential to take a holistic view of the market(s) supplied by ISPs. ISPs, as well as edge providers, are important drivers of the virtuous cycle, and regulation must be evaluated accounting for its impact on ISPs’ capacity to drive that cycle, as well as that of edge providers. The underlying economic model of the virtuous cycle is that of a two- sided market. In a two-sided market, intermediaries—ISPs in our case—act as platforms facilitating interactions between two different customer groups, or sides of the market— edge providers and end users. . . . The key characteristic of a two-sided market, however, is that participants on each side of the market value a platform service more as the number and/or quality of participants on the platform’s other side increases. (The benefits subscribers on one side of the market bring to the subscribers on the other, and vice versa, are called positive externalities.) Thus, rather than a single side driving the market, both sides generate network externalities, and the platform provider profits by inducing both sides of the market to use its platform. In maximizing profit, a platform provider sets prices and invests in network extension and innovation, subject to costs and competitive conditions, to maximize the gain both sides of the market obtain from interacting across the platform. The more competitive the market, the larger the net gains to subscribers and edge providers. Any analysis of such a market must account for each side of the market and the platform provider.

In other words, the fundamental difference of approach between the two Orders turns on whether it is edge innovation, pushing against ISP incentives to expropriate value from edge providers, that primarily drives network demand and thus encourages investment, or whether optimization decisions by both ISPs and the edge are drivers of network value. The RIFO rightly understands that ISPs have sharp incentives both to innovate as platforms (and thus continue to attract and retain end users), as well as to continue to make their services useful to edge providers (and, by extension, the consumers of those edge providers’ services).

The D.C. Circuit upheld RIFO’s fundamental rationale as a supportable basis for the FCC’s rules in Mozilla v. FCC. But it also accepted that three specific concerns were insufficiently examined in the RIFO, and remanded the case to the FCC to address them. Among these was the question of the RIFO’s implications for public safety. In its Public Notice seeking to refresh the record on the remanded issues, the Wireline Competition Bureau asks (among other things):

  1. “Could the network improvements made possible by prioritization arrangements benefit public safety applications. . . ?”;
  2. “Do the Commission and other governmental authorities have other tools at their disposal that are better suited to addressing potential public safety concerns than classification of broadband as a Title II service?”; and
  3. “[H]ow do any potential public safety considerations bear on the Commission’s underlying decision to classify broadband as a Title I information service?”

These are the questions to which this comment is primarily addressed.

In Part I, we discuss how the RIFO fosters investment in broadband buildout, in particular by enabling prioritization and by reducing the effects of policy uncertainty. In Part II, we describe how that network investment benefits public safety both in both direct and indirect ways. In Part III, we highlight the benefits to public safety from prioritization, in particular, which is facilitated by the RIFO.

Read the full comments here.

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