Bronwyn Howell

[Commentary] One of the starting assumptions for the Open Internet order is that blocking, throttling, and paid prioritization are unilateral actions imposed by Internet service providers to maximize their own positions and will be necessarily harmful to consumer and application provider welfare. Consumer-directed blocking and throttling may be questionable in the US, but the practice is alive and well in New Zealand – one of the OECD countries where no specific position on traffic management has been enshrined in regulations.

The case for selective throttling is an easy one: Internet users are extremely heterogeneous consumers with extremely heterogeneous tastes for Internet content. In a world of heterogeneity, the best way to increase both consumer and total welfare is to allow the development of customized products and prices tailored to differing preferences. Just as consumers can create a better overall experience using selective throttling, so it is possible to imagine plenty of scenarios where content providers or network operators can do the same. Unfortunately, the network neutrality rules seem to take options like these off the table – even before they have been articulated or explored – and instead offer only a strict one-size-fits-all Internet experience. It behoves regulators and net neutrality advocates to remember that, just as with other examples of heterogeneity, perfectly equal treatment may create outcome inequalities that intelligently applied positive discrimination – understanding and catering to individual differences – can ameliorate.

[Bronwyn Howell is a faculty member at the School of Management, Victoria University of Wellington, New Zealand.]

[Commentary] In July, the Office of Science and Technology Policy and the National Economic Council requested public comments on the upcoming update of the Strategy for American Innovation.

While the notion of innovation as a market good is debatable, the common theme linking national innovation strategies, almost without exception, is the unquestioned assumption that the STEM disciplines (Science, Technology, Engineering, and Mathematics) are central to this policy endeavor.

Investment in educating and developing STEM workers, funding STEM research activities, and facilitating the advancement of the resulting outputs into patentable products and thriving businesses are central tenets. However, one of the challenges for innovation is that transforming STEM research into the commercial activities that will underpin growing economic prosperity requires a special sort of entrepreneurial human capital that includes both STEM knowledge and business acumen.

[Howell is general manager for the New Zealand Institute for the Study of Competition and Regulation]

[Commentary] In the last week of May, a large number of New Zealand customers started experiencing difficulties accessing Netflix. In the context of the current net neutrality debates in the US, it was inevitable that some immediately jumped to the (erroneous) conclusion that their Internet service providers (ISPs) were deliberately slowing down or blocking Netflix traffic for some strategic reason.

However, a little local journalistic sleuthing elicited only denials from local ISPs that they were ‘shaping’ Netflix traffic. Furthermore, the problem appeared to be affecting customers of a number of ISPs. A day later, all became clear: Netflix itself was primarily responsible for the interruptions to its New Zealand customers, but it wasn’t intentional.

The New Zealand ISPs were also contributing to the problem, but this too was accidental. It turns out that Netflix had made some technical changes to its content distribution that had caught the ISPs ‘on the hop’. The change meant that the ISPs were no longer detecting and caching the popular content, so everyone had to endure the long wait as every copy requested was streamed live from the US.

[Howell is general manager for the New Zealand Institute for the Study of Competition and Regulation and a faculty member of Victoria Business School, Victoria University of Wellington, New Zealand]

[Commentary] Just when we thought the tales of the Australian government-funded nationwide fiber-to-the-home network could not get more incredible, news emerges that that the Telecommunications Industry Ombudsman has been called upon to make a ruling on the legality of private sector firm TPG’s plan to provide fiber-to-the-basement services to high-rise apartment buildings in the inner-city Melbourne suburb of Docklands.

Docklands does not yet feature on any National Broadband Network (NBN) rollout plans, and residents are apparently crying out for better broadband services. If this were the United States, then TPG’s plans would be manna from heaven, not cause for administrative inquiry. The problem is that, under anti-cherry-picking provisions governing the NBN, competing network operators must offer services under the same terms as the NBN. So the ombudsman is being asked to determine whether a new service, which offers capabilities not currently available to residential consumers, is illegal because it does not provide its services under the same institutional arrangements as another service which could be (but is not) offering services presently in the area.

If the ombudsman decides that it is illegal, then the good citizens of Docklands will have no choice but to continue with their current ADSL and wireless services. Not because there is no fiber available, or because no-one is prepared to invest, but because allowing a non-approved business model may stand in the way of forming a new government monopoly super-fast internetwork in the manner intended.

[Howell is general manager for the New Zealand Institute for the Study of Competition and Regulation]

[Commentary] In the net neutrality debate, commentators such as Susan Crawford have repeatedly called for a “public option for Internet access because Internet access is just like electricity or a road grid.” The argument typically goes along the lines that the Internet is simply a utility, like roads or electricity, so at the very least should be regulated in the same manner as these networks. Alternatively, in some utopian world, they should be owned and operated by governments -- local, state or municipal -- to ensure that they are operated in the ‘public good’.

At some point, the issue of needing only one wire to every house is brought up as some sort of justification for this stance. They also argue that, because consumers have paid a (fixed -- i.e. ‘all you can eat’) fee to connect to the network, they are entitled to the uninhibited right to consume as much content as they wish without either themselves or the providers of the content they consume being billed any further. But are the analogies really as simple and useful as these commentators imply?

Analogies comparing the Internet to electricity and roads illustrate some of the implications for regulating the Internet. But it is neither simple to consider the Internet in the same way as other utilities, nor axiomatic to invoke incomplete similarities in calls for changes to regulation or ownership. To do so denies the Internet’s unique characteristics and vastly different potential. The Internet IS different and needs to be considered on its own merits where regulation is concerned

[Howell is general manager for the New Zealand Institute for the Study of Competition and Regulation and a faculty member of Victoria Business School]

[Commentary] In the wake of the Snowden leaks, much attention has been given to the extent to which it is possible for unauthorized individuals -- including governments -- to gain access to electronic information.

It is becoming increasingly clear that statutory privacy laws and website codes pay only lip service to their promises to protect individuals’ and firms’ information. From the perspective of an economic contract, they are very difficult to enforce because it is extremely difficult -- or prohibitively costly -- to identify when breaches have occurred.

It is relatively straightforward to protect one’s physical property by putting boundaries around it to keep others out – the economic characteristic known as exclusivity. We can physically isolate the disks on which information is stored and invest in sufficient resources to exclude others up to the expected value we expect to gain by controlling the information. If the disk is illegally appropriated by another, this is obvious, because it is a ‘rival’ good. Either the legitimate owner has it or it is illegitimately in the possession of another.

The problem with digital goods – such as the information on the disk – is that they are neither rival nor easily excludable, especially when they become ‘unbundled’ from the ‘carrier medium,’ for example when transported from place to place over the Internet.

This makes them particularly problematic. But in the race to provide a raft of new means of preventing unauthorized access to electronic data, is enough attention being paid to impediments to authorized users’ legitimate access to cloud-based data?

[Howell is general manager for the New Zealand Institute for the Study of Competition and Regulation and a faculty member of Victoria Business School, Victoria University of Wellington, New Zealand]

[Commentary] Amongst all of the brouhaha circulating following the Federal Communications Commission’s network neutrality announcement, some of the most puzzling comments concern the purported ‘evils of price discrimination’ that will inevitably emerge if -- heaven forbid -- a network operator dares to charge one person a different price to move traffic over the Internet than another person.

The mere fact that discrimination could occur is deemed sufficient cause by many to justify its legislative prohibition. The ‘evils of price discrimination’ are almost always voiced by individuals fervently advocating for the necessity of universal and uncapped Internet access tariffs – often to the extent that metered Internet access should be legislated out of existence, so that the digital world can flourish unbounded and ‘free’, just as its instigators intended.

If one digs a little deeper, one would probably find that the vast majority of these ardent advocates currently purchase their (uncapped) fixed Internet connection in a ‘triple play bundle’ alongside their cable or IPTV subscription and some form of voice telephony service.

Do these advocates realize the double standard they exhibit when calling for the prohibition of one form of price discrimination while at the same time benefiting from price discrimination that underpins the entire business case of their digital experiences? Because ‘flat rate’ Internet access and triple play bundles are simply other forms of price discrimination. If price discrimination is illegal then surely these too must be banned?

[Howell is general manager for the New Zealand Institute for the Study of Competition and Regulation]

[Commentary] Apparently one-third of Americans are pessimistic about tech -- and they’re more likely to be poor, less educated, and female. That’s approximately the same percentage of New Zealanders who abstained from voting in the last general election.

There’s a significant cross-over in the demographic as well -- the ‘missing million’ as they have come to be known in New Zealand are thought to be disproportionately poor and less educated, although the other defining characteristic is that they are younger than average.

So why is this demographic cross-over so interesting? Because a potentially curious electoral alliance between a far left political party -- Mana -- and a nascent ‘Internet Party’ led by an expatriate German Internet entrepreneur currently facing extradition to the United States to face breach of copyright charges -- the notorious Kim Dotcom -- might just determine the outcome of New Zealand’s September 20 general election.

At stake are the hearts, minds, and, most importantly, the votes, of the ‘missing million’ -- if only they can be stimulated out of apathy and induced to vote.

[Howell is general manager for the New Zealand Institute for the Study of Competition and Regulation]