1. Net Neutrality and Competition
Scott Wallsten
Senior Fellow
Director, Communications Policy Studies
Progress & Freedom Foundation
Thank larry and george for organizing what looks like a wonderful event, and for inviting me here today. I’m honored to have the opportunity to speak to you.

2. The Internet Multi-sided market merchants consumers
Multi-sided market. Credit cards, dating club. Need at least 2 sides to succeed. Optimal pricing is very difficult to figure out. You have to at least cover your fixed costs, and prices might differ substantially from marginal cost, and one side often subsidizes the other.
MAIN POINT: EVEN IN RELATIVELY SIMPLE TWO-SIDED MARKET LIKE CREDIT CARDS, OPTIMAL PRICE STRUCTURE IS NOT OBVIOUS

3. The Internet Multi-sided market + network effects Infrastructure
Consumers
(demand)
Content
NN proponents say that content is king, you want to max innovation in content and that dumb pipes are responsible for that innovation.
To do that, they want to regulate how and who infrastructure providers can price their services. HOW AND WHO THE INFRASTRUCTURE PROVIDERS CAN CHARGE
Two problems with that.
We don’t know that the SQ is optimal. We don’t know the counterfactual.
What goods and services might be developed under different models?? We just don’t know. We certainly know that advocates of NN, like google, are very much in favor of exclusive deals for themselves. As bbd providers they seem perfectly willing to violate NN. Free wifi funded by ads.
Innovation in BOTH infrastructure AND content is important. Question is what is the best way to encourage that?
You want to make sure that there is adequate investment and innovation in BOTH infrastructure and content.
Point here is that NN proponents seem to think they know what the optimal price structure of the Internet should be.

4. Mandatory net neutrality = price regulation
Price regulation has a terrible history not just in telecom, but in general. It distorts behavior and investment.
Finally, as we move away from it we find that prices generally go down, investment goes up, etc.

5. Discrimination? Not with adequate competition. Infrastructure
Consumers
(demand)
Content
First, if they do I would argue that we have proper antitrust tools to deal with that sort of thing.

6. Competition Share of zip codes with multiple broadband providers0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dec 1999
Dec 2000
Dec 2001
Dec 2002
Dec 2003
Dec 2004
Dec 2005
Share of zip codes with multiple broadband providers
1 or more
4 or more

7. Competition - encourage entry
Spectrum
Spectrum still scarce
Continue moving it to market
Lobby for firms that don’t exist yet

8. Conclusions Content AND infrastructure important
Optimal pricing of parts unknown
Net neutrality = price regulation
Focus on competition
Don’t drop spectrum reforms
We don’t want to be locked in to current infrastructure