Network neutrality between false positives and false negatives: introducing a European approach to American broadband markets.

• Author: Sluijs, Jasper P.

1. INTRODUCTION II. SOME NOTES ON NETWORK NEUTRALITY, NETWORK MANAGEMENT, AND EMERGING BROADBAND MARKETS III. EUROPEAN AND AMERICAN PATHS TO PRESENT-DAY TELECOMMUNICATIONS POLICY A. A Brief History of US. Network Management Regulation 1. "The Past Is a Foreign Country" 2. Present Developments: Comcast and the Recovery Act B. European Telecommunications Regulation and Network Management 1. The Long Road to Open Markets 2. European Telecoms Under Review 3. Network Neutrality Under the New Framework IV. TOWARDS DYNAMIC BROADBAND POLICY A. Antitrust Under False Positives and False Negatives B. Network Management Under False Positives and False Negatives V. CONCLUSION I. INTRODUCTION

   Since the early twenty-first century, the network neutrality debate has been a heated discussion concerning the amount of control (network management) that network operators and service providers have over the traffic of content on their network. This debate is particularly pressing in light of the development of next-generation broadband infrastructures. The academic network neutrality discourse has taken place mainly in the United States. Recently, however, the debate on network neutrality has gained traction among European academics and regulators as well.

   There are clear differences between the U.S. and European telecom markets and the regulation thereof. Most clearly, Europe comes from a tradition of state monopolies; whereas, U.S. telecommunications operators have almost always been private enterprises. Late 2008 and early 2009 have witnessed development in telecommunications policy and the network neutrality dispute on both sides of the Atlantic. The FCC made its landmark decision in the Comcast case. (1) The Obama Administration is currently formulating its telecommunications policies. The American Recovery and Reinvestment Act's (Recovery Act) Broadband Technology Opportunities Program (BTOP) underscores the Administration's dedication to incentivizing development of "neutral" broadband networks throughout the United States. (2) At the same time, European regulators are reviewing their regulatory framework for telecommunications, which consists of an elaborate set of laws applicable to all EU member states. European lawmakers are also in the process of developing a strategy of fostering broadband deployment under a comprehensible network-management regime. (3) In fact, the New York Times reports that European telecommunications reform has drawn considerable interest from U.S. lobbyists for the telecommunications industry. (4) It would thus be a worthwhile endeavor to critically compare the regulatory actions of both the European Institutions and the U.S. Congress and FCC concerning network management and broadband deployment. (5)

   The present Article offers a critical review of U.S. and European telecommunications policy in relation to network neutrality and network management and investigates which aspects of European broadband policy may be worth emulating in the United States. In an attempt to minimize regulatory errors, European regulators in telecommunications have developed an analytical legal mechanism in which antitrust and sector-specific regulation interact. (6) This mechanism allows for close monitoring of markets under antitrust law and permits regulation in case of demonstrated market failure. This regulatory mechanism is slated to be lifted when the regulated market becomes competitive again.

   However well developed this European system may be, there are many relevant points for criticism. European lawmakers struggle with network neutrality, and weak compromises have arisen out of conflicts between European regulatory bodies. These compromises led to a wait-and-see stance toward network neutrality. This Article will argue that such a wait-and-see policy is not the optimal approach when considering that broadband is a complex emerging market. Rather, a more dynamic policy that balances investment incentives and externalities in next-generation broadband is recommended. (7) The European willingness to compromise provides an opportunity for U.S. regulators to develop a policy that broadly follows the European legal framework, but is better developed in terms of network neutrality issues. As the FCC is required to produce a national broadband plan under the Recovery Act, (8) it has ample opportunity to develop such a dynamic strategy to further broadband deployment throughout the United States.

   The structure of this Article is as follows: Section I will provide a short background on the network neutrality debate by examining its technical, legal, and economic context. To further demonstrate the complexity of developing a comprehensive network neutrality policy, this Article defines particulars of the emerging broadband market. Section II will examine U.S. and European telecommunications policies. This Article's analysis of U.S. telecommunications policy will focus on the most recent events in network neutrality and network management--the Comcast case, the Recovery Act, and the FCC's Notice of Proposed Rulemaking. This Article will then discuss how Congress and the FCC have progressively deregulated the telecommunications sector and how recent developments may signal a reversal of those deregulatory tendencies.

   The background of European telecommunications policy will be discussed in order to show how the interaction between sector-specific regulation and antitrust has developed in the EU. Pan-European policy was implemented to allow for an internal, competitive European telecommunications market, which would fuel innovation, increase diversity and quality, and lower prices. This policy has largely been successful. The current review process of the European regulatory framework has attempted to address network neutrality concerns. Closer analysis demonstrates this preliminary European network neutrality policy to be too cautious, and practical problems may arise.

   However, Section III argues that, notwithstanding these practical problems, the European framework potentially offers an optimal approach for dealing with network neutrality issues and fosters development of next-generation broadband networks. This argument finds support in U.S. and European telecommunications policies that relate to regulatory error costs. Analysis shows that, in an emerging market, such as next-generation broadband, not only are errors more likely to occur, but they also carry larger costs than in "regular" markets. (9)

   Through an analytical model, this Article will demonstrate that the European interaction of antitrust and regulation in telecommunications evades two common errors: false negatives and false positives. (10) In the former, no regulation is imposed if antitrust law falls short; while in the latter, unnecessary regulation is implemented on an otherwise competitive market. Academics have debated whether false positives or false negatives bear the largest cost to society and on which of these errors regulatory intervention should focus. By building on existing models, this Article demonstrates that costs of both errors are not as easily offset as often assumed. This invalidates elemental trade offs between the two errors, which are especially pertinent in emerging markets. Emerging markets, such as broadband, do not fare well with categorical intervention against false-negative or false-positive errors. In order to maximize responsible broadband deployment, this Article argues for a flexible and dynamic network neutrality policy that pivots between fighting false positives and false negatives when necessary. The contours of such a flexible regulatory mechanism are present in the European framework for telecommunications, and a similar mechanism could be used in dealing with network neutrality issues in the United States.

   This Article thus recommends that U.S. lawmakers emulate the European dynamic interaction between antitrust and sector-specific regulation, while omitting dubious European policy decisions concerning network management. Practical scenarios for reform are suggested, such as allowing the FCC to monitor competition in broadband networks more closely. With a National Broadband Plan due in February 2010, the FCC should put effort into advancing these reform scenarios and take the opportunity to monitor competition more closely in broadband markets. This Article is intended to offer critical insight into the European telecommunications policy to benefit U.S. policymakers and academics.

2. SOME NOTES ON NETWORK NEUTRALITY, NETWORK MANAGEMENT, AND EMERGING BROADBAND MARKETS

   Since the term was coined by Tim Wu in 2003, (11) a heated interdisciplinary debate has evolved on network neutrality. (12) At the core of the debate lies the question whether or not all content and service providers on the Internet should be treated equally by the network operators on whose networks they operate. This, in essence, is a principle of network architecture: the Internet was designed to treat all data packets sent between nodes on the network equally without discriminating between packets. In times of network congestion--too many packets going through a router at once--packets simply would "wait in line." As a consequence, most control of Internet traffic is located at the network's ends--its users. Users initiate packet traffic, and the network itself is a passive conduit. (13) While this so-called end-to-end principle is the result of technological developments in the initial stages of the Internet, (14) it arguably also stems, to some extent, from early policy decisions by the FCC. (15) Only the edges of the Internet were determined to be truly free from regulation by the FCC; hence, it was logical for innovation to take place there. In any case, the end-to-end principle has been defining the architecture of the Internet, and arguably constitutes the innovative character of the emergent Internet economy. The Organization...