Ellig Net Neut Framework May 2007

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This document outlines a framework for evaluating regulations related to "net neutrality". It discusses: 1) Definitions of net neutrality and the debate around whether internet service providers should be able to prioritize or block certain packets. 2) The need for regulatory analysis to understand outcomes, identify any market failures, assess different policy alternatives, and weigh costs and benefits. 3) Key questions for the framework, such as whether violations of net neutrality represent an abuse of market power or provide benefits to consumers.

Business Technology

A Framework for Evaluating “Net Neutrality” Regulation Jerry Ellig Senior Research Fellow

What’s this all about? ,[object Object],[object Object],[object Object],[object Object],[object Object]

Definitions of “net neutrality” ,[object Object],[object Object],[object Object]

What can an analytical framework do? ,[object Object],[object Object]

Regulatory Analysis in Plain English ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Who’s required to do this? ,[object Object],[object Object],[object Object]

1. Outcomes ,[object Object],[object Object],[object Object]

Values  outcomes  measures ? Change in subscribership caused by regulation ? When would competition fail to safeguard this, and how would regulation do so? How will regulation expand # of users? ? Whoever pays can say whatever they want? Maximum possible number of people online? Other? First Amendment/ Participation in political discourse ? Competitive markets do this Regulation does this when it sets prices and quality at efficient levels Causality ? ? Privacy How competitive is the broadband market? Are regulated prices/ quality at efficient levels? Every resource is employed in the use that consumers value most highly, and no consumer can be made better off without making another consumer worse off Consumer welfare Measures Outcome Value

2. Market failure ,[object Object],[object Object],[object Object],[object Object],[object Object]

Is the market competitive? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

3. Identify the core federal role ,[object Object],[object Object],[object Object]

4. Assess effectiveness of alternatives ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

5. Costs ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

When is the deadweight loss large? ,[object Object],[object Object],[object Object],[object Object]

Example: Costs of Telecom Regulation Source: Jerry Ellig, “Costs and Consequences of Federal Telecommunications Regulation,” 58 Federal Communications Law Journal 37 (Jan. 2006). $25.5 billion Deadweight loss $75.4 billion Non-federal expenditures $361 million Federal expenditures

What might costs of net neutrality be? Less (or more) blogging? Behavioral changes Services/innovations not deployed? Quality effects Cost pass-through Non-discrimination may alter price structure Deadweight loss Technology, compliance, etc. Non-federal expenditures Promulgation/enforcement Federal expenditures

6. Compare costs with outcomes ,[object Object],[object Object],[object Object],[object Object]

“ Everyone is entitled to his own opinion, but not his own facts” -- Sen. Daniel P. Moynihan

For further information… ,[object Object],[object Object],[object Object],[object Object]

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The Social Security Disability Insurance (DI) trust fund’s projected 2016 depletion will require Congress to act soon to prevent large, sudden benefit cuts. Experts on both sides of the aisle have noted that a “quick fix” of simply shifting payroll taxes from Social Security’s much larger retirement trust fund (OASI) into DI, without further reform, could cost Congress its last chance to solve Social Security’s broader financing problems before it is too late. What more responsible reform options are available? The Mercatus Center and the Committee for a Responsible Federal Budget hosted a discussion on May 12 on how best to respond to SSDI’s financing crisis.

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Ellig Net Neut Framework May 2007

1. A Framework for Evaluating “Net Neutrality” Regulation Jerry Ellig Senior Research Fellow

9. Values  outcomes  measures ? Change in subscribership caused by regulation ? When would competition fail to safeguard this, and how would regulation do so? How will regulation expand # of users? ? Whoever pays can say whatever they want? Maximum possible number of people online? Other? First Amendment/ Participation in political discourse ? Competitive markets do this Regulation does this when it sets prices and quality at efficient levels Causality ? ? Privacy How competitive is the broadband market? Are regulated prices/ quality at efficient levels? Every resource is employed in the use that consumers value most highly, and no consumer can be made better off without making another consumer worse off Consumer welfare Measures Outcome Value

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17. Example: Costs of Telecom Regulation Source: Jerry Ellig, “Costs and Consequences of Federal Telecommunications Regulation,” 58 Federal Communications Law Journal 37 (Jan. 2006). $25.5 billion Deadweight loss $75.4 billion Non-federal expenditures $361 million Federal expenditures

18. What might costs of net neutrality be? Less (or more) blogging? Behavioral changes Services/innovations not deployed? Quality effects Cost pass-through Non-discrimination may alter price structure Deadweight loss Technology, compliance, etc. Non-federal expenditures Promulgation/enforcement Federal expenditures

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20. “ Everyone is entitled to his own opinion, but not his own facts” -- Sen. Daniel P. Moynihan

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Ellig Net Neut Framework May 2007

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