Network Neutrality and Vertical Control: Lessons from Cable TV
30 Pages Posted: 24 Jan 2012
Date Written: August 7, 2010
Empirical research about the effects of vertical integration in cable television suggests that in spite of differences in the economic architectures of cable and Internet broadband, integrated ISPs have economic incentives in some realistic circumstances to favor vertically integrated content services and to restrict entry of (or foreclose) relatively less established ― rival content services. We also develop a simple ― discrimination shifting model to show that while a non-discrimination access rule such as that proposed by the FCC in October, 2009, is likely to diminish discrimination behavior by vertically integrated ISPs overall, it may have the effect of shifting similar ISP behavior downstream to the consumer retail level unless that market is also regulated.
We further conjecture that certain beneficial effects of vertical integration on financing and entry of programming networks that were identified in the cable industry are present, but likely to prove less important for ISPs, due to development since the 1980s and 90s of a large and robust programming supply industry that is mostly disintegrated with cable operators, other MVPDs, or ISPs. Finally, the history of both the cable and ISP industries makes evident that the fundamental policy concerns from an economic perspective are not vertical integration but horizontal market control of ISPs within local market areas and also via their significant national market shares of all broadband Internet subscribers.
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