another round on the NetNeu oped issues

[DAVID FARBER <dave () farber net>]

Please read BOTH Barb and Chris comments. Dave

From: "Cherry, Barbara" <cherryb () indiana edu>

Christopher Yoo's response unfortunately contains several historical
analytical errors that I've repeatedly discussed in my writings.  It is
unlikely that he actually read my TPRC paper to which you provided a
link in [y]our blog, as he would have readily discovered some of them.

Perhaps the fundamental problem is that many economists and legal
scholars commenting on the network neutrality debate DO NOT understand
the history of common carriage.  Under the common law, common carriage
obligations were TORT obligations imposed on carriers (in their
relationship with customers) simply by virtue of their status of
engaging in the business.  In other words, the obligations are
STATUS-BASED and unrelated to the industry's market structure.
Attributing the imposition of common carriage obligations to natural
monopoly is a MYTH, unfortunately so often erroneously repeated in the
secondary literature that it is believed to be true.

The tort obligations of common carriage remained, even after the
development of general contract law. In fact, common carriers were
strictly limited in the degree to which they could contract out of their
tort obligations.  The common carriage obligations later became codified
in statutes (given perceived inadequacies of common law remedies) to
which additional obligations and mechanisms were added (e.g. filing of
tariffs enforced by administrative agencies).

Furthermore, common carriage - both under the common law and statutorily
- predates the statutory antitrust regime.  In other words, the
industry-specific common carriage legal regime predates the general
business regime of antitrust (and even later, of consumer protection
legislation).  This temporal sequencing is very important, as the
general business legal regime evolved after, and as an augmentation of,
the preexisting industry-specific regime.

The reason that Chris says my point of view is novel is because, as
stated above, many do not accurately understand the body of law of
common carriage.  In fact, I didn't discover the true history until I
did my Ph.D. Dissertation.  Although I've published a book based on my
dissertation, which corrects the inaccuracies upon which many rely,
unfortunately its contents have not sufficiently penetrated the general
discourse of telecom policy.

As for the common carriage obligations of transportation carriers under
deregulatory policies, I note with interest Christopher's statement that
"it is my understanding that railroad, bus, and airline deregulation did
actually remove most (of not all) of the major common carrier
requirements."  This is yet another assumption, or
(mis)characterization, of the effect of deregulatory transportation
policies that many have - and without researching the matter to
determine its accuracy.  Later this year, I will be publishing a paper
that specifically discusses what the effect of the deregulatory
transportation policies have been.  Importantly, although many elements
of the older statutory provisions - overlaying the common law common
carrier obligations - have been significantly altered, the critical
elements of common carriage (originating under the common law) have
remained.  The transportation carriers (railroad, airline, bus....) ARE
IN FACT STILL COMMON CARRIERS, but what ha!
s changed is the manner by which the obligations are enforced.


Overall, one has to get the correct historical alignment of various
legal principles and bodies of law straight before one can understand
the points raised in my writings.  Conversely, many of my colleagues
fail to sufficiently scrutinize the assumptions upon which their
analyses are based, thereby overseeing numerous analytical errors.

Best,
Barb

From: Christopher S. Yoo [mailto:csyoo () law upenn edu]

I don't pretend to be an expert on the history of common carriage
regulation.  Barbara has spent far more time thinking about this than I
have, so I always appreciate hearing her reactions and learn from
reading her work.  That said, here are a few thoughts.

It is true that common carriage long predates both the Granger Movement
and the Interstate Commerce Act of 1887.  That said, one of the central
problems is that the historic justifications for common carriage have
not aged very well.  Often times the common carriage obligations were
regarded as a quid pro quo for a government grant of some economic
privilege.  Other times they were justified because the industry was
"affected with a public interest," a concept that is usually traced to
the landmark Supreme Court case Munn v. Illinois (1876).  The Supreme
Court struggled to imbue that standard with content (along with a number
of early treatises trying to make sense of the concept) and would
ultimately abandon it as analytically empty in Nebbia v. New York
(1934).  Legal scholars, such as Thomas Nachbar and James Speta in
addition to Barbara, have attempted to recover lessons from this era.  I
have never spoken to Barbara about this in particular, but both Tom and
Jim have noted the difficulty in extracting any useful lessons from the
history.

Put another way, even though it is true that common carriage was not
originally based on statutes or the theory of natural monopoly, it is
not clear what to make of that fact.  One problem is historical.  A
review of the extensive early 20th century literature examining common
carriage reveals that the original theory of common carriage was not
that well articulated and failed to incorporate the history that Barbara
has identified.  The subsequent development in different directions over
the past century or so is as much part of the history of common carriage
as the history Barbara identifies.  And as I indicated in my previous
post, there is a counter history that dates back to the earliest days of
the cable industry.  The Supreme Court consistently rejected attempts to
turn cable into a common carrier.  So even from a historical
perspective, extending common carriage obligations to cable modems would
be just as radical a change as lifting common carriage obligations from
DSL.  The debate should thus consider the potential adverse impact that
increasing the regulation of cable would have on competition,
investment, innovation, and speech at the same time it considers the
potential adverse effects of decreasing the regulation of telco-based
broadband.

More importantly, we have learned a lot over the past 150 years.  While
history is often illumining, it would seem strange not to hold the old
justifications up to modern standards to see if they still make sense.
We now understand that price discrimination and product differentiation
can provide benefits that we failed to appreciate a century ago.  Thus,
even if tort law once imposed a duty of nondiscrimination and just and
reasonable prices, we should only adhere to that if it continues to make
sense to do so in light of what we know today.  We should also draw
lessons from previous attempts to implement nondiscrimination regimes,
both by the FCC (leased access to cable systems, UNE access under the
1996 Act) and by antitrust courts (essential facilities doctrine,
Robinson-Patman Act).  This history is not encouraging, particularly
where the product and interfaces are complex and when technology is
changing rapidly.

Two last thoughts regarding concerns that John Quarterman mentioned:  He
raises skepticism about the competitiveness of the first mile.  I agree
that the world would be better if the market for last mile service was
more competitive and there were at least five independent providers in
each market.  That said, the trend seems to be going in the right
direction.  DSL and cable modem providers seem to have built out most of
the country.  The key is generating a third pipe to the home.  In this
regard, wireless seems to be the most promising.  As of the beginning of
2005, there were no wireless broadband.  By last September, they had 45
million.  I realize that as of now wireless broadband can only provided
limited bandwidth, but they are working on it.  I find it interesting
that the wireline network providers have repeatedly increased bandwidth
without increasing the cost of their basic service one penny.  I also
find it interesting that small rural wireless broadband providers have
submitted filings to the FCC indicating that they need to able to
discriminate against high bandwidth applications (particularly video) if
they are going to be able to provide adequate service.  That said, the
stakes are about to get much higher as the market approaches saturation.
Instead of retooling existing technologies to race for new customers,
cable and telephone companies are increasingly having to make
significant investment in new technologies to try to provide greater
value to existing customers.  As the days of millions of new customers
and the fiber glut recede into the past, network providers will
inevitably find new ways to compete.  Because change always creates
winners and losers, I suspect that the evolution of competition will be
a source of considerable friction with both business partners and
consumer groups.

John also notes that I do not discuss ISP competition.  I may have
missed it, but I didn't see any mention of ISP competition in any of the
e-mail traffic or on the webpage he posted.  That said, it is not clear
that the history of common carriage has anything to say about ISPs.
Common carriage has traditionally applied only to customers, not to
other carriers, providers, or competitors.  Moreover, the FCC has
repeatedly found the market for ISPs to be quite competitive, except in
the WorldCom-MCI merger when it required the spinoff of some backbone
assets before it would provide regulatory clearance.  What also strikes
me is how much more heterogeneous the network has become, both in terms
of structure and business relationships.  Secondary peering and
multihoming have reached the point where 70% of the nodes can
interconnect without passing through the public backbone.  The advent of
new business relationships such as paid peering and partial transit has
made the economic environment richer and more complicated as well.  The
effect has been to weaken the hold of the Tier-1 ISPs.  The world is
more complicated, but more open to creative solutions than ever before.

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