Cato Institute Benefactor Summit, February 2001 Technology Studies Wayne Crews [email_address] Policy Implications of the Digital Economy

Internet Privacy (1) Open Access vs. Competing Networks Intellectual Property Selected Issue Areas (2) Competing Internets as an Alternative to Regulation Governance Spam Trespass

Competition in the creation of networks is as important as competition in the goods, services and content sold over those networks. Private ownership and control, even if the property is long and thin. Access must be the invader’s problem. The irredeemable problem of mandatory open access. Principles : Open Access vs. Competing Networks Reject the notion of "Natural Monopoly" Size of the regulated component must shrink. Inefficiency of actual government monopolization outweigh potential abuses by private sector. Does Open Access Have It Wired -- Or Tangled?

Competition in the creation of networks is as important as competition in the goods, services and content sold over those networks.

Private ownership and control, even if the property is long and thin.

Access must be the invader’s problem. The irredeemable problem of mandatory open access.

Nonetheless, Battles For Mandatory Access Grow AOL/TW Cable open access Electric utilities Visa/Mastercard B2B exchanges Undersea fiber Microsoft OS Government’s apparent driving policy? First artificially create scarcity, then misallocate it! Would markets have created such entities?

AOL/TW

Cable open access

Electric utilities

Visa/Mastercard

B2B exchanges

Undersea fiber

Microsoft OS

If Not Open Access, Then What? Competing networks and new ownership models --who is in the game? Electric utilities – End to franchise Long-distance and local phone companies Cable companies Water utilities Gas companies Railroads Interstate highways and Amtrak corridors Real estate developers Deals with private landowners

Competing networks and new ownership models

--who is in the game?

Electric utilities – End to franchise

Long-distance and local phone companies

Cable companies

Water utilities

Gas companies

Railroads

Interstate highways and Amtrak corridors

Real estate developers

Deals with private landowners

Justification? There Is a Need for New Infrastructure Consider the Bandwidth Trickle Without breakthrough in satellite or wireless, must extend fiber to the home

Consider the Bandwidth Trickle

Without breakthrough in satellite or wireless, must extend fiber to the home

Downloading Titanic 28,800 bps modem takes 16 days to download Titanic (4.7 gig) ISDN line (128,000 bps would take over 3 ½ days) Even cable modems would take an hour . And c opper DSL will always be just a few percent the bandwidth of fiber cable often transmits data only one way Satellites not workable for conferencing or gaming None of today’s options are fast enough for future digital needs! So private infrastructure is needed—very likely fiber to the home.

28,800 bps modem takes 16 days to download Titanic (4.7 gig)

ISDN line (128,000 bps would take over 3 ½ days)

Even cable modems would take an hour . And c opper DSL will always be just a few percent the bandwidth of fiber

cable often transmits data only one way

Satellites not workable for conferencing or gaming

Electric restructuring crucial Power companies getting into telecom and vice versa Existing competing grids (Lubbock, TX, Alma, MI) Water transportation infrastructure needs $138 billion Advances in materials science improves control of power flows Direct current distribution options Sideways Directional Drilling Railroad upgrades and rural “short-liner” spin-offs Learn from the California crisis: Power “bandwidth” is needed too

Electric restructuring crucial

Power companies getting into telecom and vice versa

Existing competing grids (Lubbock, TX, Alma, MI)

Water transportation infrastructure needs $138 billion

Advances in materials science improves control of power flows

Direct current distribution options

Sideways Directional Drilling

Railroad upgrades and rural “short-liner” spin-offs

Learn from the California crisis: Power “bandwidth” is needed too

Meanwhile, the “Photonics” Revolution is already creating pressures for the push to the home Qwest 18,000 mile, largely underground network and empty conduits. (“rail plow” 120 miles per week.) Level 3 (burying nine empty conduits) Residential Communications Network (“gunning for homes”) “ The House that Jacks Built” (Boston Optical) Power lines as data and voice networks.

Meanwhile, the “Photonics” Revolution is already creating pressures for the push to the home

Qwest 18,000 mile, largely underground network and empty conduits. (“rail plow” 120 miles per week.)

Level 3 (burying nine empty conduits)

Residential Communications Network (“gunning for homes”)

“ The House that Jacks Built” (Boston Optical)

Power lines as data and voice networks.

Natural Monopoly? Project Oxygen Satellite Networks Fiber-Optic Link Around the Globe

Examples built without eminent domain expropriation Koch Industries’ Corpus-to-Dallas 420-mile proprietary pipeline TransCanada Power non-utility power line, and Algonquin Power transmission line Why important? Helps avoid common carrier, open access regulations

Koch Industries’ Corpus-to-Dallas 420-mile proprietary pipeline

TransCanada Power non-utility power line, and

Algonquin Power transmission line

Why important? Helps avoid common carrier,

open access regulations

And If All Options Fail, Still No Case for Universal Access... The likely effect of all the foregoing is -- open access without coercion . But if not... Still a role for deal-making Offer access to one’s own system in exchange Newcomers can fund labor costs, reinforcement, construction, tech. upgrades and maintenance in return for access User ownership Retaliation, threats and rivalry can induce access Finally, “rifle shot” access preferable to universal, managed access

The likely effect of all the foregoing is -- open access without coercion . But if not...

Still a role for deal-making

Offer access to one’s own system in exchange

Newcomers can fund labor costs, reinforcement, construction, tech. upgrades and maintenance in return for access

User ownership

Retaliation, threats and rivalry can induce access

Finally, “rifle shot” access preferable to universal, managed access

Conclusion: Regulation Unable to Mimic Competition Open access assumes away the problem of ignorance. Proper market structure between polar extremes must be discovered Government should not induce in voluntary trade—the essence of forced open access Profit incentives to invest should be protected Remember, the “network boom” is inter-industry Regulation does not guarantee fair prices anyway

Open access assumes away the problem of ignorance. Proper market structure between polar extremes must be discovered

Government should not induce in voluntary trade—the essence of forced open access

Profit incentives to invest should be protected

Remember, the “network boom” is inter-industry

Regulation does not guarantee fair prices anyway

Success! (1) GENERAL RULE – [A] State, political subdivision of a State, or political authority of two or more States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any [Network] provider. Adapted from: Title VI, Sec. 601 of the Federal Aviation Administration Authorization Act (1994), which preempted state regulation of intrastate trucking carriers.

(1) GENERAL RULE – [A] State, political subdivision of a State, or political authority of two or more States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any [Network] provider.

Adapted from: Title VI, Sec. 601 of the Federal Aviation Administration Authorization Act (1994), which preempted state regulation of intrastate trucking carriers.

The Bandwidth Issue Leads to… Competing Internets as an Alternative to Regulation

Main Question: Who owns what in the online world? No one has the right to have the Internet regulated on their behalf. However,

Who owns what

in the online world?

No one has the right to have the Internet regulated on their behalf. However,

Despite Wild-West Reputation, Growing drive to Regulate Over 400 bills impacting the Internet in 2000. Already dozens of bills introduced in 107 th Congress Regulation from Vices to Devices from W. Post

Over 400 bills impacting the Internet in 2000.

Already dozens of bills introduced in 107 th Congress

Regulation from Vices to Devices

Existing Rules Impacting the Net COPPA Software Filters Anticircumvention of copyright technologies Worldwide China’s “Great Firewall” Myanmar (Burma) Outlaws Internet Entirely

COPPA

Software Filters

Anticircumvention of copyright technologies

Worldwide

China’s “Great Firewall”

Myanmar (Burma) Outlaws Internet Entirely

Banning the Vices: Internet Gambling and Porn Electronic Privacy Internet Tax Spam Legislation Network Security Trespass on the Net Others French court ruling against Yahoo! Council of Europe Cybercrime treaty Italy’s investigation of Internet regulation A Web of Regulation From vices to devices

Banning the Vices: Internet Gambling and Porn

Electronic Privacy

Internet Tax

Spam Legislation

Network Security

Trespass on the Net

Others

French court ruling against Yahoo!

Council of Europe Cybercrime treaty

Italy’s investigation of Internet regulation

Individualism and the Internet With common property, only have two options: Regulate it, or privatize it. Anarchy on the commons won’t last. And those who don’t want regulation won’t win every policy battle.

With common property, only have two options:

Regulate it, or privatize it.

Anarchy on the commons won’t last. And those who don’t want regulation won’t win every policy battle.

Internet freedom requires a foundation of private property Hardware privatized, but not governance New infrastructure inevitable, so starting with the right premise means fostering a range of owned as well as open networks with different ground rules instead of top down regulation. The “Splinternet” alternative to Internet regulation provides a way out of cyberspace regulation. Internet technology is critical—not necessarily the Internet as it happens to exist today. So what does reform require? But can this really happen?

Internet freedom requires a foundation of private property

Hardware privatized, but not governance

New infrastructure inevitable, so starting with the right premise means fostering a range of owned as well as open networks with different ground rules instead of top down regulation.

The “Splinternet” alternative to Internet regulation provides a way out of cyberspace regulation. Internet technology is critical—not necessarily the Internet as it happens to exist today.

Made possible by fiber growth, cross-industry alliances, and explosion in “data centers” and Storage Area Networking Bill Joy’s “Six Webs” desktop, entertainment, pocket PC, voice recognition, e-business, embedded systems Wireless Application Protocol GeoVideo Net eKIDS Internet Plus SilverTech Inc.’s “Private Internet Engines” Emerging Splinters

Made possible by fiber growth, cross-industry alliances, and explosion in “data centers” and Storage Area Networking

Bill Joy’s “Six Webs”

desktop, entertainment, pocket PC, voice recognition, e-business, embedded systems

Wireless Application Protocol

GeoVideo Net

eKIDS Internet

Plus SilverTech Inc.’s “Private Internet Engines”

Splintering Can Help Privacy Encryption, anonymizers and other software -Consumer responsibilities Encryption and Privacy Policies -Vendor responsibilities Excludability -The missing element on a public network

Network Security Issues If you don’t take care of and secure your network, it hurts me. A National Security Council official argued the need for a second, secure Internet. Need to be able to keep “Mafiaboy” off altogether

If you don’t take care of and secure your network, it hurts me.

A National Security Council official argued the need for a second, secure Internet.

Need to be able to keep “Mafiaboy” off altogether

Other Issues General Infrastructure/Governance “Trespass” and Web Robots Spam Domain names .aero? Anonymity

General Infrastructure/Governance

“Trespass” and Web Robots

Spam

Domain names

.aero?

Anonymity

Internet Taxes Encryption Intellectual Property At least worth noting how government helped create this problem. Splintering Can't Solve Everything

Internet Taxes

Encryption

Intellectual Property

At least worth noting how government helped create this problem.

We are perched at an important point in business history in terms of the growth of network industries. Crucial to embrace property rights, including the right to deny access to rivals. Meanwhile, the rollout of proprietary networks offers an opportunity to re-think Internet governance while the Net is still “young.”

We are perched at an important point in business history in terms of the growth of network industries. Crucial to embrace property rights, including the right to deny access to rivals.

Meanwhile, the rollout of proprietary networks offers an opportunity to re-think Internet governance while the Net is still “young.”

Remember the Last Time We Saw “Man Controlling Trade”?

Well, if you want to try that in the digital economy… … just remember this guy.

… just

remember

this

guy.