Telecommunications, Media, and Technology Economics

Hot Topics in Internet Economics

The Internet and the technology underlying the Internet (Internet protocol used to transmit data over packet-switched networks) has been the catalyst of many of the technological advances and changes in telecommunications, media, and technology economics. This, in turn, has generated a number of interesting debates, ranging from how to guarantee affordable Internet access to all citizens in all areas to questions of how to deal with copyright and other IP issues when a video file is being shared over the Internet.

Broadband High-cost Funding

Throughout this site, I have described and listed many new exciting services. However, there are concerns that these services will be available only in dense, metropolitan areas where consumers can afford them. Conversely, the concern is that advanced services will not be available in rural and low-income areas. Consequently, similar to the high-cost fund for fixed-line local service, some regulators have set up a high-cost fund for broadband. For instance, the California Public Utilities Commission (CPUC) has proposed a plan whereby all carriers offering broadband access operating at 3 Mb/s for downloads and 1 Mb/s for uploads will be entitled to high-cost funding. This raises a number of interesting economic questions because, if not applied correctly, it can lead to gaming opportunities.

Net Neutrality

International clients are particularly interested in hearing about Net neutrality, a US-coined term describing a proposal to make the Internet “free.” An exact definition of this concept does not exist, and net neutrality has taken on various different definitions, becoming increasingly political and making it hard to really study the economics of the proposed measure. Briefly, proponents of Net neutrality should be free of any restrictions imposed by the owners of Internet backbones, and there should be no price or any other type of discrimination. Each bit traveling the information highway should be treated equally, regardless of its origin. The economics of Net neutrality are rather weak as there is no economic support for such a proposal, and there is no concrete evidence that backbone owners have exercised market power and engaged in illegal discriminatory practices.

There are two excellent pieces on Net neutrality that discuss the economics underlying it. One is by Alfred Kahn, a prominent professor of economics at Cornell University and Special Consultant to NERA, and the other one is by a colleague of mine, William Taylor, SVP at NERA.

To read Dr. Kahn’s take on Net neutrality, click here: http://www.heartland.org/Article.cfm?artId=20209

To read Dr. Taylor’s take on Net neutrality, click here: http://www.nera.com/Publication.asp?p_ID=3264

E-Competitiveness

Effective access to digital and information technology is vital to a country’s international competitiveness and facing the growing challenges of globalization. Measured in terms of “e-competitiveness,” governments and regulators alike have made e-competitiveness a national priority, building out their communications networks, increasing the supply of advanced communications services, and educating citizens to participate in the digitalization of their country. Initiatives to increase e-competitiveness range from introducing free Wi-Fi services to subsidized and/or free computers, educational classes, and the provision of national broadband networks. To measure the propensity for countries to take advantage of the opportunities offered by information and technology networks, the World Economic Forum (WEF) has develop a “Network Readiness Index” (NRI). The NRI consists of three main categories: (1) the general environment for information and communications technology (ICT), (2) the readiness of the business sector, the government, and individual consumers to use ICT services, and (3) current usage and usage trends of ICT services. Based on these three categories, countries are given one overall score for their network readiness.

Governments across the globe have studied and implemented various initiatives to score higher on this index and improve their e-competitiveness.

Broadband Deployment and the Digital Divide

Related to e-competitiveness, countries have struggled in providing the proper economic incentives to incumbents and potential entrants to get them to offer broadband deployment in all areas, including rural and low-density regions. Through IP, protocol operators can implement NGNs, which in turn promise to bridge the digital divide, both nationally and internationally. This requires a cost-benefit analysis of the impact of a regulatory mandate (similar to carrier-of-last-resort) that would require full national coverage.

Video Over the Net

Video distribution over the Internet raises a number of important regulatory and intellectual property questions. For a good summary in this field, see Martin Stern, a Partner at the law firm of K&L Gates:

http://www.klgates.com/files/Publication/c3d75125-7c65-4506-ade4-01bfd9b8a8f1/Presentation/PublicationAttachment/961cc0f0-4a17-4db7-ad4d-0478adc1d7c2/PolicyForumStern.pdf

http://www.vontv.net/default.cfm?vid=9079&clip=2

http://www.vontv.net/default.cfm?vid=9356&clip=2

Voice over IP

Using the Internet to make phone calls has changed the economics of telecommunications and other fields in many ways. First, various debates are ongoing as to whether VoIP calls should be regulated and if so how. Similarly, should VoIP calls be subject to the same legal obligations, such as E911 and CALEA, as regular phone calls? There are also quite a number of IP infringement lawsuits surrounding VoIP because various companies claim property to a part of this invention.

Want to discuss any of these topics? 

Please let me know if you would like to discuss any of these or other topics that affect the economics of the Internet. Most of these topics are related and a thorough understanding of the entire communications industry is crucial in correctly analyzing strategy questions or legal and regulatory claims.

Interested in another topic? 

Yes, there are many other issues that affect the Internet, but I hope that I have listed the most important above. Please feel free to send me an email if you think I have missed a current hot topic or would like me to comment on another.