Network neutrality and the economics of congestion

Georgetown Law Journal

Volumn 94, Issue 6, 2006, Pages 1847-1908

  Yoo, Christopher S ^a,b  

^a UNIVERSITY OF PENNSYLVANIA LAW SCHOOL   (United States)

^b VANDERBILT UNIVERSITY   (United States)

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[No Author keywords available]

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EID: 31844445493     PISSN: 00168092     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (375)

1. See Stuart Minor Benjamin, Spectrum Abundance and the Choice Between Private and Public Control, 78 N.Y.U. L. REV. 2007, 2087 (2003);
2. James B. Speta, Handicapping the Race for the Last Mile?: A Critique of Open Access Rules for Broadband Platforms, 17 YALE J. ON REG. 39, 86 (2000).
3. See Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, Report and Order and Order on Remand and Further Notice of Proposed Rulemaking, 18 F.C.C.R. 16978, 17015-17 ¶¶ 51-52 (2003). In contrast, large business customers tend to obtain broadband services through high-volume technologies that are quite distinct from those used by residential and small customers. See id. at 17013-15 ¶¶ 46-49, 17061-63 ¶¶ 123-129.
4. See, e.g., AT&T Yahoo! High Speed Internet, https://swot.sbc.com/ swot/dslMassMarketCatalog.do?do=view&serviceType=DYNAMICIP (offering DSL at various speeds at six different price points ranging from $12.99 per month to $69.99 per month).
5. The most systematic review of these types of restrictions is Tim Wu, Network Neutrality, Broadband Discrimination, 2 J. ON TELECOMM. & HIGH TECH. L. 141, 158-62, 173-74 (2003).
6. For less comprehensive surveys, see LAWRENCE LESSIG, THE FUTURE OF IDEAS 156-58 (2002);
7. François Bar et al., Access and Innovation Policy for the Third-Generation Internet, 24 TELECOMM. POL'Y 489, 509-14 (2000);
8. Jerome H. Saltzer, "Open Access" is Just the Tip of the Iceberg (Oct. 22, 1999) (unpublished manuscript, available at http://web.mit.edu/ Saltzer/www/publications/openaccess.html).
9. See, e.g., David Ho, Varying Fees for Access to the Net a Possibility: Issue May Be Forced as Traffic Jumps, ATLANTA J.-CONST., Mar. 18, 2006, at F3.
10. See Ex parte Communication from the Coalition of Broadband Users and Innovators at 3-4 (Jan. 8, 2003), Inquiry Concerning High-Speed Access to the Internet Over Cable and Other Facilities, Declaratory Ruling and Notice of Proposed Rulemaking, 17 F.C.C.R. 4798 (2002) (CS Dkt. No. 02-52), available at http://gullfoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf= pdf&id_document= 6513401671 [hereinafter CBUI Ex parte];
11. Comments of the High Tech Broadband Coalition at 6-13 (June 17, 2002), Inquiry Concerning High-Speed Access to the Internet Over Cable and Other Facilities, Declaratory Ruling and Notice of Proposed Rulemaking, 17 F.C.C.R. 4798 (2002) (CS Dkt. No. 02-52), available at http://gullfoss2.fcc.gov/prod/ ecfs/retrieve.cgi?native_or_pdf=pdf&id_ document=6513198026 [hereinafter HTBC Comments].
12. See LESSIG, supra note 4, at 26-48, 147-76, 246-49; Bar et al., supra note 4, at 510; Wu, supra note 4, at 165; Ex parte Letter of Timothy Wu and Lawrence Lessig at 12-15 (filed Aug. 22, 2003), Inquiry Concerning High-Speed Access to the Internet Over Cable and Other Facilities, Declaratory Ruling and Notice of Proposed Rulemaking, 17 F.C.C.R. 4798 (2002) (CS Dkt. No. 02-52), available at http://gullfoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf= pdf&id_document=6514683884 [hereinafter Wu & Lessig, Ex parte).
13. See, e.g., John Windhausen, Jr., Good Fences Make Bad Broadband: Preserving an Open Internet Through Net Neutrality: A Public Knowledge White Paper (Feb. 6, 2006), available at http://static.publicknowledge.org/pdf/pk-net- neutrality-whitep-20060206.pdf;
14. Letter from Jeannine Kenney (Consumers Union), Mark Cooper (Consumer Federation of America), Ben Scott (Free Press) & Harold Feld (Media Access Project) to Sen. Ron Wyden (Mar. 2, 2006), available at http://www.hearusnow. org/ internet/24/;
15. Center for Digital Democracy, Internet Under Attack: Act Now to Preserve the Public Internet, available at http://www.democraticmedia.org/getinvolved/ NetNeutralityAction.html;
16. Common Cause, Keep the Internet Free and Open: Take Action Now to Protect Network Neutrality, available at http://www.commoncause.org/site/pp.asp?c= dkLNK1MQIwG&b=1234951.
17. See Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, Policy Statement, 20 F.C.C.R. 14986 (2005) [hereinafter Wireline Broadband Policy Statement].
18. See infra notes 51-52 and accompanying text.
19. See Verizon Communications, Inc. and MCI, Inc. Applications for Approval of Transfer of Control, Memorandum Opinion and Order, 20 F.C.C.R. 18433, 18437 ¶ 3, 18492 ¶ 109, 18509 ¶ 143, 18537 ¶ 221 (2005) [hereinafter Verizon-MCI Order]; SBC Communications, Inc. and AT&T Corp. Applications for Approval of Transfer of Control, Memorandum Opinion and Order, 20 F.C.C.R. 18290, 18293 ¶ 3, 18350-51 ¶ 108, 18368 ¶] 144, 18392 ¶ 211, app.F (2005) [hereinafter SBC-AT&T Order].
20. See infra notes 58-62 and accompanying text.
21. Since network neutrality proponents defend their proposals almost exclusively in terms of the economic benefits of innovation, this Article discusses the issues solely in economic terms. I therefore set aside for another day any discussion of noneconomic issues, such as network neutrality's implications for democratic deliberation or the First Amendment.
22. See LESSIG, supra note 4, at 46; Wu, supra note 4, at 143, 153-54; cf. Saltzer, supra note 4 (conceding that all such restrictions can be justified by a "technical excuse").
23. See LESSIG, supra note 4, at 31-33, 42-44.
24. See Susan P. Crawford, Someone to Watch Over Me: Social Policies for the Internet 15-18 (Cardozo Legal Studies Research Paper No. 129 2005), available at http://ssrn.com/abstract=796825.
25. See CASS R. SUNSTEIN, LAWS OF FEAR: BEYOND THE PRECAUTIONARY PRINCIPLE 58-61, 109-17 (2005); see also Benjamin, supra note 1.
26. Cf. Tim Wu, The Broadband Debate, A User's Guide, 3 J. ON TELECOMM. & HIGH TECH. L. 69, 91 (2004).
27. See, e.g., Eitan Berglas, On the Theory of Clubs, 66 AM. ECON. REV. (PAPERS & PROC.) 116, 119 (1976).
28. See Jeffrey K. MacKie-Mason & Hal R. Varian, Pricing Congestible Network Resources, 13 IEEE J. ON SELECTED AREAS COMM. 1141 (1995), available at http://www-personal.umich.edu/jmm/papers/Pricing_Congestible_Resources.pdf; Wu, supra note 4, at 154;
29. cf. J. Gregory Sidak & Daniel F. Spulber, Cyberjam: The Law and Economics of Internet Congestion of the Telephone Network, 21 HARV. J.L. & PUB. POL'Y 327 (1998) (arguing that the economics of congestion justified requiring Internet service providers to pay interstate access charges).
30. See Robert J. Barro & Paul M. Romer, Ski-Lift Pricing, with Applications to Labor and Other Markets, 77 AM. ECON. REV. 875, 876-79 (1987);
31. Robert W. Helsley & William C. Strange, Exclusion and the Theory of Clubs, 24 CANADIAN J. ECON. 888, 889, 895-96 (1991);
32. Kangoh Lee, Transaction Costs and Equilibrium Pricing of Congested Public Goods with Imperfect Information, 45 J. PUB. ECON. 337, 340-43 (1991); cf. MacKie-Mason & Varian, supra note 20, at 1145 (exploring Internet pricing when transaction costs render usage-based pricing uneconomical). Barro and Romer did not initially frame their analysis in terms of congestion economics but later acknowledged the connection.
33. See Robert J. Barro & Paul M. Romer, Ski-Lift Pricing, with Applications to Labor and Other Markets: Reply, 81 AM. ECON. REV. 378 (1991) (discussing congestion costs).
34. See R.H. Coase, The Lighthouse in Economics, 17 J.L. & ECON. 357 (1974),
35. reprinted in FAMOUS FABLES IN ECONOMICS 32-48 (Daniel F. Spulber ed., 2002).
36. As a result, network neutrality does not represent a middle ground between structural regulation and deregulation, as some have suggested. See Wu, supra note 18, at 88-90. Instead, end user restrictions and network management are more properly regarded as two sides of the same coin.
37. See Jeffrey K. MacKie-Mason & Hal R. Varian, Some FAQs About Usage-Based Pricing, 28 COMPUTER NETWORKS & ISDN SYS. 257, 258 (1995).
38. See Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 52-59 & n.21 (1977).
39. See supra note 14 and accompanying text.
40. See Madison River Commc'ns, LLC, Order, 20 F.C.C.R. 4295 (2005).
41. Many commentators asked the FCC to require cable operators to make their cable modem systems available to all ISPs on a nondiscriminatory basis as part of the process of clearing a series of major mergers in the cable television industry. The FCC vacillated, declining to impose such requirements in connection with AT&T's acquisitions of TCI and MediaOne, imposing a multiple ISP access requirement as a condition to clearing America Online's acquisition of Time Warner, and then returning to refusing to mandate multiple ISP access when evaluating Comcast's acquisition of AT&T's cable properties. See Daniel F. Spulber & Christopher S. Yoo, Access to Networks: Economic and Constitutional Connections, 88 CORNELL L. REV. 885, 1015-18 (2003).
42. See Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, Notice of Proposed Rulemaking, 17 F.C.C.R. 3019, 3029-35 ¶¶ 17-29 (2002) [hereinafter Wireline Broadband NPRM]. The FCC's action was antedated by some commentary expressing concerns about end user restrictions. See Bar et al., supra note 4, at 509-14; Saltzer, supra note 4.
43. See Inquiry Concerning High-Speed Access to the Internet Over Cable and Other Facilities, Declaratory Ruling and Notice of Proposed Rulemaking, 17 F.C.C.R. 4798, 4819-39 ¶¶ 33-71 (2002) [hereinafter Cable Modem Declaratory Ruling and NPRM]. This declaratory ruling was preceded by a notice of inquiry exploring these issues. See Inquiry Concerning High-Speed Access to the Internet Over Cable and Other Facilities, Notice of Inquiry, 15 F.C.C.R. 19287 (2000).
44. See Cable Modem Declaratory Ruling and NPRM, supra note 30, at 4839-54 ¶¶ 72-112; Wireline Broadband NPRM, supra note 29, at 3040-48 ¶¶ 43-64.
45. See supra note 4 and accompanying text; infra Part IV.A.
46. See Peter J. Howe, News from the Chicago Cable and Telecom Show, BOSTON GLOBE, June 16, 2003, at C2 (quoting FCC Commissioner Jonathan Adelstein acknowledging the lack of evidence that last-mile providers were limiting end users' ability to access content and calling network neutrality "'a solution awaiting a problem'");
47. Declan McCullagh, FCC Chief Dubious About New Cable Rules, CNET NEWS.COM, Aug. 18, 2003, http://news.com.com/FCC+chief+dubious+about+new+cable+rules/ 2100-1025_3-5065325.html?tag=nl (quoting FCC Chairman Michael Powell as stating, "I don't know yet that I see anything that says we need a rulemaking on [network neutrality]");
48. Amy Schatz & Anne Marie Squeo, Neutral Ground: As Web Providers' Clout Grows, Fears Over Access Take Focus; FCC's Ruling Fuels Debate Between Broadband Firms and Producers of Content, WALL ST. J., Aug. 8, 2005, at A1 (quoting FCC Chairman Kevin Martin as saying "'We haven't seen any evidence of this being a problem'");
49. cf. Paul Kapustka, Former FCC Chairman Powell: Net Neutrality "Doing Great," NETWORKINGPIPELINE, Feb. 20, 2006, available at http://www.networkingpipeline.com/news/180204778 (quoting former FCC Chairman Michael Powell as saying that there were "no perceptible transgressions" against network neutrality).
50. See supra note 3 and accompanying text.
51. See Roger Cheng, Online Services Move to Restrict Bandwidth Hogs, WALL ST. J., Nov. 19, 2003, at B2.
52. See Wu, supra note 4, at 156-62.
53. See HTBC Comments, supra note 6, at 6-13. The HTBC's proposal was later endorsed by the CBUI. See CBUI Ex parte, supra note 6, at 3-4.
54. See Wu & Lessig, Ex parte, supra note 7, at 12-15. For statements of their views appearing in the scholarly literature, see LESSIG, supra note 4, at 46-48, 156-59, and Wu, supra note 4, at 165-72.
55. See Michael K. Powell, Preserving Internet Freedom: Guiding Principles for the Industry, 3 J. ON TELECOMM. & HIGH TECH L. 5, 11-12 (2004). Chairman Powell also called for the industry to provide consumers with clear and meaningful information regarding the terms of their broadband service plans. Id. at 12.
56. See B2Day, Powell Warns Net Neutrologists Not to Be Naïve, Apr. 3, 2006, http://business2.blogs.com/business2blog/2006/04/powell_warns_ne.hml.
57. See Madison River Commc'ns, LLC, Order, 20 F.C.C.R. 4295 (2005).
58. See Tripp Blatz, Three Carriers Have Now Blocked Access to Ports for VoIP, Vonage Chairman Alleges, TELECOMM. MONITOR, Aug. 23, 2005, available at http://pubs.bna.com/ip/BNA/tcm.nsf/is/A0B1J0D3P1.
59. Net Neutrality: Hearing Before the S. Comm. on Commerce, Science & Transportation, 109th Cong. 5 (2006) (statement of Prof. Lawrence Lessig) [hereinafter Lessig Testimony], available at http://commerce.senate.gov/pdf/ lessig-020706.pdf.
60. 345 F.3d 1120, 1132 (9th Cir. 2003) (per curiam) (holding that the FCC's Cable Modem Declaratory Ruling was foreclosed by AT&T Corp. v. City of Portland, 216 F.3d 871 (9th Cir. 2000)).
61. See Nat'l Cable & Telecomm. Ass'n v. Brand X Internet Servs., 125 S. Ct. 2688 (2005).
62. Id. at 2708 (noting that "the Commission remains free to impose special regulatory duties on facilities-based ISPs under its Title I ancillary jurisdiction").
63. See Cheryl Bolen, Entertainers Looking to Influence Next Telecommunications Act Update, TELECOMM. MONITOR, July 19, 2005;
64. Amy Schatz, FCC May Set Rules Allowing Bells Exclusive Access Over DSL Lines, WALL ST. J., Aug. 3, 2005, at A4.
65. See Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, Report and Order and Notice of Proposed Rulemaking, 20 F.C.C.R. 14853, 14862-98 ¶¶ 12-85, 14904-05 ¶¶ 96-97 (2005) [hereinafter Wireline Broadband Access Order].
66. See id. at 14904 ¶ 96.
67. Wireline Broadband Policy Statement, supra note 9, at 14988.
68. Id. at 14988 n. 15.
69. FCC Chairman Kevin J. Martin, Comments on Commission Policy Statement 1 (Aug. 5, 2005), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/ DOC-260435A2.pdf.
70. See Drew Clark, FCC Chief Opens Door to Tiered, High-Speed Internet, NAT'L J.'s INSIDER UPDATE: THE TELECOM ACT, Jan. 6, 2006, http://www. njtelecomupdate.com/lenya/telco/live/tb-FBRB1136842420157.html.
71. See Schatz & Squeo, supra note 33.
72. For editorials favoring network neutrality, see Editorial, Congress Turns a Deaf Ear to Need for Internet Neutrality, SAN JOSE MERCURY NEWS, Apr. 7, 2006, at Al;
73. Editorial, Don't Undercut Internet Access, S.F. CHRON., Apr. 17, 2006, at B4;
74. Editorial, Tollbooths on the Internet Highway, N.Y. TIMES, Feb. 20, 2006, at A14;
75. Editorial, Whose Internet Is It, Anyway?, CHRISTIAN SCI. MTR., Mar. 24, 2006, at 8;
76. Steven Levy, When the Net Goes from Free to Fee, NEWSWEEK, Feb. 27, 2006, at 14;
77. Catherine Yang et al., At Stake: The Net as We Know It, BUS. WEEK, Dec. 26, 2005, at 38.
78. For editorials opposing network neutrality, see Editorial, Stuck in Neutral, WALL ST. J., Mar. 8, 2006, at A20;
79. Editorial, The Eden Illusion, WASH. POST, Mar. 13, 2006, at A14;
80. Leslie Ellis, Network Neutrality: Battle Royale, CED MAGAZINE, Apr. 2006, available at http://www.cedmagazine.com/article/CA6319829.html;
81. Julian Sanchez, A Neutral Panic: Why There's No Need for New Laws to Keep the Internet Open, REASON ONLINE, Apr. 10, 2006, available at http://www.reason.com/links/links041006.shtml+-.
82. See Verizon-MCI Order, supra note 11, at 18437 ¶ 3, 18492 ¶ 109, 18509 ¶ 143, 18537 ¶ 221; SBC-AT&T Order, supra note 11, at 18293 ¶ 3, 18350-51 ¶ 108, 18368 ¶ 144, 18392 ¶ 211, app.F.
83. See Verizon-MCI Order, supra note 11, at 18570 (statement of Martin, Comm'r), 18572-73 (statement of Abernathy, Comm'r), 18575 (statement of Copps, Comm'r), 18579 (statement Adelstein, Comm'r); SBC-AT&T Order, supra note 11, at 18422 (statement of Martin, Comm'r), 18424-25 (statement of Abernathy, Comm'r), 18427 (statement of Copps, Comm'r), 18431 (statement of Adelstein, Comm'r).
84. See supra note 43 and accompanying text.
85. See David Hatch & Drew Clark, Stevens Says Commerce Panel Deeply Divided Over "Net Neutrality, " NAT'L J.'S INSIDER UPDATE: THE TELECOM ACT, Mar. 20, 2006, http://www.njtelecomupdate.com/lenya/telco/live/tb- PKMQ1142371107278.html.
86. See Drew Clark, Bipartisan Telecom Deal Unravels; Barton To Push GOP-Backed Bill, NAT'L J.'S INSIDER UPDATE: THE TELECOM ACT, Mar. 24, 2006, http://www.njtelecomupdate.com/lenya/telco/live/tb-ZMKJ1143232909756.html.
87. On April 5, 2006, the Subcommittee on Telecommunications and the Internet of the House Energy and Commerce Committee voted 8-23 to reject a network neutrality amendment before approving the bill by a vote of 27-4. See Tom Abate, Telecom Reform Moves Forward: House Panel OKs Measure Favored by Phone Companies, S.F. CHRON., Apr. 6, 2006, at C1. Three weeks later, the full Committee also rejected a network neutrality amendment (by a vote of 22-34) before voting 42-12 to approve the entire bill.
88. See Jim Puzzanghera, Panel Vote Shows Rift over "Net Neutrality," L.A. TIMES, Apr. 27, 2006, at C1. The House Judiciary Committee voted 20-13 to approve a different bill that would have incorporated network neutrality into the federal antitrust laws.
89. See Marilyn Geewax, House Panel OKs "Network Neutrality," ATLANTA J.-CONST., May, 26, 2006, at G1. When the full House debated the version of the legislation reported by the House Commerce Committee on June 8, it rejected a network neutrality amendment offered by Rep. Edward Markey by a vote of 152-269 and approving the entire bill by a vote of 321-101.
90. See Stephen Labaton, House Backs Telecom Bill Favoring Phone Companies, N.Y. TIMES, June 9, 2006, at C3.
91. See Tom Abate, Net Neutrality Amendment Dies: Telecommunications Bill Goes to Senate Without Provision Sought by Web Firms, S.F. CHRON., June 29, 2006, at C1.
92. See Inquiry Considering the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, Second Report, 15 F.C.C.R. 20913, 20922-28 ¶¶ 18-28 (2000) [hereinafter Second Section 706 Report].
93. Originally, backbones only interconnected at the four public Network Access Points (NAPs) created by the National Science Foundation (located in San Francisco, Chicago, New York, and Washington, D.C.), as well as the Commercial Internet Exchange maintained in Santa Clara, California. See Michael Kende, The Digital Handshake: Connecting Internet Backbones 5-6 (FCC Office of Plans & Pol'y Working Paper No. 32, Sept. 2000), available at http://www.fcc.gov/ Bureaus/OPP/ working_papers/oppwp32.pdf.
94. The NAPs have since been privatized, and backbone providers have also created a number of other public interconnection points, where any carrier can exchange traffic. In addition, backbone providers have begun to exchange traffic directly through private interconnection points. See Christopher S. Yoo, Would Mandating Network Neutrality Help or Hurt Broadband Competition?: A Comment on the End-to-End Debate, 3 J. ON TELECOMM. & HIGH TECH. L. 23, 31 (2004). Depending on the context, the FCC sometimes replaces the term "backbone provider" with the term long haul communications transport facilities to make clear that it is referring to high-speed fiber transport used for voice as well as data communications. See Inquiry Considering the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, Third Report, 17 F.C.C.R. 2844, 2853 n.33 (2002).
95. Under broadband, middle-mile and last-mile provision is often vertically integrated. This is because there are often real efficiencies that result from such integration. See Yoo, supra note 64, at 31-34.
96. See Second Section 706 Report, supra note 63, at 20923 ¶ 18, 20938-39 ¶ 60.
97. See id. at 20922-23 ¶ 18.
98. See Stanley M. Besen et al., Advances in Routing Technologies and Internet Peering Agreements, 91 AM. ECON. REV. (PAPERS & PROC.) 292, 292 (2001).
99. See Spulber & Yoo, supra note 28, at 1014-15 (offering a more detailed depiction of cable modem systems).
100. The number of backbones involved depends on whether service is being provided under a peering or a transit arrangement. Under peering arrangements, backbones only exchange traffic that originates from the customer of one backbone and terminates with the customers of the other peered backbone. In that case, the maximum number of backbones involved is two. Under transit arrangements, backbones serve as intermediaries for traffic that neither originates from nor terminates with their customers or the customers of their peering partners. In this case, the number of backbones involved may exceed two. See Kende, supra note 64, at 5, 7.
101. In addition to congestion in backbone and middle-mile services, cable modem customers share bandwidth both between the end users' premises and the fiber node as well as between the fiber node and the cable headend. As a result, both segments are subject to congestion. See Spulber & Yoo, supra note 28, at 1014-15. DSL systems have historically used dedicated circuits that were less subject to congestion. Telephone companies are increasingly deploying remote terminals that aggregate traffic and convey them via fiber to their central office facility in a manner quite similar to the hybrid fiber-coaxial architecture of most cable modem systems. See id. at 1004-05. To the extent that they employ remote terminals, telephone networks may be subject to congestion effects between the remote terminal and the central office that are similar to those suffered by cable modem systems between the fiber node and the headend. The connection between the end users' premises and the remote terminal continues to be through dedicated wires that are not subject to congestion.
102. See Yoo, supra note 64, at 34-37.
103. See Daniel F. Spulber & Christopher S. Yoo, On the Regulation of Networks as Complex Systems: A Graph Theory Approach, 99 NW. U. L. REV. 1687, 1688 (2005).
104. See, e.g., Carol Wilson, Point of No Return, TELEPHONY, Apr. 3, 2006, available at http://voip-blog.tmcnet.com/blog/rich-tehrani/voip/point-of-no- return.html (quoting former FCC Chief Technologist and Carnegie Mellon Professor David Farber as stating that the current Internet architecture is "getting old" and is increasingly unable to satisfy the demand for new functionality for new services such as streaming video).
105. See James Buchanan, An Economic Theory of Clubs, 32 ECONOMICA 1 (1965).
106. See generally RICHARD CORNES & TODD SANDLER, THE THEORY OF EXTERNALITIES, PUBLIC GOODS AND CLUB GOODS 351-53 (2d ed. 1996) (reviewing the origins of the study of club goods). Buchanan's work is related to Charles Tiebout's earlier work on local public goods, which analyzed shared resources provided by local governments. Tiebout's model assumed that cities attempt to achieve an optimal community size, which is achieved when a city produces the bundle of services desired by residents at the lowest average cost. The posited "U"-shape of the cost curve in turn presupposed the existence of some local resource that was in fixed supply, such as a beach or the total amount of land available; otherwise, there would be no logical reason to limit community size.
107. See Charles M. Tiebout, A Pure Theory of Local Expenditures, 64 J. POL. ECON. 416, 419 (1956). Although Tiebout does not specify what causes marginal cost to increase, it is analogous to the congestion costs assumed by the club goods literature. The primary difference between club goods and local public goods is the feasibility of entry. The former assumes that entry by new clubs is possible. The latter assumes that the total number of municipalities is fixed.
108. See Suzanne Scotchmer, Public Goods and the Invisible Hand, in MODERN PUBLIC FINANCE 93, 95, 107 (John M. Quigley & Eugene Smolensky eds., 1994).
109. See Buchanan, supra note 75, at 1.
110. See, e.g., Robin Boadway, A Note on the Market Provision of Club Goods, 13 J. PUB. ECON. 131, 131 (1980).
111. See Tracey E. George & Chris Guthrie, Induced Litigation, 98 Nw. U. L. REV. 545, 555-57 (2004).
112. See, e.g., Berglas, supra note 19, at 119; Eitan Berglas, The Market Provision of Club Goods Once Again, 15 J. PUB. ECON. 389, 393 (1981);
113. Suzanne Scotchmer, Two-Tier Pricing of Shared Facilities in a Free-Entry Equilibrium, 16 RAND J. ECON. 456, 457 (1985).
114. Within each club, each member will calibrate their consumption until the utility they derive is equal. There may initially be some variation in per capita utility across clubs, with some clubs being more crowded than others. Assuming that mobility across clubs is possible, people in high-congestion clubs will seek to shift to low-congestion clubs until utility is equalized across all clubs. Furthermore, club goods theory posits the existence of an optimal club size. On the one hand, increasing club size benefits members by allowing them to amortize the overhead costs needed to establish the club and to enforce exclusion over a larger membership base. On the other hand, any increase in membership causes congestion costs to rise. Clubs thus add members until the benefits of spreading costs over an additional member no longer exceed the marginal increase in congestion costs, at which point they will stop adding new members. Assuming free entry, any remaining individuals refused membership in existing clubs remain free to form new clubs. The result is an equilibrium in which the optimal number of clubs exists and in which each club member consumes the optimal amount of club services. See Buchanan, supra note 75, at 3-5, 8-9. Subsequent work has confirmed this result regardless of whether the market structure is monopolistic, oligopolistic, or competitive. See MacKie-Mason & Varian, supra note 20, at 1143, 1147 (competitive and monopolistic); P.S. Calem & Daniel F. Spulber, Multiproduct Two-Part Tariffs, 2 INT'L J. INDUS. ORG. 105 (1984) (oligopolistic).
115. For example, as a purely formal matter, a club good equilibrium is only stable if dividing the overall population by the optimal club size results in an integer. When that occurs, the solution is said to be in the core, which in turn implies that the equilibrium is Pareto optimal, in that no individual or set of individuals can improve their situation by forming a different club. A noninteger result destabilizes the equilibrium, however, since anyone excluded from club membership will have the incentive to attempt to bid their way into a club by offering to accept a lower payoff than a current club member. The result is a constant shuffling of club composition. See, e.g., Mark V. Pauly, Clubs, Commonality and the Core: An Integration of Game Theory and the Theory of Public Goods, 34 ECONOMICA 314 (1967).
116. Fortunately, introduction of a concept known as the approximate core renders the nonexistence of an equilibrium less problematic than initially appears. If the number of club members is large relative to the number of nonmembers, club members can make side payments to nonmembers in order to induce them not to destabilize the existing coalitions. The resulting utilities lie fairly close to core utilities. See, e.g., Myrna H. Wooders, The Tiebout Hypothesis: Near Optimality in Local Public Goods Economies, 48 ECONOMETRICA 1467 (1980). Another limiting factor is that the classic analysis of club goods assumes that consumer preferences are homogeneous. See, e.g., Buchanan, supra note 75, at 6, 8. If preferences are heterogeneous, each homogeneous subset of the population should partition itself into homogeneous clubs.
117. See Eitan Berglas & David Pines, Clubs, Local Public Goods, and Transportation Models: A Synthesis, 15 J. PUB. ECON. 141, 150-52 (1981);
118. Martin McGuire, Group Segregation and Optimal Jurisdictions, 82 J. POL. ECON. 112 (1974);
119. Mark V. Pauly, Cores and Clubs, 9 PUB. CHOICE 53 (1970). If integer problems prevent the total population from segregating itself into homogeneous clubs, individuals with different preferences may have to form a mixed club. The resulting intraclub heterogeneity can lead to suboptimal provision. See Berglas & Pines, supra, at 150-52. Later work has shown that mixed clubs may be optimal so long as crowding is anonymous and members' demands for facility size and congestion coincide at a feasible division of total economy-wide endowments.
120. See Suzanne Scotchmer & Myrna Holtz Wooders, Competitive Equilibrium and the Core in Club Economies with Anonymous Crowding, 34 J. PUB. ECON. 159 (1987).
121. See Helsley & Strange, supra note 21, at 889, 895-96.
122. See Barro & Romer, supra note 21, at 875-79.
123. See id. at 879; Helsley & Strange, supra note 21, at 895-96. It is worth noting that the analyses that found flat-rate pricing preferable to usage-sensitive pricing assumed perfect information. See Helsley & Strange, supra note 21, at 893. When information is imperfect, the presence of transaction costs can lead to an adverse selection problem in which high demanders patronize facilities designed for low demanders. In such cases, no equilibrium may exist, and any equilibrium that does exist is inefficient. See Lee, supra note 21, at 338, 359. In addition, existing analyses take capacity as given. Although per capita usage will be higher under flat-rate pricing, models that take capacity as endogenous also point out that capacity will be higher as well. As a result, the net impact on congestion is ultimately ambiguous and depends on which of these effects dominates. The problem becomes even more complex if one acknowledges that flat-rate pricing can cause the number of users to change as well. If users can shift to alternative providers of network services, adopting a flat-rate price will cause the customer base to consist solely of a small group of intensive users with a high tolerance for congestion. See MacKie-Mason & Varian, supra note 20, at 1145-47.
124. See 47 U.S.C. § 251(b)(5) (2000).
125. See id. § 252(d(2)(A).
126. See id. § 252(d)(2)(B).
127. See Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, First Report and Order, 11 F.C.C.R. 15499, 16055 ¶ 1112 (1996) [hereinafter Local Competition Order].
128. See id.
129. See PETER W. HUBER ET AL., FEDERAL TELECOMMUNICATIONS LAW § 2.4.1, at 174-75 (2d ed. 1999). The economics of bill-and-keep do not appear to require symmetry in total traffic. Instead it is sufficient if the number of calls each carrier originates roughly equals the number of calls it terminates. When each carrier's originations and terminations are balanced and the pattern of calls is evenly distributed across the customer base, bill-and-keep is efficient even if the total traffic generated by one carrier is much larger than the total traffic generated by the other. The point is most easily understood through the following example. Suppose that two local networks operate in the same area, with the incumbent carrier serving 900 customers and the new entrant serving 100 customers. Each customer makes ten calls randomly distributed throughout the entire customer base. One would expect the customers of the dominant carrier to initiate 9000 calls. Ninety percent (or 8100) of those calls would terminate on the incumbent's network, while ten percent (900) would terminate on the new entrant's network. At the same time, one would expect the new entrant's customers to place 1000 calls, ten percent (100) of which would terminate on the new entrant's network and ninety percent (900) of which would terminate on the dominant carrier's network. Thus, if originations and termination are symmetric and randomly distributed, 900 calls would pass from the incumbent's network to the new entrant's network, and the same number of calls would pass in the other direction. Under these circumstances, metering actual usage would provide no economic benefits even though the total traffic handled by each network would be far from balanced. Note that a far different situation holds if the distribution of calls is not random. In addition, the symmetry of terminations and originations does not hold if one carrier only terminates calls, such as would occur for carriers providing service to paging service providers, call centers, or Internet service providers. In that case, the resulting asymmetry on a caller-pays system would lead to substantial distortions. See Local Competition Order, supra note 88, at 16043 ¶ 1092.
130. See Local Competition Order, supra note 88, at 16055 ¶ 1112. This situation contrasts with the rate practice of much of the rest of the world, which generally employs usage-based pricing for local telephone service.
131. See Bridger M. Mitchell, Optimal Pricing of Local Telephone Service, 68 AM. ECON. REV. 517, 533 (1978).
132. See Michael A. Crew & Robert D. Dansby, Cost-Benefit Analysis of Local Measured Service, in REGULATORY REFORM AND PUBLIC UTILITIES 35, 41, 45 (Michael A. Crew ed., 1982);
133. James Griffin & Thomas Mayor, The Welfare Gain from Efficient Pricing of Local Telephone Service, 30 J.L. & ECON. 465, 471 (1987);
134. Alfred E. Kahn & William B. Shew, Current Issues in Telecommunications Regulation: Pricing, 4 YALE J. ON REG. 191, 232-34, 235-36 (1987);
135. G. Franklin Mathewson & G. David Quirin, Metering Costs and Marginal Cost Pricing in Public Utilities, 3 BELL J. ECON. & MGMT. Sci. 335 (1972); Mitchell, supra note 92, at 517;
136. Lee W. Selwyn, Perspectives on Usage-Sensitive Pricing, PUB. UTILS. FORTNIGHTLY, May 7, 1981, at 15.
137. See MacKie-Mason & Varian, supra note 24, at 263.
138. See Tim Wilson, Billing Systems Market Reaps Huge Growth: How Telecom Carriers Handle Phone Bills Can Make or Break Their Customer Base, TELEPATH, Jan. 5, 1998, at T15.
139. See Spulber & Yoo, supra note 73, at 1712.
140. For leading analyses of peak-load pricing, see generally, for example, Marcel Boiteux, La Tarification des demande en pointe: application de la théorie de la Vente au coût marginal [Peak-Load Pricing: An Application of the Theory of Sale at Marginal Cost], 58 REVUE GÉNÉRALE DE L'ÉLECTRICITÉ 321 (1949),
141. translated as M. Boiteux, Peak-Load Pricing, 33 J. BUS. 157 (H.W. Izzard trans., 1960);
142. Peter O. Steiner, Peak Loads and Efficient Pricing, 71 Q.J. ECON. 585 (1957);
143. Oliver E. Williamson, Peak-Load Pricing and Optimality Constraints under Indivisibility Constraints, 56 AM. ECON. REV. 810 (1966).
144. See Kahn & Shew, supra note 93, at 237-38.
145. See ROLLA EDWARD PARK & BRIDGER M. MITCHELL, OPTIMAL PEAK-LOAD PRICING FOR LOCAL TELEPHONE CALL 6, 32 (Rand Paper No. R-3404-1-RC March 1987); Kahn & Shew, supra note 93, at 232-34, 235-36.
146. See Spulber & Yoo, supra note 73, at 1703-06.
147. See Larry Garfinkle, Usage Sensitive Pricing: Studies of a New Trend, TELEPHONY, Feb. 10, 1975, at 24, 28.
148. See Spulber & Yoo, supra note 73, at 1712-13, 1720.
149. See PARK & MITCHELL, supra note 99, at 1-2, 26-27, 29; Griffin & Mayor, supra note 93, at 472-73. Near-peak rates are necessary to avoid creating new demand peaks adjacent to the peak-load period as consumers redistribute the timing of their purchases to avoid peak-load prices. See Boiteux, supra note 97, at 173-74.
150. See Kahn & Shew, supra note 93, at 235, 237-38 (collecting sources); Steve G. Parsons, The Economic Necessity of an Increased Subscriber Line Charge (SLC) in Telecommunications, 48 ADMIN. L. REV. 227, 238 n.38 (1996) (same).
151. See PARK & MITCHELL, supra note 99, at 32-34.
152. See Griffin & Mayor, supra note 93, at 482.
153. See Kahn & Shew, supra note 93, at 237.
154. See id. at 236; David L. Kaserman & John W. Mayo, Cross-Subsidies in Telecommunications: Roadblocks on the Road to More Intelligent Telephone Pricing, 11 YALE J. ON REG. 119, 125 (1994).
155. See supra note 91.
156. See Kende, supra note 64, at 5-7, 16-17; Jay P. Kesan & Rajiv C. Shah, Fool Us Once Shame on You - Fool Us Twice Shame on Us: What We Can Learn from the Privatizations of the Internet Backbone Network and the Domain Name System, 79 WASH. U. L.Q. 89,148 (2001);
157. James B. Speta, A Common Carrier Approach to Internet Interconnection, 54 FED. COMM. L.J. 225, 232 (2002).
158. See Besen et al., supra note 68, at 292, 295. In addition, the development of a practice known as multihoming, in which middle-mile providers interconnect with more than one backbone has reduced the market power of core backbone providers still further. See id.
159. See Developing a Unified Intercarrier Compensation Regime, Notice of Proposed Rulemaking, 16 F.C.C.R. 9610, 9627 ¶ 43 (2001) [hereinafter Intercarrier Compensation NPRM].
160. Symmetry in traffic exchanged costs may not provide the only explanation for backbone peering. The Internet depends on some ISPs generating complete routing tables for the Internet, in order to avoid circularity problems in which links simply direct traffic along paths that feed back into themselves. The transaction costs of coordinating routing tables goes up as the number of core backbones increases. This suggests the existence of an optimal number of core backbones exchanging traffic on a settlement-free basis. This also suggests that other networks must be charged for terminating traffic in order to prevent them from free riding on the core backbones' efforts to maintain complete routing tables. See Paul Milgrom et al., Competitive Effects of Internet Peering Policies, in THE INTERNET UPHEAVAL 175, 179-85 (Ingo Vogelsang & Benjamin M. Compaine eds., 2000). Limiting peering to large backbones may also be designed to minimize another type of free riding. For example, backbones that interconnect on a settlement-free basis would prefer coast-to-coast traffic to travel on their peering partners' network to the greatest extent possible. This would mean that they would hand off traffic that they originate at the earliest possible interconnection point and would accept traffic that they terminate at the latest possible interconnection point. In other words, a backbone carrying traffic from New York to Silicon Valley would like to hand it off as early as possible and have the traffic travel across the country on its partner's backbone. Conversely, the same backbone handling traffic heading in the other direction would like the traffic to be handed off as late as possible so that again the burden of carrying the traffic falls upon its peering partner. In order to avoid this type of free riding, backbones have adopted a practice known as "hot potato routing," in which each backbone delivers packets bound for another backbone at the nearest possible interconnection point. A backbone could defeat the benefits of hot potato routing simply by maintaining a relatively small number of interconnection points located close to its customers. This possibility makes it logical for backbones to limit peering arrangements to those backbones large enough to maintain a presence at each of the major backbone interconnection points. See id. at 186; Kende, supra note 64, at 18-19.
161. See Interconnection Between Local Exchange Carriers and Commercial Mobile Radio Service Providers, Notice of Proposed Rulemaking, 11 F.C.C.R. 5020 (1996).
162. Id. at 5038 ¶ 36.
163. See Local Competition Order, supra note 88, at 16005-07 ¶¶ 1023-1026.
164. See Jay M. Atkinson & Christopher C. Barkenov, A Competitively Neutral Approach to Network Interconnection (FCC Office of Plans & Pol'y Working Paper No. 34, Dec. 2000), available at http://www.fcc.gov/Bureaus/OPP/ working_papers/oppwp34.pdf;
165. Patrick DeGraba, Bill and Keep at the Central Office as an Efficient Interconnection Regime (FCC Office of Plans & Pol'y Working Paper No. 33, Dec. 2000), available at http://www.fcc.gov/Bureaus/OPP/working_papers/oppwp33. pdf.
166. See Intercarrier Compensation NPRM, supra note 112, at 9615 ¶¶ 9-10.
167. See id. at 9624-45 ¶¶ 37-97 (seeking comment on replacing all aspects of intercarrier compensation with bill-and-keep); Developing a Unified Intercarrier Compensation Regime, Further Notice of Proposed Rulemaking, 20 F.C.C.R. 4685 (2005) [hereinafter Intercarrier Compensation Further NPRM] (seeking comment on specific industry proposals submitted in response to the FCC's request for comments on imposing bill-and-keep).
168. See Intercarrier Compensation NPRM, supra note 112, at 9628 ¶ 51; Intercarrier Compensation Further NPRM, supra note 119, at 4700 ¶ 30.
169. See Coase, supra note 22.
170. For classic references to this proposition, see 1 JOHN STUART MILL, PRINCIPLES OF POLITICAL ECONOMY (1847),
171. reprinted in 3 THE COLLECTED WORKS OF JOHN STUART MILL 968 (J.M. Robson ed., 1965);
172. A.C. PIGOU, THE ECONOMICS OF WELFARE 183-84 (4th ed. 1948);
173. HENRY SIDGWICK, THE PRINCIPLES OF POLITICAL ECONOMY 406 (3d ed. 1901).
174. For more modern references, see PAUL A. SAMUELSON, ECONOMICS 159 n.1 (6th ed. 1964);
175. JOSEPH E. STIGLITZ, ECONOMICS OF THE PUBLIC SECTOR 102 (1986).
176. See Coase, supra note 22, at 363-68.
177. See Richard A. Epstein, The Libertarian Quartet, REASON, Jan. 1999, at 64, available at http://reason.com/9901/bk.re.thelibertarian.shtml;
178. Andrew Odlyzko, The Evolution of Price Discrimination in Transportation and Its Implications for the Internet, 3 REV. NETWORK ECON. 323, 325-27 (2004);
179. David E. Van Zandt, The Lessons of the Lighthouse: "Government" or "Private" Provision of Goods, 22 J. LEGAL STUD. 47 (1993).
180. See MacKie-Mason & Varian, supra note 24, at 263.
181. See Wilson, supra note 95.
182. See Christopher S. Yoo, Beyond Network Neutrality, 19 HARV. J.L. & TECH. 1, 21-22 (2005).
183. See Spulber & Yoo, supra note 73, at 1703-07, 1712-13.
184. See Wu, supra note 4, at 158 tbl. 1, 160, 162.
185. See supra notes 83-84 and accompanying text.
186. See LESSIG, supra note 4, at 157-58; Wu, supra note 4, at 161-62; Saltzer, supra note 4.
187. See Lee, supra note 21, at 338, 359.
188. See Wu, supra note 4, at 162.
189. See Schatz & Squeo, supra note 33.
190. Use of the Carterfone Device in Message Toll Telephone Service, 13 F.C.C.2d 420, 424 (1968); see also Hush-a-Phone Corp. v. United States, 238 F.2d 266, 269 (D.C. Cir. 1956) (recognizing every subscriber's right "to use his telephone in ways which are privately beneficial without being publicly detrimental").
191. See 47 C.F.R. §§ 68.1-.614 (2004).
192. See Amendment of Section 64.702 of the Commission's Rules and Regulations, Final Decision, 77 F.C.C.2d 384, 442-45 ¶¶ 149-155 (1980) [hereinafter Computer II Final Decision], aff'd sub nom. Computer & Commc'ns Indus. Ass'n v. FCC, 693 F.2d 198 (D.C. Cir. 1982).
193. Local telephone calls do require the use of a local switch, which is a shared resource. The scalability of switching capacity makes the collective impact of call usage easier to manage than transmission capacity.
194. See Nat'l Cable & Telecomm. Ass'n v. Brand X Internet Servs., 125 S. Ct. 2688, 2708, 2710-11 (2005); Cable Modem Declaratory Ruling and NPRM, supra note 30, at 4825 ¶ 44; Wireline Broadband NPRM, supra note 29, at 3040-42 ¶¶ 43-48.
195. See infra Part IV.C.3.c.
196. See LESSIG, supra note 4, at 156; Bar et al., supra note 4, at 510; Wu, supra note 4, at 153-54, 159-60; Saltzer, supra note 4.
197. See LESSIG, supra note 4, at 159; Wu, supra note 4, at 162-63.
198. See Wu, supra note 4, at 160-61.
199. See id. at 152; Bar et al., supra note 4, at 510.
200. See Protecting Copyright and Innovation in a Post-Grokster World: Hearings Before the Judiciary Comm., 109th Cong. (Sept. 28, 2005) (statement of Sam Yagan, President of Meta Machine, Inc., the company that developed and distributes the market leading file-sharing program known as eDonkey) (reporting a study indicating that in North America and the United Kingdom file sharing represents 76% of total upstream and 48% of total downstream traffic, while in Europe it represents 85% of total upstream and 60% of all downstream traffic), available at http://judiciary.senate.gov/testimony.cfm?id=1624&wit_id=4689;
201. Adams Picks Sandvine, XDSL NEWS, Aug. 1, 2005, at 13 (reporting that file sharing consumes 60% of Internet traffic);
202. Executive Q&A: Can BitTorrent (Yes, BitTorrent) Supercharge Mobile?, WIRELESS BUS. FORECAST, Aug. 25, 2005, at 1 (reporting that as much as 50% of Internet traffic is file-sharing);
203. Kathy Tracy, New Technologies Rock the L.A. Screenings, VIDEO AGE INT'L, May 1, 2005, at 1 (reporting that 50% of all Internet traffic is file sharing);
204. Ryan Underwood, VU Moves to Unload Download Burden: 3 Barred Programs Hog Internet Capacity, NASHVILLE TENNESSEAN, Oct. 1, 2005, at 1A (estimating that file sharing consumes 37% of the available bandwidth capacity);
205. Stephen Lawson, London is Global Internet Bandwidth Capital, INFOWORLD DAILY, Sept. 8, 2005 (estimating that file sharing makes up 60% of Internet traffic), available at http://www.infoworld.com/article/05/09/08/ HNlondonbandwidth_1.html.
206. See Underwood, supra note 145, at 1A.
207. See Yoo, supra note 127, at 21-23.
208. See supra note 41 and accompanying text.
209. See supra note 33 and accompanying text.
210. See, e.g., Lessig Testimony, supra note 43, at 5 (calling port blocking problems "isolated"); Anne Broache & Declan McCullagh, Playing Favorites on the Net?, CNET NEWS.COM, Dec. 21, 2005, available at http://news.com.com/Playing+favorites+on+the+Net/2100-1028_3-6003281.html (noting that network neutrality proponent Amazon.com acknowledged that outright blocking of sites was not a current problem and was unlikely to become one in the future).
211. See Verizon-MCI Order, supra note 11, at 18507-08 ¶ 140; SBC-AT&T Order, supra note 11, at 1836 ¶ 1141; LESSIG, supra note 4, at 160.
212. See Verizon-MCI Order, supra note 11, at 18508-09 ¶ 141; SBC-AT&T Order, supra note 11, at 8367 ¶ 142.
213. See LESSIG, supra note 4, at 160.
214. See Lessig Testimony, supra note 43, at 2, 8-10.
215. See Kende, supra note 64, at 6.
216. For an excellent overview of content delivery networks, see Dave Clark et al., The Growth of Internet Overlay Networks: Implications for Architecture, Industry Structure and Policy 15-28 (Sept. 8, 2005) (unpublished manuscript, presented at the 33rd Research Conference on Communication, Information and Internet Policy), available at http://web.si.umich.edu/tprc/papers/2005/466/ TPRC_Overlays_9_8_05.pdf.
217. See id. at 23.
218. See Besen et al., supra note 68, at 292.
219. See Wilson P. Dizard III, Sliming from 170 to One: DHS Wants to Consolidate Portals and Web Sites, Now It's Looking for the Right Tools, WASH. TECH., June 6, 2005.
220. See Clark et al., supra note 156, at 5, 9-10, 43.
221. See id. at 18. For my critique of the way the end-to-end argument has been applied to the network neutrality debate, see Yoo, supra note 64, at 41-46.
222. Network neutrality proponents also oppose access tiering because end users will not be able to determine whether problems with latency are the responsibility of the network owner or the content and applications provider. See LESSIG, supra note 4, at 160. Interestingly, the Supreme Court has upheld a district court decision condoning the bundling of complementary services (in this case installation and service of a cable television system) with a monopoly product (in this case cable television equipment) in part on the grounds that, should problems with the system develop, consumers would be unable to determine whether the problems resulted from the equipment or the manner in which the equipment had been installed and maintained. Under those circumstances, it was reasonable to allow the provider bundle them together during the initial growth phase of its business. See United States v. Jerrold Elecs. Corp., 187 F. Supp. 545, 557-58, 560 (E.D. Pa. 1960), aff'd mem., 365 U.S. 567 (1961).
223. In the words of one industry consultant, "'If I have an expanding business or I create a [high-bandwidth] application, I'd gladly pay for better service.'" See Ben Worthen, The Net Neutrality Debate: You Pay, You Play?, CIO MAG., Apr. 15, 2006, available at http://www.cio.com/archive/041506/net. html?page=3.
224. See supra note 14 and accompanying text.
225. See LESSIG, supra note 4, at 46, 174.
226. Id. at 47.
227. See Yoo, supra note 127, at 22, 70-71.
228. See MacKie-Mason & Varian, supra note 24, at 260.
229. See Spulber & Yoo, supra note 73, at 1696 (noting that for n users, the number of total possible connections is (1/2)n(n - 1)).
230. See Yoo, supra note 127, at 21-23, 71.
231. See id. at 22-23; Mackie-Mason & Varian, supra note 24, at 259.
232. See Wu, supra note 4, at 154.
233. See supra note 24 and accompanying text.
234. See generally Alan J. Meese, Farewell to the Quick Look: Redefining the Scope and Content of the Rule of Reason, 68 ANTITRUST L.J. 461, 466-77 (2000) (providing an overview of the shift in antitrust policy).
235. See, e.g., JOE S. BAIN, INDUSTRIAL ORGANIZATION 381 (2d ed. 1968);
236. ADOLPH A. BERLE, JR., & GARDINER C. MEANS, THE MODERN CORPORATION AND PRIVATE PROPERTY 350-51 (1932);
237. ARTHUR ROBERT BURNS, THE DECLINE OF COMPETITION: A STUDY OF THE EVOLUTION OF AMERICAN INDUSTRY 462-521 (1936);
238. EDWARD CHAMBERLIN, THE THEORY OF MONOPOLISTIC COMPETITION 122-23 (3d ed. 1938).
239. See generally Herbert Hovenkamp, The Antitrust Movement and the Rise of Industrial Organization, 68 TEX. L. REV. 105, 153-66 (1989) (surveying the intellectual history of the hostility towards vertical integration).
240. See FTC v. Brown Shoe Co., 384 U.S. 316, 321 (1966) (holding that exclusive dealing contracts "conflict[] with the central policy of [the antitrust laws] against contracts which take away freedom of purchasers to buy in an open market"); Times-Picayune Publ'g Co. v. United States, 345 U.S. 594, 605 (1953) (concluding that tying arrangements represent an improper interference with "buyers' independent judgment" about the merits of the product).
241. See United States v. Topco Assocs., Inc., 405 U.S. 596, 610-11 (1972) (invaliding exclusive sales territories as an unlawful restriction on an individual seller's right not to be foreclosed from any one sector of the economy); Albrecht v. Herald Co., 390 U.S. 145, 152-53 (1968) (holding that price fixing agreements '"cripple the freedom of traders and thereby restrain their ability to sell in accordance with their judgment'" (quoting Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211, 213 (1951))), overruled by State Oil Co. v. Khan, 522 U.S. 3 (1997); Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 212-13 (1959) (concluding that group boycotts "cripple the freedom of traders and thereby restrain their ability to sell in accordance with their own judgment" and "takes from Klor's its freedom to buy appliances in an open competitive market," and "deprives . . . manufacturers and distributors of their freedom to sell to Klor's").
242. See generally Christopher S. Yoo, Vertical Integration and Media Regulation in the New Economy, 19 YALE J. ON REG. 171, 189-90, 192-200, 260-64 (2002) (reviewing the potential efficiencies from vertical integration).
243. See, e.g., Fritz Machlup & Martha Taber, Bilateral Monopoly, Successive Monopoly, and Vertical Integration, 27 ECONOMICA 101 (1960);
244. Joseph J. Spengler, Vertical Integration and Antitrust Policy, 58 J. POL. ECON. 347 (1950).
245. See, e.g., Lionel W. McKenzie, Ideal Output and the Interdependence of Firms, 61 ECON. J. 785 (1951);
246. John M. Vernon & Daniel A. Graham, Profitability of Monopolization by Vertical Integration, 79 J. POL. ECON. 924 (1971).
247. See, e.g., R.H. Coase, The Nature of the Firm, 4 ECONOMICA 386 (1937).
248. See Yoo, supra note 178, at 192-200, 260-64. For some of the leading authorities in this literature, see OLIVER E. WILLIAMSON, MARKETS AND HIERARCHIES: ANALYSIS AND ANTITRUST IMPLICATIONS 20-40, 82-131 (1975);
249. Benjamin Klein et al., Vertical Integration, Appropriable Rents, and the Competitive Contracting Process, 21 J.L. & ECON. 297 (1978);
250. and Lester G. Telser, Why Should Manufacturers Want Fair Trade?, 3 J.L. & ECON. 86 (1960).
251. 433 U.S. 36, 54-55 (1977).
252. Id. at 53 n.21 (rejecting the proposition that "the Sherman Act was intended to prohibit restriction on the autonomy of independent businessmen" even in the absence of harm to competition).
253. Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962) (offering the classic statement of this proposition). For more recent statements, see NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 135 (1998); Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 224 (1993); Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 338 (1990); Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 110 (1986); and Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977).
254. See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 11-12 (1984); N. Pac. Ry. Co. v. United States, 356 U.S. 1, 6-7 (1958).
255. See, e.g., Jonathan B. Baker, Recent Developments in Economics That Challenge Chicago School Views, 58 ANTITRUST L.J. 645 (1989);
256. Herbert Hovenkamp, Antitrust Policy After Chicago, 84 MICH. L. REV. 213, 255-83 (1985);
257. Michael S. Jacobs, An Essay on the Normative Foundations of Antitrust Economics, 74 N.C. L. REV. 219, 240-50 (1995).
258. See, e.g., State Oil Co. v. Khan, 522 U.S. 3 (1997); Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 459 (1993); Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717 (1988); Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 236-37 (1st Cir. 1983) (Breyer, J.). See generally Yoo, supra note 178, at 187-205 (tracing this shift in the vertical integration doctrine).
259. See, e.g., Lessig Testimony, supra note 43, at 4.
260. See Wu and Lessig Ex parte, supra note 7, at 3-9; LESSIG, supra note 4, at 156, 168, 175; Mark A. Lemley & Lawrence Lessig, The End of End-to-End: Preserving the Architecture of the Internet in the Broadband Era, 48 UCLA L. REV. 925, 932, 945-46 (2001); Wu, supra note 4, at 145, 155.
261. See Wireline Broadband Access Order, supra note 48, at 14892-94 ¶¶ 74-76; LESSIG, supra note 4, at 161; Wu, supra note 4, at 142; Wu and Lessig, Ex parte, supra note 7, at 7.
262. See Yoo, supra note 178, at 188-89. For the seminal statement of this proposition, see Ward S. Bowman, Jr., Tying Arrangements and the Leverage Problem, 67 YALE L.J. 19, 20-21 (1957).
263. See Yoo, supra note 178, at 202-05, 265-67.
264. See infra Part IV.C.2-3.
265. See Joseph Farrell & Philip J. Weiser, Modularity, Vertical Integration, and Open Access Policies: Towards a Convergence of Antitrust and Regulation in the Internet Age, 17 HARV. J.L. & TECH. 85, 104 (2003) (noting that "the platform monopolist has an incentive to be a good steward of the applications sector for its platform"); Speta, supra note 1, at 76 (noting that network owners have the incentive to maximize the value of complementary services); cf. Benjamin, supra note 1, at 2086-89 (making a similar point in the context of spectrum-based networks).
266. See supra note 1 and accompanying text.
267. See STANLEY M. BESEN ET AL., MISREGULATING TELEVISION 55-57, 65 (1984).
268. See LESSIG, supra note 4, at 162, 168, 175.
269. See generally Mark A. Lemley & David McGowan, Legal Implications of Network Economic Effects, 86 CAL. L. REV. 479 (1998) (surveying the literature on network economic effects).
270. A classic example is the choice between VHS and Beta formats for video cassette recorders (VCRs). Network economics would suggest that in choosing which type of VCR to buy, a consumer cared less about the technical capabilities of each format and more about which format was adopted by other consumers. See W. Brian Arthur, Positive Feedbacks in the Economy, 262 SCI. AM. 92, 92 (1990).
271. For a cogent argument against regarding VHS's victory over Beta as the result of network economic effects, see S.J. Liebowitz & Stephen E. Margolis, Should Technology Choice Be a Concern for Antitrust Policy?, 9 HARV. J.L. & TECH. 283, 314-16 (1996).
272. See LESSIG, supra note 4, at 171.
273. See, e.g., Michael L. Katz & Carl Shapiro, Network Externalities, Competition, and Compatibility, 75 AM. ECON. REV. 424 (1985).
274. See LESSIG, supra note 4, at 171; Wu, supra note 4, at 151.
275. The discussion that follows is based on Yoo, supra note 178, at 278-85, and Spulber & Yoo, supra note 28, at 925-30.
276. See Yoo, supra note 178, at 278-79 (citing Joseph Farrell & Garth Saloner, Installed Base and Compatibility: Innovation, Product Preannouncements, and Predation, 76 AM. ECON. REV. 940, 941-42 (1986)).
277. Michael L. Katz & Carl Shapiro, Technology Adoption in the Presence of Network Externalities, 94 J. POL. ECON. 822 (1986).
278. See, e.g., W. Brian Arthur, Competing Technologies, Increasing Returns, and Lock-In by Historical Events, 99 ECON. J. 116 (1989); Farrell & Saloner, supra note 205, at 942-43;
279. Michael L. Katz & Carl Shapiro, Systems Competition and Network Effects, J. ECON. PERSP., Spring 1994, at 93, 108;
280. cf. Mark A. Lemley, Antitrust and the Internet Standardization Problem, 28 CONN. L. REV. 1041, 1045-54 (1996) (arguing that Internet standards are subject to lock-in).
281. See LESSIG, supra note 4, at 48, 168, 171, 176.
282. See Katz & Shapiro, supra note 202, at 424; Joseph Farrell & Garth Saloner, Standardization, Compatibility, and Innovation, 16 RAND J. ECON. 70, 70-71 (1985).
283. See S.J. Liebowitz & Stephen E. Margolis, Are Network Externalities a New Source of Market Failure?, 17 RES. LAW & ECON. 1, 11-13 (1995);
284. S.J. Liebowitz & Stephen E. Margolis, Network Externality: An Uncommon Tragedy, 8 J. ECON. PERSP. 133, 137 (1994).
285. Network neutrality proponents more plausibly argue that negotiating exclusivity arrangements can result in transaction and coordination costs. See LESSIG, supra note 4, at 162, 171. At the same time, the FCC has recognized that imposing nondiscrimination requirements creates transaction costs of their own. See Wireline Broadband Access Order, supra note 48, 14887-92 ¶¶ 65-73, 14904-05 ¶ 97. The fact that transaction cost considerations push in both directions effectively undercuts any attempt to derive simple policy inferences with respect to network neutrality. Moreover, the reduction in transaction costs made possible by the Internet and the proliferation of institutional solutions, such as centralized transaction clearinghouses, makes it likely that over time the balance will shift in favor of permitting greater exclusivity.
286. See FED. COMMC'NS COMM'N, HIGH-SPEED SERVICES FOR INTERNET ACCESS: STATUS AS OF JUNE 30, 2005, at 2-3, tbls.2-4 (Apr. 2006), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-264744A1.pdf.
287. Availability of Advanced Telecommunications Capability in the United States, FCC, Fourth Report to Congress, 19 F.C.C.R. 20540, 20553-62 (2004) [hereinafter Fourth § 706 Report].
288. See Michael L. Katz & Carl Shapiro, Product Introduction with Network Externalities, 40 J. INDUS. ECON. 55, 67, 73 (1992); Liebowitz & Margolis, supra note 200, at 292.
289. See Spulber & Yoo, supra note 28, at 923, 926; cf. Yoo, supra note 178, at 202-05, 265-67 (noting that the post-Chicago theories supporting the monopoly leverage theory of vertical integration depend on the assumption that the markets are highly concentrated and protected by entry barriers).
290. See LESSIG, supra note 4, at 159; Jerry A. Hausman et al., Residential Demand for Broadband Telecommunications and Consumer Access to Unaffiliated Internet Content Providers, 18 YALE J. ON REG. 129, 155 (2001); Lemley & Lessig, supra note 190, at 952;
291. Daniel L. Rubinfeld & Hal J. Singer, Open Access to Broadband Networks: A Case Study of the AOL/Time Warner Merger, 16 BERKELEY TECH. L.J. 631, 649 (2001).
292. See Yoo, supra note 64, at 50-53; Yoo, supra note 178, at 253-58.
293. See Time Warner Entm't Co. v. FCC, 240 F.3d 1126, 1131-32 (D.C. Cir. 2001) (citing Implementation of Section 11(c) of the Cable Television Consumer Protection and Competition Act of 1992, Third Report and Order, 14 F.C.C.R. 19098, 19114-18 ¶¶ 40-50 (1999)).
294. See Bundling of Cellular Customer Premises Equipment and Cellular Service, FCC, Report and Order, 7 F.C.C.R. 4028, 4029-30 ¶ 13 (1992).
295. 2 = 1600 + 900 + 400 + 100 = 3000.
296. See U.S. Department of Justice & Federal Trade Commission, Non-Horizontal Merger Guidelines §§ 4.131, 4.213, 57 Fed. Reg. 41,552 (1992), available at http://www.usdoj.gov/atr/public/guidelines/2614.htm (applying an HHI threshold of 1800). See generally Yoo, supra note 64, at 52-53 (discussing HHI and the relevant guideline thresholds).
297. See Applications of Nextel Communications, Inc. and Sprint Corp. for Consent to Transfer Control of Licenses and Authorizations, Memorandum Opinion and Order, 20 F.C.C.R. 13967, 13993 ¶ 63 (2005) (applying an HHI threshold of 2800); Applications of Western Wireless Corp. and Alltel Corp. for Consent to Transfer Control of Licenses and Authorizations, Memorandum Opinion and Order, 20 F.C.C.R. 13053, 13073 ¶¶ 46-47 (2005) (same); Applications of AT&T Wireless Services, Inc. and Cingular Wireless Corp. for Consent to Transfer Control of Licenses and Authorizations, Memorandum Opinion and Order, 19 F.C.C.R. 21522, 21568 ¶¶ 106-107 (2004) (same).
298. The HHI calculation is based on subscriber data reported in Broache & McCullagh, supra note 150. For earlier data, see Yoo, supra note 64, at 53 fig. 4, and Yoo, supra note 178, at 256 tbl. VII.
299. See Implementation of Section 6002(B) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Services, 20 F.C.C.R. 15908 (2005) (increased penetration of mobile phones); Fourth § 706 Report, supra note 213, at 20553-62.
300. See supra note 138 and accompanying text (discussing the lack of alternatives to the local telephone network during the time of the Computer Inquiries).
301. See supra note 139 and accompanying text.
302. See Yoo, supra note 127, at 48-53; Yoo, supra note 178, at 246-47, 268-69.
303. See Yoo, supra note 127, at 51 & nn.198-199 (collecting sources).
304. See Ed Gubbins, Intel Gets Behind BPL, TELEPHONY, Sept. 5, 2005 at 16;
305. Ken Kerschbaumer, Plug-and-Play Internet: Wall-Outlet Broadband Attracts Heavy Hitters, BROAD. & CABLE, July 18, 2005, at 20.
306. See Jesse Drucker & Merissa Marr, Disney to Enter Cellphone Market, with Kids in Mind, WALL ST. J., July 6, 2005, at D5;
307. Bob Keefe, Battered EarthLink Shifts Gears: Phone Services Play Role in Makeover, ATLANTA J.-CONST., July 24, 2005, at C1.
308. See Laurie J. Flynn, Some Worries as San Francisco Goes Wireless, N. Y. TIMES, Apr. 10, 2006, at C5.
309. See Yoo, supra note 127, at 15-19; Yoo, supra note 64, at 59-60.
310. See 2000 Biennial Regulatory Review of Part 68 of the Commission's Rules and Regulations, Report and Order, 15 F.C.C.R. 24944 (2000).
311. See Policy and Rules Concerning the Interstate, Interexchange Marketplace, Report and Order, 16 F.C.C.R. 7418 (2001).
312. See Yoo, supra note 127, at 3, 5-6.
313. See id. at 37-39.
314. See Verizon Commc'ns, Inc. v. Law Offices of Curtis V. Trinko, L.L.P., 540 U.S. 398, 414 (2004) (recognizing that interconnection disputes are "highly technical" and multifaceted "given the incessant, complex, and costly changing interaction of competitive and incumbent LECs implementing the sharing and interconnection obligations"); AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 429 (1999) (Breyer, J., concurring in part and dissenting in part) ("The more complex the facilities, the more central their relation to the firm's managerial responsibilities, the more extensive the sharing demanded, the more likely these [the administrative and social costs of compulsory sharing] will become serious.").
315. See Yoo, supra note 178, at 244-46, 268-69 (noting that variability in quality of cable programming frustrates meaningful regulation and regulators mediating disputes over terms and conditions of access); Gerald R. Faulhaber, Policy-Induced Competition: The Telecommunications Experiments, 15 INFO. ECON. & POL'Y 73, 81 (2003).
316. See id. at 77-86.
317. See Yoo, supra note 127, at 40-42.
318. See Paul L. Joskow & Roger G. Noll, The Bell Doctrine: Applications in Telecommunications, Electricity, and Other Network Industries, 51 STAN. L. REV. 1249, 1252 (1999).
319. See Yoo, supra note 127, at 39-45.
320. See LESSIG, supra note 4, at 30-38, 176; Farrell & Weiser, supra note 195, at 115-16; Lemley & Lessig, supra note 190, at 937-38; Wu, supra note 4, at 143, 145, 154-55.
321. In Lessig's words: Dinosaurs should die . . . . And innovators should resist efforts by dinosaurs to keep control. Not because dinosaurs are evil; not because they can't change; but because the greatest innovation will come from those outside these old institutions. Whatever the scientists at Bell Labs understood, AT&T didn't get it. Some may offer a theory to explain why AT&T wouldn't get it. But this is a point most understand without needing to invoke a fancy theory. LESSIG, supra note 4, at 176.
322. See Wu, supra note 4, at 143.
323. See id. at 154-55, 156.
324. See, e.g., William F. Baxter, Legal Restrictions on Exploitation of the Patent Monopoly: An Economic Analysis, 76 YALE L.J. 267, 318 (1966);
325. Louis Kaplow, Extension of Monopoly Power Through Leverage, 85 COLUM. L. REV. 515, 549-50 (1985).
326. See Wu & Lessig, Ex parte, supra note 7, at 5-6; Wu, supra note 4, at 145, 146.
327. The seminal works include MANCUR OLSON, THE LOGIC OF COLLECTIVE ACTION (1965)
328. and George J. Stigler, The Theory of Economic Regulation, 2 BELL J. ECON. & MGMT. Sci. 3 (1971).
329. For surveys of this literature, see W. KIP VISCUSI ET AL., ECONOMICS OF REGULATION AND ANTITRUST 375-99 (4th ed. 2005);
330. and Roger G. Noll, Economic Perspectives on the Politics of Regulation, in 2 HANDBOOK OF INDUSTRIAL ORGANIZATION 1253, 1262-81 (Richard Schmalensee & Robert D. Willig eds., 1989).
331. See 5 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 1120a, at 51 (2d ed. 2003); Benjamin, supra note 1, at 312-13.
332. See SUNSTEIN, supra note 17, at 26-34.
333. See id. at 58-61, 109-17.
334. See Faulhaber, supra note 238, at 81-83.
335. See Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451 (1992) (holding that switching and information costs can cause adoption of an exclusivity arrangement with respect to complementary services to harm existing customers who are locked-in).
336. See supra notes 27, 41, and accompanying text.
337. See, e.g., LESSIG, supra note 4, at 156-58; Saltzer, supra note 4, at 1. But see Wu, supra note 4, at 164 (finding no evidence that cable operators have barred streaming video).
338. See AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 388-89 (1999) (rejecting the imposition of UNE access when the network elements are available from alternative sources); U.S. Telecom Ass'n v. FCC, 290 F.3d 415, 429 (D.C. Cir. 2002) (rejecting decision subjecting DSL-compatible portion of telephone lines for its failure to take into account competition from cable modem systems); 3A PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 773b2, at 200-03 (2d ed. 2002) (limiting compelled access to essential facilities to situations in which the facility cannot be obtained from another source); cf. Nat'l Cable & Telecomm. Ass'n v. Brand X Internet Servs., 125 S. Ct. 2688, 2711 (2005) (upholding the FCC's decision that the availability of broadband services from other sources justified refusing to impose access requirements on cable modem systems).
339. See supra notes 191-94 and accompanying text.
340. The theory of contestable markets has added the refinement that large, up-front investments are not economically problematic unless they are "sunk," i.e., unrecoverable upon exit. See WILLIAM J. BAUMOL ET AL., CONTESTABLE MARKETS AND THE THEORY OF INDUSTRY STRUCTURE 288-93 (rev. ed. 1988).
341. Although it is a sufficient condition for natural monopoly that the available economies of scale are unexhausted over the quantity of industry demand, that condition is not a necessary one. Natural monopoly results whenever a market is subadditive, i.e., whenever a single firm will be able to serve the entire market at a lower cost than could two producers. If the total industry demand lies just beyond the lowest point of the average cost curve (which is also called minimum efficient scale), it is possible for a market to be subadditive even though the monopolist is producing on the increasing portion of the average cost curve. See id. at 17-19.
342. See Wesley W. Wilson & Yimin Zhou, Telecommunications Deregulation and Subadditive Costs: Are Local Telephone Monopolies Unnatural?, 19 INT'L J. INDUS. ORG. 909, 910 (2001) (reviewing the empirical dispute over whether local telephone service has historically been and currently remains a natural monopoly).
343. See, e.g., HUBER ET AL., supra note 90, at 2; JEAN-JACQUES LAFFONT & JEAN TIROLE, COMPETITION IN TELECOMMUNICATIONS 3 (2000).
344. See F.P. Ramsey, A Contribution to the Theory of Taxation, 37 ECON. J. 47 (1927).
345. See, e.g., LAFFONT & TIROLE, supra note 262, at xv; F.M. SCHERER & DAVID ROSS, INDUSTRIAL MARKET STRUCTURE AND ECONOMIC PERFORMANCE 496-502 (3d ed. 1990);
346. William J. Baumol & Daniel G. Swanson, The New Economy and Ubiquitous Competitive Price Discrimination: Identifying Defensible Criteria of Market Power, 70 ANTITRUST L.J. 661, 669-70 (2003);
347. Harold Demsetz, The Private Production of Public Goods, 13 J.L. & ECON. 293, 301-02 (1970);
348. Benjamin Klein & John Shepard Wiley, Jr., Competitive Price Discrimination as an Antitrust Justification for Intellectual Property Refusals to Deal, 70 ANTITRUST L.J. 599, 611-15 (2003);
349. Michael E. Levine, Price Discrimination Without Market Power, 19 YALE J. ON REG. 1, 25-26 (2002).
350. See, e.g., Bowman, supra note 192, at 23-24, 28; M.L. Burstein, A Theory of Full-Line Forcing, 55 NW. U. L. REV. 62, 64-73 (1960);
351. Aaron Director & Edward H. Levi, Law and the Future: Trade Regulation, 51 NW. U. L. REV. 281, 293 (1956).
352. For a review of the modern literature on how bundling products together can effectuate price discrimination, see Christopher S. Yoo, Rethinking the Commitment to Free, Local Television, 52 EMORY L.J. 1579, 1706-12 (2003).
353. See, e.g., Broadcaster to Pay NBC in Turnabout: Precedent-Setting Deal Points Up Shift in Power Between Networks and Their Affiliates, L.A. TIMES, Feb. 15, 2000, at C14;
354. Matthew Rose & Joe Flint, Station Break: Behind the Media-Ownership Fight, An Old Power Struggle Is Raging, WALL ST. J., Oct. 15, 2003, at A1.
355. See Clark et al., supra note 156, at 20-22.
356. See, e.g., Severin Borenstein, Price Discrimination in Free-Entry Markets, 16 RAND J. ECON. 380 (1985); Klein & Wiley, supra note 264, at 617 n.34; Levine, supra note 264, at 21;
357. Michael J. Meurer, Copyright Law and Price Discrimination, 23 CARDOZO L. REV. 55, 72 (2001).
358. See Yoo, supra note 127, at 32; cf. Carl Shapiro, Exclusivity in Network Industries, 7 GEO. MASON L. REV. 673, 678 (1999) (noting how exclusivity "can serve to differentiate products and networks"). Some have argued that the fact that end users are unable to determine whether poor network performance is caused by the network owner or the content provider is an argument in favor of network neutrality. See Schatz & Squeo, supra note 33. Ironically, difficulty in distinguishing which of two companies is responsible for performance inadequacies has traditionally been regarded as a justification for vertical integration and exclusivity arrangements, not for imposing access requirements. See Yoo, supra note 178, at 261-63 (citing United States v. Jerrold Elecs. Corp., 187 F. Supp. 545, 556-57 (E.D. Pa. 1960), aff'd, 365 U.S. 567 (1961) (per curiam)).
359. See Yoo, supra note 127, at 27-37.
360. See id. at 45-48; see also J. MacKie-Mason et al., Service Architecture and Content Provision: The Network Provider as Editor, 20 TELECOMM. POL'Y 203 (1996) (providing an early analysis of how application-aware networks can play editorial functions that help manage clutter and attention costs).
361. See FCC v. Midwest Video Corp., 440 U.S. 689, 702-05 (1979) (reviewing the legislative history of the Radio Act of 1927 and the Communications Act of 1934 with respect to whether they should be treated as common carriers); Columbia Broad. Sys. Inc. v. Democratic Nat'l Comm., 412 U.S. 94, 105-11 (1973) (plurality opinion) (same).
362. Communications Act of 1934, ch. 652, § 3(h), 48 Stat. 1062, 1066 (codified as amended at 47 U.S.C. § 153(10)); Radio Act of 1927, ch. 169, § 17, 44 Stat. 1162, 1169-70 (superseded by the Communications Act of 1934).
363. Columbia Broad. Sys., 412 U.S. at 105 (plurality opinion); see also id. at 140 n.9 (Stewart, J., concurring); id. at 151-53 & n.2 (Douglas, J., concurring in the judgment).
364. See Ark. Educ. Television Comm'n v. Forbes, 523 U.S. 666, 673-75 (1998); FCC v. League of Women Voters of Cal., Inc. 468 U.S. 364, 378-80 (1984); Columbia Broad. Sys., 412 U.S. at 105 (plurality opinion); id. at 140 n.9 (Stewart, J., concurring); id. at 151-53 & n.2 (Douglas, J., concurring in the judgment).
365. Columbia Broad. Sys., 412 U.S. at 124 (plurality opinion).
366. See Amendment of Part 76 of the Commission's Rules and Regulations Concerning the Cable Television Channel Capacity and Access Channel Requirements of Section 76.251, Report and Order, 59 F.C.C.2d 294 (1976); Amendment of Part 74, Subpart K, of the Commission's Rules and Regulations Relative to Community Antenna Television Systems, Notice of Proposed Rulemaking and Notice of Inquiry, 15 F.C.C.2d 417, 427 ¶ 26 (1968).
367. See FCC v. Midwest Video Corp., 440 U.S. 689, 699-707 (1979).
368. Id. at 708.
369. See Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, 636 (1994); City of Los Angeles v. Preferred Commc'ns, Inc., 476 U.S. 488, 494 (1986); cf. Leathers v. Medlock, 499 U.S. 439, 444 (1984) ("Cable television provides to its subscribers news, information, and entertainment.").
370. See US West, Inc. v. United States, 48 F.3d 1092 (9th Cir. 1995), vacated and remanded, 516 U.S. 1155 (1996); Chesapeake & Potomac Tel. Co. v. United States, 42 F.3d 181 (4th Cir. 1994), vacated, 516 U.S. 415 (1996); S. New Eng. Tel. Co. v. United States, 886 F. Supp. 211 (D. Conn. 1995); BellSouth Corp. v. United States, 868 F. Supp. 1335 (N.D. Ala. 1994); Ameritech Corp. v. United States, 867 F. Supp. 721 (N.D. Ill. 1994); NYNEX Corp. v. United States, Civ. 93-323-P-C, 1994 WL 779761 (D. Me. Dec. 8, 1994). The issue had already been briefed and argued before the Supreme Court when it was rendered moot by a provision of the Telecommunications Act of 1996 eliminating the rule. See Telecommunications Act of 1996, Pub. L. No. 104-104, § 302(b)(1), 110 Stat. 56, 124 (repealing 47 U.S.C. § 533(b) (1994)).
371. Cable Communications Policy Act of 1984, Pub. L. No. 98-549, sec. 2, § 611, 98 Stat. 2779, 2782 (codified as amended at 47 U.S.C. § 532).
372. See Denver Area Educ. Telecomms. Consortium v. FCC, 518 U.S. 727, 761 (1996) (plurality opinion) (noting that § 10(a) restored part of cable operators' editorial discretion over leased access channels); id. at 796 (Kennedy, J., concurring in part, concurring in the judgment in part, and dissenting in part) (noting that leased access represents a derogation of the cable operators' editorial control).
373. See Yoo, supra note 178, at 244-45.
374. See S. REP. No. 102-92, at 30-32 (1991), reprinted in 1992 U.S.C.C.A.N. 1133, 1163-65; H.R. REP. No. 102-628, at 39-40 (1992); Time Warner Entm't Co. v. FCC, 93 F.3d 957, 968-69 (D.C. Cir. 1996); Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, Order on Reconsideration of First Report and Order and Further Notice of Proposed Rulemaking, 11 F.C.C.R. 16933, 16937 ¶ 6 (1996); Donna M. Lampert, Cable Television: Does Leased Access Mean Least Access?, 44 FED. COMM. L.J. 245, 266-67 & n.122 (1992).
375. As Ronald Coase noted: One important result of this preoccupation with the monopoly problem is that if an economist finds something - a business practice of one sort or another - that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of understandable practices tends to be rather large, and the reliance on a monopoly explanation frequent. R.H. Coase, Industrial Organization: A Proposal for Research, in POLICY ISSUES AND RESEARCH OPPORTUNITIES IN INDUSTRIAL ORGANIZATION 59, 67 (V.R. Fuchs ed., 1972).