Parkin externalities 200Markets don't capture externalities. Most of us understand that "the market" produces a pollution problem if unregulated. Utilities can save money burning dirty coal; the pollution cost falls on others. That's been a hard problem to solve for two decades. Telecom policy has many similar choices. 

If you believe that better mobile broadband is an important goal, you often can't expect even strong competition to deliver what's best. LTE gets 2x to 10x the capacity in the same spectrum, depending on how it's configured.  Allocating spectrum to 3G rather than 4G, as some countries still do, cuts the total bandwidth available. Choices like that are common in spectrum policy. Economists think of spectrum as a commons, where if everyone maximizes their own profits the overall system is a problem. 

I think this issue particularly important where there are few landlines, which is most of Africa and much of Latin America.

U.S. and European Telco lobbyists claims a policy is bad because governments shouldn't pick winners and losers. That's usually pure bs if externalities are large.


Typical mobile broadband has a cap of 2-10 gigabits/month, while landlines in the developed world often are unlimited and rarely capped below 150 gigabits. Getting the most out of available spectrum is absolutely required if Africa is ever to have an Internet like Europe. There's now a technological fix for most of this: Massive MIMO is delivering 3x to 10x current LTE, according to the people deploying in Japan and China.  The cost is low enough it's reasonable to deploy it today, even if it is (modestly) less profitable for the companies. Kenya would quickly have a much better Internet if Safaricom were required to start deploying Massive MIMO. That's a clear externality and the right choice for the country. The "market" won't get us there for years. 

Almost everyone in policy believes better broadband helps the economy and is good for society in many ways. The companies do not receive most of those benefits; if companies follow self-interest, society suffers from underinvestment. 

I realized this a few years ago in an Aspen session with a dozen senior economists and a key U.S. spectrum policy guy. Shared spectrum delivers 2x to 5x the capacity of spectrum licensed to a carrier. I could see allocating the 3.5 GHz band as shared would produce more capacity than granting monopoly licenses. Everyone in the room understood the principle of externalities but it is so rarely applied in telecom policy they couldn't see the relevance.


It is also obvious that the virtues of strong competition do not always apply when competition is weak. In U.S. broadband, rarely are there more than two important consumer choices. As a reporter watching for 17 years, I can see that most of the time the companies "behave rationally" and signal each other to raise prices and increase profits for both. I can also see exceptions, such as a new entrant into a market. Several European studies have found that prices go up 10-20% when a market goes from four to three competitors, while investment goes down. Mergers like that are now being rejected. 

Too many policy people are true believers in "markets." They are blind to how often markets are weak. Asking a "market" economist, "Is competition strong enough in this particular case" is raising a red flag to a bull. Usually, it becomes a religious debate and empirical reasoning is left behind. 


"Leaving it to the market" is usually a mistake if competition is weak or externalities large. I love solving problems with competition; a different policy is needed when competition doesn't bring a good result. 

Externalities and imperfect competition were a key topic when I studied Economics decades ago. I checked to make sure that was still true. I hecked three microeconomic textbooks for "externalities." I thought it was in basic courses but it's been decades since I took one. Tower and Tabarrok's Modern Principles of Microeconomics devotes 17 pages. Mankiw's Principles of Microeconomics uses the word 113 times. The illustration is from Parkin's Microeconomics. 

The world needs a good news source on Internet and telecom policy. I hope to create one. Catch a mistake? Email me please.  Dave Burstein


Professor Noam's "Many Internets"

Until about 2010, everyone agreed the Net was a "network of networks," not a monolithic entity. There was a central authority, ICANN, keeping track of domain names, but that was a minor administrative function.
Columbia Professor Noam suggests we might be better off accepting that some nations or groups might want to organize their networks differently. It's easy to see demand for an Internet with much more effective filters against material some think harmful to children. (Any 10 year old can easily find porn today. Many do.)
Internet translation is getting better very quickly. You might want an "Internet" that translates everything into your language. Google Chrome translation isn't perfect but I was able to research most of this story on Russian language sites. With a few more years progress, I might welcome an alternate that brings me everything in English, including caching for better performance.
De facto, Internet news is already split, as hundreds of millions only get their news from Facebook. Google AMP pages, including for news, also favor selected parts of the net
Centralizing the DNS doesn't prevent censorship, as the Chinese have demonstrated. There are many Jewish and Muslim fundamentalists who want to block what they consider blasphemy and limit free speech. See . More from Noam

Russia Orders Alternate Root Internet System
It's actually practical and not necessarily a problem.The Security Council of the Russian Federation, headed by Vladimir Putin, has ordered the "government to develop an independent internet infrastructure for BRICS nations, which would continue to work in the event of global internet malfunctions ... This system would be used by countries of the BRICS bloc – Brazil, Russia, India, China and South Africa." RT
Columbia University Professor Eli Noam and then ICANN CEO Fadi Chehadé have both said such a system is perfectly practical as long as there is robust interconnection.
Actually, the battle over ICANN and domain names is essentially symbolic. Managing the DNS is a relatively insignificant task, more clerical than governing. ICANN Chair Steve Crocker pointed out they had very little to do with policy.
Some will claim this is about blocking free speech but that's rhetoric. Russia doesn't need to fiddle with the DNS for censorship, as the Chinese have demonstrated. The wonders of the Internet will continue so long as the resulting nets" are robustly connected. The ICANN and U.S. policy goal should be to help create that system for interconnection.
I expect contentions that “The Russians are taking over our Internet” and “They are splitting the Internet.” The Internet is a “Network of Networks.” It is not a monolith so what would “splitting” it mean or do?
After the WCIT, China realized that ICANN and the DNS are side issues not worth bothering about. They have been building alternate institutions including the World Internet Summit in Wuzhan and the BRICs conferences.  The Chinese have put their main work where decisions that matter are made. Wireless standards are set by 3GPP, where nothing can be approved without China's consent.
The American battle at ITU is proving to be a historic mistake.
Why does Russia want an independent Internet?
They fear that Western sanctions on Russia could cripple the Russian Net. Communications minister, Nikolay Nikiforov, worries about, "a scenario where our esteemed partners would suddenly decide to disconnect us from the internet." I think that's highly unlikely but Nikiforov points out, “Recently, Russia is being addressed in a language of unilateral sanctions: first, our credit cards are being cut off; then the European Parliament says that they’ll disconnect us from SWIFT."
It makes sense for the Russians to be prepared for such a contingency as the Cold War has been warming up on both sides. "Britain's top military chief Air Chief Marshal Sir Stuart Peach just made headlines warning Russian subs "could CRIPPLE Britain by cutting undefended undersea internet cables." Much more

ICANN Continues Excluding Russia & China From the Board
No wonder Russia wants an alternate root. Three years ago, ICANN CEO Fadi Chehadé promised "a seat at the table" to Chinese Premier Li. ICANN welched and this year added two more Americans.
Almost all the ICANN board is from the U.S. and close allies; only about 4 of the 18 board members are from countries on the other side of the North/South divide in Internet policy.  Claiming ICANN represents the Global Internet is inappropriate. China is 1/3rd of the Internet but has no representation on the board.
I know many of the board members. They are all basically honorable but generally share a strong opinion on North-South issues.
Larry Strickling of the U.S. government knew just what he was doing with the IANA transition. He handed over to a board with similar positions as the U.S. government.
"The system is unsustainable while it excludes half the world," I have been saying since 2012. More, including the transcript of Fadi's statements,

Sorry, Ajit Pai: Smaller Telcos Did Not Reduce Investment After NN Ruling
Pai justifies his NN choice with the claim, "The impact has been particularly serious for smaller Internet service providers." #wrong (Actually, NN has minimal effects on investment, up or down, I’m convinced. Competition, new technology, customer demand and similar are far more important.)
The two largest suppliers to “smaller ISPs” saw sales go up. Adtran's sales the most recent nine months were $540M, up from $473M the year before. 2016 was $636M, 2015 $600M. Calix the last nine months sold $372M, up from $327M. The full year 2016 was $459M, up from $407M in 2015. Clearfield, a supplier of fiber optic gear, was up 8% in sales in the smaller ISPs.
There is nothing in the data from others that suggests an alternate trend. Anyone could have found this data in a few minutes from the company quarterly reports.
The results in larger companies are ambiguous. I can "prove" capex went up or went down by selecting the right data. The four largest companies' capex - two/thirds of the total - went up from $52.7B in 2015 to $55.7B in 2016. The result remains positive after making sensible adjustments for mergers and acquisitions. That's as close to "proving" that NN led to increased spending as the facts chosen to prove the opposite.
Actually, whether capex went up or down in 2016 tells us almost nothing about the choice on neutrality. Everyone knows a single datapoint could be random or due to other causes. Much more, including the source of the errors

Elders Bearing Witness: Vint, Timbl, & Many More
Vint Cerf, Tim Berners-Lee, Steve Wozniak and more than a dozen true Internet pioneers wrote Congress to protect Neutrality. The best Congress money can buy didn't listen but I wanted to reproduce their letter.
I hope they are wrong believing "is an imminent threat to the Internet we worked so hard to create." My take is the impact will be moderate in the short run.
From the letter:
We are the pioneers and technologists who created and now operate the Internet, and some of the innovators and business people who, like many others, depend on it for our livelihood. ... The FCC’s proposed Order is based on a flawed and factually inaccurate understanding of Internet technology. These flaws and inaccuracies were documented in detail in a 43-page-long joint comment signed by over 200 of the most prominent Internet pioneers and engineers and submitted to the FCC on July 17, 2017.
Despite this comment, the FCC did not correct its misunderstandings, but instead premised the proposed Order on the very technical flaws the comment explained. The technically-incorrect proposed Order ... More, including the full list,