The 9th Circuit Assails the Internet

Essential reading for anyone interested in technology and public policy from Bill Gurley's "Above the Crowd" newsletter. Excerpt:

On October 6, 2003, the Ninth Circuit Court of Appeals issued an opinion in the case of Brand X Internet vs. FCC that has the potential to delay the progress of the Internet in the United States by certainly years and potentially decades. Through its actions, the Ninth Court has "invited" the fifty independent and natural bureaucratic state-based public utility commissions directly into the fold of the Internet. ...

Some will argue, as does Judge Sidney Thomas of the Ninth Circuit, that opening the cable networks to competitive carriers will directly benefit consumers. The enormous problem with this argument is the prima facie evidence suggesting the opposite. Clearly stated in the Ninth Circuit opinion, 70% of all broadband users use cable modem services as compared with 30% for DSL. Cable companies, free to compete without the shackles of regulation, represent over two-thirds of all broadband users in the U.S. DSL, supposedly advantaged by its open connectivity and therefore supposed increased competitiveness, represents less than one-third. If regulated open-access is such a great thing, why are cable modems such a compelling value proposition for consumers? And why were the RBOCs slow to roll out DSL?

The bottom line is that we tried an experiment in DSL and it failed. Attempting to increase competition by mandating that a company invest in infrastructure and then share that infrastructure with competitors is simply not a market-based solution. Companies, naturally motivated to take market share, not give it away, are simply not effective at appropriately enabling competition. If you want to increase competition, add holistic competitors, not partial ones. This type of solution had a huge positive impact when PCS licenses created a third cellular alternative in most U.S. cities. Solutions such as cable overbuilding can accomplish this as well. Notably, a WISP in Cerritos, California recently announced an eight square mile 802.11 coverage zone based on Cellular-WiFi equipment from Tropos Networks*. This solution will offer ubiquitous broadband of greater than 1MB throughout the entire city. These solutions are the ones that will successfully advantage the customer while avoiding the overt dangers of increased regulation.

We should all know by now that rather than increasing competition, regulation typically reinforces monopolies and oligopolies. Startups will not and cannot prevail in heavily regulated industries. They lack the required resources and capital to manage fifty different utility commissions on a hundred different regulatory issues. For this same reason, you will never see a startup deliver an automobile in the U.S. as the regulatory red tape swamps all efforts. Increased regulation will do nothing more than ensure that new competitors and innovative solutions are permanently locked out of the market.