The Empirical Case against Asymmetrical regulation of Broadband Internet Access

Abstract

The United States regulates the provision of broadband Internet access service asymmetrically. A cable television system operator is not regulated in its sale of cable modem service. In contrast, an incumbent local exchange carrier (ILEC) that offers digital subscriber line (DSL) service faces price regulation as well as the obligation to offer competitors the use of its broadband network on a wholesale (or, unbundled) basis. The social costs of asymmetric regulation are by now familiar. The Federal Communications Commission (FCC) could remove its own asymmetric regulation. It could reclassify broadband Internet access as an information service, which is largely unregulated. Or, it could forbear from regulating ILEC provision of broadband Internet access. A third, and more incremental, approach would be for the FCC to declare ILECs in the provision of advanced services, including broadband Internet access. In this Article, we evaluate the empirical case against asymmetric regulation of broadband Internet access through the lens of the FCC's approach to deciding petitions for nondominance. We use a nested-logit discrete-choice model to produce econometric estimates of the own-price elasticity of demand for DSL service and the cross-price elasticity of demand for cable modem service with respect to DSL service. Our findings suggest that demand for DSL service is price-elastic, that DSL and cable modems are in the same product market, and that DSL providers lack market power. The FCC © 2002 Robert W. Crandall, Hal J. Singer, and J. Gregory Sidak t This Article is an outgrowth of a declaration that we submitted to the Federal Communications Commission on behalf of SBC Communications' petition to be deemed nondominant in the provision of advanced services. The views expressed here are solely those of the authors and not those of the Brookings Institution or the American Enterprise Institute, neither of which takes institutional positions on specific legislative, regulatory, adjudicatory, or executive matters. tt Senior Fellow, The Brookings Institution. ttt F.K. Weyerhaeuser Fellow in Law and Economics Emeritus, American Enterprise Institute for Public Policy Research; Emeritus, American Enterprise Institute for Public Policy Research. tttt Senior Vice President, Criterion Economics, L.L.C., Washington, D.C. BERKELEY TECHNOLOGY LAW JOURNAL would advance the public interest by ruling that the ILECs are nondominant in the mass-market broadband services market.