How FCC Regulation Would Change the Internet

-By Scott Cleland

The FCC’s claims that their proposed net neutrality regulations would just “preserve” the open Internet are simply not true. The facts clearly state that the FCC’s proposed regulations would: Be a big change in FCC Internet policy; Implement big Internet policy changes without Congressional authorization; and Change the Internet in big ways. (The one-page PDF version of this post is here)

The FCC’s proposed net neutrality regs are a big change in FCC Internet policy; they would:

  • Replace the FCC’s voluntary net neutrality guidelines with mandated net neutrality regulations;
  • Selectively apply net neutrality regulations to only broadband and not to applications/content providers like the current principles do;
  • Add two completely new net neutrality principles that are not found in law or congressional policy:
  • Mandate the strictest non-discrimination requirement in the last 75 years;
  • Mandate public disclosure of detailed proprietary network management techniques for the first time;
  • Expand application of net neutrality to wireless and satellite broadband for the very first time;
  • Expand consumers access to content entitlement by adding entitlement to send/distribute content as well;
  • Redefine entitlement to competition in the current fourth principle, to favor resale competition over facilities-based competition;
  • Subject broadband companies to a new “Mother-may-I” FCC approval process for offering new managed services and for experimenting with new business models; and
  • Subordinate private standard-setting bodies, like the IETF, to new FCC omni-technical oversight/approval.

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How FCC Regulation Would Change the Internet”


Takeaways from FCC’s Proposed Open Internet Regs

-By Scott Cleland

The FCC’s proposed Open Internet regulations (NPRM) are sweeping and audacious.

First, the FCC proposed rules are audaciously attempting to implement the introduced-but-never-passed Markey bill (HR 3458) entitled: the “Internet Freedom Preservation Act of 2009.” The purpose, premises, language and core positions are nearly identical for anyone willing to forensically compare the NPRM and HR 3458.

This presents a substantial legal problem for the FCC in that the premises and justifications undergirding their current NPRM can be found nowhere in existing law as the FCC’s own thin 28 line legal justification confirms (paras 83-87).
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Takeaways from FCC’s Proposed Open Internet Regs”


Open Un-Neutrality – Will FCC Re-Distribute Internet Opportunity? For Consumers? Businesses? Investors?

-By Scott Cleland

In effectively reversing fifteen years of bipartisan U.S. communications policy from promoting competition and reducing regulation to promoting regulation and reducing competition, the FCC’s coming “Open Internet” regulations are anything but neutral; they pick sides and strongly skew outcomes.

  • First, the FCC is proposing new preemptive business bans mid-game, the harshest, most disruptive form of economic regulation possible.
  • Second, the FCC is arbitrarily discriminating among increasingly similar and converging businesses, resulting in the arbitrary punishment of some businesses for what they allegedly might do, while rewarding others with protection from competition for what they allegedly might not do.
  • Third, the FCC is arbitrarily mandating one-way technology convergence without any supportable justification, i.e., banning distribution convergence into applications/content, while encouraging application/content convergence into distribution.

The chaotic result of this “open un-neutrality” will be regulation that is increasingly at war with inexorable technological convergence and economic efficiency — requiring ever-increasing FCC regulatory artifices to keep the Internet’s original technological layers, market segments and business models from naturally converging, evolving and competing.
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Open Un-Neutrality – Will FCC Re-Distribute Internet Opportunity? For Consumers? Businesses? Investors?”


The Internet as the Post Office?

-By Scott Cleland

I produced a new, brief, and different op-ed against the FCC’s proposed net neutrality rules that ran on BigGovernment.com today. It employs a new “delivery” metaphor that I believe most people will easily grasp and find compelling.

The Internet as the Post Office?

by Scott Cleland

Why force the private Internet to be as inefficient as the old public post office? For the first time, the Federal Communications Commission (FCC) plans to regulate how private companies can deliver the quadrillions of broadband Internet packets that are sent over the Internet every day.

Americans know from experience that private companies competing for customers deliver better service than Government. Who thinks the Government can do a better job than private companies in designing, building, and managing broadband Internet networks? Who thinks the Government can run the Internet better, faster, cheaper, and more innovatively than private networks do now?
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The Internet as the Post Office?”


Why FCC proposed net neutrality regs are unconstitutional

-By Scott Cleland

My NPR Online op-ed, “Net Neutrality Regulations Compromise Freedoms” makes the case why the FCC Chairman’s proposed net neutrality regulations are likely unconstitutional in multiple dimensions.

If you like the op-ed, please click on the “Recommend” check button above the title or at the end of the piece because that will keep the op-ed posted longer than otherwise:
http://www.npr.org/templates/story/story.php?storyId=113297709

My proposed title, which was supplanted for space concerns, was: “Taking Freedom From Some Takes Freedom From All.”

Below is the text of my NPR Online op-ed:
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Why FCC proposed net neutrality regs are unconstitutional”


Wireless Innovation Regulation — ‘Believe it or Not!’

-By Scott Cleland

With due to credit to “Ripley’s Believe it or Not!®,” so much odd and bizarre is happening in Washington in the “name” of “wireless innovation” and competition that the topic calls for its own collection of “Believe it or Not!®” oddities.

Skype co-founder Niklas Zennstom, also the co-founder of illegal-music-downloading site Kazaa, who had to avoid entering the U.S. because of copyright-infringement liability… is now seeking a U.S. court injunction to shut down eBay’s Skype for alleged copyright violations!

Amazon, a leading proponent of net neutrality legislation to ban Internet providers from blocking any content, abruptly removed without permission thousands of copies of George Orwell’s books from Kindle reading devices… just like “Big Brother” would have done in “Nineteen Eighty Four“!
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Wireless Innovation Regulation — ‘Believe it or Not!’”


Googleopoly IV: Monopsony Control over Digital Info Competition — New White Paper

-By Scott Cleland

My latest Google antitrust white paper, “Googleopoly IV: The Googleopsony Case,” is the first antitrust analysis which connects-the-dots between Google’s search advertising selling monopoly and Google’s information access buying monopoly or “monopsony” by explaining and documenting how Google is harming competition in digital: news, books, broadcasting, artwork, documents and analytics; and harming consumers seeking quality digital information that is not free.

(Googleopoly I was the first public analysis of why Google ultimately would emerge as a monopoly and Googleopoly II & III were the first public antitrust analyses why the DOJ should block the Google-Yahoo ad agreement, which the DOJ did block 11-5-08.)

Anyone trying to see-the-world-whole and and understand how the Internet’s digital information ecosystem fits together and is devolving– needs to read this white paper.
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Googleopoly IV: Monopsony Control over Digital Info Competition — New White Paper”


“Systemic Risk Laundering” — Financial Crisis Root Causes — Part II

-By Scott Cleland

How could American taxpayers get stuck with a multi-trillion dollar tab that they weren’t even aware that they were running up? How could that huge tab still be allowed to run up unchecked today? For the Financial Crisis Inquiry Commission, the sad answer is one of the biggest root causes of last fall’s devastating financial crisis and one of the biggest continuing systemic risks to the financial system and the economic recovery.

A decade ago, in what may prove to be the most expensive bipartisan legislative mistake in U.S. history, a bipartisan policy became law that effectively ensured that no Federal regulator had oversight or enforcement jurisdiction over derivative financial instruments. The Commodity Futures Modernization Act of 2000 (CFMA) created “legal certainty for excluded derivative transactions.” That law allowed a shadow derivative overlay system to be built literally on top of the public financial system, with none of the inherent accountability of the underlying financial system. In other words, a deliberate bipartisan U.S. government policy change a decade ago unwittingly created an unaccountable “black hole” market that sucked enormous value out of public markets (Bear Stearns, Lehman, AIG, Fannie, Freddie, securitized sub-prime mortgages, etc.), while laundering the risk to the U.S. taxpayer.

Simply, in fostering an unaccountable marketplace that derived all its real value from public markets, the Government fostered systemic risk laundering from the unaccountable to the accountable, which ultimately left the U.S. taxpayer holding the bag. More specifically, with no accountability to fairly represent or disclose risk, too many did not. Too many figured out that they could launder huge financial risk with impunity, because most public investors assumed someone somewhere was ensuring that these derivative instruments were fairly represented, disclosed and accountable. Oops!
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“Systemic Risk Laundering” — Financial Crisis Root Causes — Part II”


Top Ten Pitfalls of Wireless Innovation Regulation

-By Scott Cleland

Analysis of the potential pitfalls of wireless innovation regulation is a necessary complement to the FCC’s upcoming Notice of Inquiries into wireless competition/innovation and the DOJ’s review of wireless competition in order to ensure policymakers get a balanced view of the big picture.

What are the Top 10 Pitfalls of Wireless Innovation Regulation?

#1 Pitfall: Losing focus on universal broadband access

“Wireless innovation” appears to be the latest rebranding iteration of “net neutrality” and “open Internet” as the net neutrality movement searches for more mainstream support of their views.
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Top Ten Pitfalls of Wireless Innovation Regulation”


Why Broadband is Not a Public Utility

-By Scott Cleland

The data and evidence show that broadband is not a public utility warranting economic regulation of prices, terms and conditions; this is contrary to the assertions of net neutrality proponents: the Markey-Eshoo Bill, FreePress, the Open Internet Coalition and Google’s Internet Evangelist Vint Cerf, among others.

Why is broadband not a public utility?

First, it is a competitive service, not a natural monopoly service.

A public utility presumes “natural monopoly” economics where economies of scale and scope preclude the possibility of competitive facilities/services.

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Why Broadband is Not a Public Utility”


Why proposed net neutrality bill is the most extreme yet

-By Scott Cleland

While the latest net neutrality bill introduced in Congress has no chance of passage as drafted, it is a bay window view into how extreme the net neutrality movement has become and what they are seeking from the FCC via backdoor regulation.

The proposed Markey-Eshoo bill, HR 3458, which was drafted in close coordination with FreePress and the Open Internet Coalition, is much more extreme than previous bills in 2008 and 2006.

Why is this bill the most extreme version of net neutrality yet?

First, it is a completely unworkable framework.
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Why proposed net neutrality bill is the most extreme yet”


A Maslow “Hierarchy of Internet Needs”? — Will there be

-By Scott ClelandInternet priorities or a priority-less Internet?

A central policy question concerning the future of the Internet, cloud computing and the National Broadband Plan is whether there should be Internet priorities or a priority-less Internet?

The crux of the grand conflict over the direction of Internet policy is that proponents of a mandated neutral/open Internet insist that only users can prioritize Internet traffic, not any other entity.

To grasp the inherent problem and impracticality with a mandated neutral or priority-less Internet, it is helpful to ask if the Internet, which is comprised of hundreds of millions of individual users, has a mutual “hierarchy of needs,” just like individuals have a “hierarchy of needs,” per Maslow’s famed, common sense “Hierarchy of Needs” theory.

Briefly, renowned psychologist, Abraham Maslow, devised his common sense “Hierarchy of Needs” to explain inherent human priorities, i.e. that some human needs are more important or urgent than others.
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A Maslow “Hierarchy of Internet Needs”? — Will there be”


Defining the Problem(s) is the Crux of the National Broadband Plan

-By Scott Cleland

FCC Broadband Coordinator Blair Levin described the crux of the National Broadband Plan in testifying before the Commission 7-02 as “identifying where there are currently ‘demonstrable public interest harms.'” That central task is essentially defining the problem(s) and is necessary to complete the last task of the plan: “identifying ways to lessen those public interest harms,” or recommending solutions. Defining the problem largely defines the range of recommended solutions.

The plural use of “harms” here suggests that the Plan could end up “identifying” more problems than the obvious core problem prompting the Plan — that not “all people of the United States have access to broadband capability.”

Levin’s choice of a classic organizational structure, background-problem-solution, is a wise, useful and simplifying approach for such an exceedingly complex endeavor.
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Defining the Problem(s) is the Crux of the National Broadband Plan”


What’s the Broadband Plan Implementation Vision? Affirming Competition Policy? or The “Retro-genda?”

-By Scott Cleland

At core, Congress has asked the FCC to recommend to Congress HOW “to ensure that all people of the United States have access to broadband capability.” Arguably, the FCC’s main “fork-in-the-road” decision in developing its National Broadband Plan is whether to recommend to Congress to Re-affirm the current competition vision/law/precedent for broadband policy and build upon the strong foundation and momentum of facilities-based competition in the marketplace? or Design the more Government-centered broadband ecosystem policy recommended most prominently by FreePress /Open Internet Coalition members and rebuild the common carrier regulation regime of the twentieth century?

What engine of choice will the FCC recommend to Congress: Competitive forces and private investment? or Government forces and taxpayer money?  

In other words, will the FCC: Affirm a competitive broadband ecosystem where consumers vote with their wallets about which innovations, technologies and companies succeed or fail on the merits? or Endorse a regulatory broadband ecosystem where regulators largely pre-determine which innovations, technologies and companies will be favored and, hence, win or lose?
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What’s the Broadband Plan Implementation Vision? Affirming Competition Policy? or The “Retro-genda?””


What Do Broadband Stimulus Decisions Signal about Future Broadband & Net Neutrality Policy?

-By Scott Cleland

What do the Administration’s new “NOFA” guidelines, which implement the $7.2b broadband stimulus package, tell us about the trajectory for broadband and net neutrality policy going forward?

If one listened to just the public comments of net neutrality proponents one would miss a lot of important substance and clues about where broadband and net neutrality policy may be going, given that these new grant guidelines/conditions are the first major official broadband guidance stemming from the new Congress and the new Administration.

What do we know now that we didn’t know before the release of the NOFA guidelines?
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What Do Broadband Stimulus Decisions Signal about Future Broadband & Net Neutrality Policy?”


Handset Exclusives Drive Growth & Broadband Adoption

-By Scott Cleland

Why regulate tech/computer sales?

Handset marketing exclusives are a pro-competitive wellspring of wireless growth and broadband adoption. Marketing exclusives are also a legitimate, proven and widespread marketing practice that marshals maximum marketing resources for selected, potentially-hot-new-products in order to drive maximum sales and adoption.

Pro-regulation proposals calling for the FCC to ban smartphone/netbook marketing exclusives are unnecessary, and would also be highly counter-productive as they would undermine the Government’s important goals of stimulating the economy and promoting broadband adoption.
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Handset Exclusives Drive Growth & Broadband Adoption”


What If Columbo Investigated Special Access?

-By Scott Cleland

A new coalition of some struggling broadband competitors, NoChokePoints.org, is making claims that the “special access” market is being “choked” by lack of competition and is urging the FCC to reverse course and regulate lower prices for these competitors.

“Special access” is basically the business-to-business leasing market of the copper wire connections that link many buildings and cell towers to the Internet backbone at DS1 (1.5 Mbs) and DS3 (44.7 Mbs) speeds.

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What If Columbo Investigated Special Access?”


My House Internet Privacy Testimony — ‘a consumer-driven, technology/competition neutral privacy framework’

-By Scott Cleland

Today I testified before a Joint House Subcommittee hearing of the Energy & Commerce Committee on “The Potential Privacy Implications of Behavioral Advertising.”

A one-page summary is below and the full testimony is here.

Summary Testimony of Scott Cleland, President, Precursor LLC

“Why A Consumer-Driven, Technology/Competition-Neutral, Privacy Framework Is Superior to a Default ‘Finders Keepers Losers Weepers’ Privacy Framework”

Before the Joint House Energy & Commerce Hearing on Behavioral Advertising, June 18, 2009
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My House Internet Privacy Testimony — ‘a consumer-driven, technology/competition neutral privacy framework’”


Indexing into the Ditch — Financial Crisis Root Causes — Part I

-By Scott Cleland

Despite the widely held view that indexing is the safest way to invest, indexing helped recklessly drive our financial system and economy into the ditch last fall.

While there’s consensus the financial crisis warrants “new rules of the road” and better policing to protect against systemic risk, all the rules and oversight in the world can’t keep us out of the ditch in the future if index vehicles continue to drive the wrong way against oncoming traffic.

And “stress testing” whether bank vehicles can survive head-on crashes, completely misses the point that indexers should not be driving the wrong way on the freeway.

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Indexing into the Ditch — Financial Crisis Root Causes — Part I”


The National Broadband Plan “Fork-in-the-Road”

-By Scott Cleland

A scan of the major comments just delivered to the FCC on the National Broadband Plan (which is due to Congress February 2010), spotlighted the big broadband policy “fork-in-the-road” decision that the FCC now has before it.

One road of the fork-in-the-road continues down the road of: Promoting facilities-based competition;Encouraging private investment in a wide diversity of technologies; and Facilitating a cooperative public-private partnership to address unserved broadband areas and lagging adoption of widely available broadband.
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The National Broadband Plan “Fork-in-the-Road””


Why New WH Cybersecurity Focus is a Game-Changer — for the Internet and Net Neutrality

-By Scott Cleland

President Obama’s new approach to cybersecurity likely is more of an Internet game-changer than many appreciate. Initial reporting and commentary has been superficial and has not connected dots or analyzed the broader logical implications of this new policy emphasis and trajectory.

Why is it a game-changer for the Internet?

  • First, it formalizes a new leading priority for the Internet.
  • Second, it formalizes the lack of cybersecurity as the Internet’s leading problem.
  • Third, it practically redefines what “open Internet” means.
  • Fourth, it practically takes any extreme form of net neutrality off the table.

Moreover, the new cybersecurity focus will likely have a practical effect on the trajectory of Internet 3.0, which embodies cloud computing (where security has not been a primary priority by many); the Mobile web (where security has always been a very high priority); and the Internet of Things (where security will be imperative to prevent theft, intrusion, and sabotage).

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Why New WH Cybersecurity Focus is a Game-Changer — for the Internet and Net Neutrality”


EC declares “no need for State intervention” in broadband duopoly

…because there’s no market failure

-By Scott Cleland

In a significant blow to U.S. advocates of Government-mandated open access networks — over facilities-based broadband network competition — the European Commission (EC) just declared “no need for State intervention” in geographic zones where there are at least two facilities-based broadband network competitors, because that means “there is no market failure.”

The EC made the declaration in its just-released report: “Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks.” This is the EC guidance for spending economic stimulus funds for promoting broadband.

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EC declares “no need for State intervention” in broadband duopoly”


Latest Data: US No Longer Falling Behind on Broadband

-By Scott Cleland

The latest data from the OECD and other sources indicate that the U.S. is no longer falling behind the rest of the world in broadband.

These latest data are relevant to assumptions underlying the FCC’s National Broadband Strategy due to Congress next February and also to broadband policymakers’ interest in more data-driven policymaking.

In particular, the OECD broadband rankings have been prominently cited by some as important evidence to justify a reversal of current facilities-based broadband competition policy, in favor of a more government-centered broadband policy.
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Latest Data: US No Longer Falling Behind on Broadband”


Why the Australian “Fiber Mae” Broadband Model Doesn’t Work for the U.S.

-By Scott Cleland

As the FCC lays the groundwork for its submission of a National Broadband Strategy to Congress next February, some suggest the U.S. follow the lead of Australia’s new broadband policy model. While it may have superficial and nostalgic appeal to some, upon close scrutiny and analysis it is not an applicable, practical nor sound broadband policy option for the United States for a variety of reasons. The Australian “Fiber Mae” broadband policy model is:

  • Not applicable to the U.S. because the ownership and competitive baselines in Australia and the U.S. are not analogous;
  • Not practical for the U.S. because it is a hugely expensive proposal in an exceedingly tight budget/financial environment that would generate very little incremental additional benefit over the current competitive trajectory; and
  • Not sound policy for the U.S. because it pursues the wrong policy emphasis and structure, which could have the perverse result of the U.S. falling behind in broadband leadership — the exact opposite of the intended result.

By way of background, the Australian government announced last month that it would establish “a new company to build and operate a new super-fast National Broadband Network.” The proposal would deploy fiber to the home to 90% of users with 100 Mbs, and deploy 12 Mbs wireless technology to the remaining 10% of the country, at an estimated total cost of ~$31b or ~$4,100 per home passed. This government-sponsored enterprise would be majority-owned by the Australian government. It would create “Australia’s first national wholesale only, open access broadband network.”
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Why the Australian “Fiber Mae” Broadband Model Doesn’t Work for the U.S.”


The Broader Implications of DOJ’s Book Settlement Investigation

-By Scott Cleland

The DOJ investigation of the Google Book Settlement suggests that a broader antitrust spotlight may be returning to Google.

Apparently the DOJ is investigating whether the Book Settlement sets a competitive or anti-competitive trajectory for the search of digitized books, and of “orphan” works in particular.

Google argues the settlement is pro-competitive and increases access to books.

The DOJ’s antitrust investigative scrutiny suggests otherwise.
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The Broader Implications of DOJ’s Book Settlement Investigation”


Skype’s Anti-competitive Uneconomics

-By Scott Cleland

There are two primary problems with eBay-Skype’s attempt to get the Government to force competitive wireless providers to carry Skype’s free communications app under the guise of wireless net neutrality and Internet openness: first, it is wildly uneconomic, and second, it is anti-competitive.

The issue has surfaced in the news (USAToday, WSJ) as Apple enabled a Skype app on the iPhone for use on free public WiFi networks, but not on the iphone’s commercial network provided by AT&T; and again when Google’s Android banned a tethering app because it violated T-Mobile’s terms of service as reported by CNET.
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Skype’s Anti-competitive Uneconomics”


Building upon a Strong Broadband Foundation — Part I in America’s Broadband Strengths Series

-By Scott Cleland

The combination of the severe recession and Congress’ requirement for the FCC to devise a National Broadband Strategy provides an excellent opportunity to inventory not only weaknesses, but also the many strengths, of the broadband sector and economy. Comprehensive analysis shows much that is going well that mustn’t be taken for granted in any new broadband plans. Unlike many other sectors of the economy, the American broadband sector is:

  • An exceptionally strong foundation to build upon;
  • On the right track with much positive momentum; and
  • Partnering to solve many of society’s most pressing problems.

I. Strong Foundation to Build Upon

America’s competitive broadband market has an exceptionally strong foundation of positives on which to build upon, enhance, expand and supplement.
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Building upon a Strong Broadband Foundation — Part I in America’s Broadband Strengths Series”


The Flawed Economics of Broadband Open Access in the U.S.

-By Scott Cleland

A post by a Google policy analyst yesterday attempted to make the economic case for open access in the U.S. and suggested reasons why American infrastructure providers should embrace a mandated open network model. This proposed theory warrants a strong practical rebuttal. The proposed case for the economics of open access does not hold up to close scrutiny because it has fatal flaws in both logic and economics.

I. The fatal flaw in logic in the case for the economics of open access:

Since the post assumes broadband markets everywhere are basically the same, it concludes that the open access experience in some European countries is relevant and applicable to the U.S. situation. The fatal flaw in logic here is the core assumption that European and U.S. markets are factually analogous. They are not. They are substantially different factually and structurally as I will explain in detail.
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The Flawed Economics of Broadband Open Access in the U.S.”


U.S. Leads World in Broadband Affordability per New ITU Data — Competition Works!

-By Scott Cleland

America’s longstanding bipartisan policy commitment to promote broadband competition has succeeded in making broadband more affordable in the U.S. than in any other country in the world according to the ITU.

Data in a broad new study by the International Telecommunications Union (ITU) of 150 countries, show the U.S. leads the world by a substantial margin with the lowest broadband prices as a percentage of per capita GNI. (See the tables on pages 56 and 66.)

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U.S. Leads World in Broadband Affordability per New ITU Data — Competition Works!”


An Internet Economy or “Ecommony?” Growing pushback against ‘Information wants to be free’

-By Scott Cleland

The recession has created new urgency for multiple content industries to find a better way to protect and monetize their property/content in the digital world. The dot-com bubble ethos that “information wants to be free” is like a gross mold destroying the incentives to create valuable content and distribute it digitally. (Be sure not to miss the shocking analysis at the end of this e-mail comparing revenue generation per user in the digital “ecommony” versus the real economy.)

The first point of this e-mail is to connect-the-dots about why several content industries are currently in the news, actively pushing back against the “ecommony” anti-business model, where content owners are expected to essentially give away their valuable content to the open Internet/digital commons without the requirement of permission or payment.
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An Internet Economy or “Ecommony?” Growing pushback against ‘Information wants to be free’”