Technology Policy Institute

Australia’s National Broadband Network (NBN) is the largest public sector investment in broadband to replace existing copper infrastructure with fiber. Government decided to build and operate a wholesale network to encourage competition on that retail fixed broadband and achieve faster infrastructure buildout with higher quality and lower retail prices. The NBN aimed to connect 93 percent of Australian households and businesses (13 million premises) to a wholesale fiber-to-the-premises (FTTP) but downgraded to fiber-to-the-node (FTTN) as a result of escalating costs and political change. In further attempts to bring down the cost and adopt a more deliverable strategy, the current administration is considering a gradual sell-off of the NBN network. Six years after its start the overall outcome has not been positive.

This report finds that since NBN implementation coverage and adoption rates have slowed for fixed broadband and mobile broadband growth has remained relatively constant despite increased investment. Australians continue to experience low quality services due to low speeds, higher prices relative to other countries and a slowing rate of price decrease for internet services in the past eight years. Fixed retail market concentration has not changed significantly since the NBN began operation and has slightly increased in the mobile market. Finally, this research suggests that faster mobile connection speeds are changing consumer patters to perceive mobile as a substitute for fixed broadband. The Australian case reveals how state owned broadband might not be the best answer to meet full coverage and competition objectives. The NBN is an example of an intrusive policy subject to political pressures that has resulted in inefficiencies that distort consumer patterns and investment decisions without changing the competitive landscape.

[Commentary] Despite the controversy surrounding the proposed merger of Comcast and Time Warner Cable, "the question regulators and antitrust authorities must answer is the same as it is for any merger."

Regulators must determine if "expected benefits that flow from increased efficiencies outweigh the chances that the merger could increase the incentive and ability of the combined firm to behave in anticompetitive behavior and the magnitude of those effects."

A merger would potentially yield benefits to business customers because the increased area the merged companies would cover would make it less costly to connect customers with multiple office locations. The benefits for residential customers would be dependent on such factors as the schedule for infrastructure upgrades and how much current TWC consumers value the expanded video-on-demand library and faster broadband connection speeds.

It is difficult to predict the effect on innovation, because although fewer firms in an industry "may reduce the number of innovative paths explored," larger firms could have stronger incentives to innovate if scale allows higher returns to investment. In addition, it is not clear how much increased revenues expected from cost efficiency will affect prices for the consumer.

I find no realistic theory why larger distributors would receive better carriage deals for content than smaller distributors. The primary reason for the theoretical ambiguity is that while the content provider needs access to subscriber, the distributor needs content to distribute. Regardless, a better negotiating position does not necessarily mean harm for consumers.

Given rapidly increasing programming costs, a reduction in the rate of increase due to an improved negotiating position may benefit, rather than harm, consumers if it has any effect at all. Concerning broadband, I warn regulators and antitrust authorities against simply determining if the merged company has the incentive to bock or degrade online content.

The question is whether the merger increases the incentive and ability to do so and, if so, does the increase pose an anticompetitive threat. I also warn against considering such issues as customer satisfaction when considering the effects of the merger. Comcast and Time Warner Cable rate similarly in customer surveys, and no evidence suggests that the merger would make it worse.

A Government Spectrum Ownership Corporation (GSOC) should be established to lease spectrum to government agencies, much in the same way as the General Services Administration (GSA) does with real estate, explain Thomas Lenard and Lawrence White in comments filed with the Office of Science and Technology Policy.

The goal would be to provide incentives for government agencies to economize on spectrum use and free up spectrum for the private sector.

In their comments, Lenard, TPI President and Senior Fellow, and White, Robert Kavesh Professor of Economics at the NYU Stern School of Business, also recommend that spectrum allocation decisions should be a more integral part of the annual Office of Management and Budget (OMB) budgeting process. OMB should require any government agency that has a spectrum allocation to provide an annual accounting of that agency’s use of that spectrum. OMB should have a heightened awareness of spectrum as a scarce resource and should routinely search for under-utilized spectrum that could be auctioned by the FCC. In essence, OMB should become a skeptical auditor of government-held spectrum, its use, and its opportunity costs.