Advances in New Institutional Analysis series
Edited by Claude Ménard and Michel Ghertman
Chapter 7: Vertical Relations and ‘Neutrality’ in Broadband Communications: Neither Market nor Hierarchy?
Howard A. Shelanski INTRODUCTION One of the most contentious debates in telecommunications policy involves the ability of network operators to negotiate vertical relationships with the providers of content and services (‘applications’) that flow over the operators’ infrastructure. Network operators want the ability to manage traffic on their networks, ostensibly to protect against congestion, ensure network quality, and recover sufficient costs to fund continued network investment. As part of that traffic management, operators want to be able to strike different kinds of access agreements with different applications providers. The policy implication is a laissez-faire approach to vertical contracting in broadband markets. In contrast, applications providers typically want ‘network neutrality’: the ability to gain access to consumers without negotiating with intermediary network operators and without the possibility that an operator will discriminate in access quality against any particular provider’s traffic.1 The policy implication is that network operators should not be allowed to ‘create different tiers of online service’ by selling different levels of access at different prices to different providers of on-line content and services (Lessig and McChesney, 2006). At the heart of the network neutrality debate is the question of whether the market for broadband communications can support both open applications competition and optimal levels of ongoing investment in network infrastructure. Most commentators agree that the general answer to that question is ‘yes’. In the specifics, however, this positive consensus on potential results fractures into opposing positions on how those results can and should be achieved. On one side are those...
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