Would Mandating Broadband Network Neutrality Help or Hurt Competition? A Comment on the End-to-End Debate

A chorus of commentators has drawn inspiration from the ‘‘end-toend’’ argument first advanced by Saltzer, Reed, and Clark and called upon policy makers to mandate that last-mile broadband providers adhere to certain principles of network neutrality. In his contribution to this symposium, Professor Christopher Yoo offers an economic critique of these proposals. He first concludes that they are based on a misreading of Saltzer, Reed, and Clark, who implicitly reject turning the end-to-end argument into a categorical mandate. In addition, prohibiting the use of proprietary protocols can harm consumers by skewing the Internet towards certain types of applications. Finally, network neutrality raises the even more significant danger of forestalling the emergence of new broadband technologies by reinforcing the existing supply-side and demand-side economies of scale and by stifling incentives to invest in alternative network platforms. Although such considerations would be problematic under any circumstances, they carry particular weight with respect to industries such as broadband, which are undergoing rapid technological change. * Associate Professor of Law, Vanderbilt University. Thanks to the participants on the panel on Broadband Policy at the Conference on ‘‘The Digital Broadband Migration: Toward a Regulatory Regime for the Internet Age’’ sponsored by the Silicon Flatirons Telecommunications Program at the University of Colorado and to Douglas Galbi, Richard Nagareda, Bob Rasmussen, Doug Sicker, Jim Speta, Phil Weiser, and Tim Wu for their input on earlier drafts of this paper. 24 J. ON TELECOMM. & HIGH TECH. L. [Vol. 3 ABSTRACT ..............................................................................................23 INTRODUCTION .....................................................................................25 I. FRAMING THE NETWORK NEUTRALITY DEBATE......................30 A. The Architecture of the Narrowband Internet .......................30 B. Architectural Changes Resulting from the Migration to Broadband...............................................................................33 C. Shifts in User Demand............................................................34 1. The Shift from Institutional to Mass-Market Users ........35 2. The Emergence of Network-Intensive Applications........35 3. The Growth in Distrust of Other Endpoints ...................36.............................................................................................23 INTRODUCTION .....................................................................................25 I. FRAMING THE NETWORK NEUTRALITY DEBATE......................30 A. The Architecture of the Narrowband Internet .......................30 B. Architectural Changes Resulting from the Migration to Broadband...............................................................................33 C. Shifts in User Demand............................................................34 1. The Shift from Institutional to Mass-Market Users ........35 2. The Emergence of Network-Intensive Applications........35 3. The Growth in Distrust of Other Endpoints ...................36 4. The Needs of Law Enforcement ......................................37 D. Network Neutrality Proposals.................................................37 1. Multiple ISP Access .........................................................38 2. Connectivity Principles .....................................................40 II. UNDERSTANDING THE ECONOMICS OF END-TO-END.............41 A. The Classic Statement of the End-to-End Architecture .......42 B. End-to-End as a Case-by-Case Approach.............................43 III. THE INTERRELATIONSHIP BETWEEN NETWORK NEUTRALITY AND THE ECONOMICS OF VERTICAL INTEGRATION................................................................................46 A. Two Conceptions on the Structure of the Broadband Industry ...................................................................................47 1. The Conventional Vertical Market Structure Implicit in Multiple ISP Access .....................................................47 2. The ‘‘Layered’’ Approach Implicit in Connectivity Principles...........................................................................48 B. Market Structure and Vertical Integration .............................50 IV. THE POTENTIAL BENEFITS OF NETWORK DIVERSITY..............54 A. Economic Efficiencies from Vertical Integration ...................55 B. The Tradeoff Between Network Standardization and Product Variety .......................................................................56 C. Network Neutrality and Competition in the Last Mile .........59 1. Declining Average Costs and Supply-Side Economies of Scale ..............................................................................60 2. Network Externalities and Demand-Side Economies of Scale ..............................................................................63 V. THE ROLE OF REGULATION ........................................................65 CONCLUSION .........................................................................................68 2004] A COMMENT ON THE END-TO-END DEBATE 25