Broadband Network Management Benefits Consumer Welfare When Congestion Present, Phoenix Center Demonstrates

WASHINGTON, March 10 /PRNewswire-USNewswire/ — A new study by the Phoenix Center demonstrates that consumers benefit when network operators act in a transparent way to reduce Internet congestion.

Phoenix Center Policy Paper No. 32, The Welfare Impacts of Broadband Network Management: Can Broadband Service Providers Be Trusted?, provides policymakers a cohesive framework for analyzing the reasonableness of broadband traffic management practices. In particular, the study shows that because each network has its own unique characteristics and may be affected in different ways by different applications, “what constitutes ‘reasonable’ network management is apt to vary depending upon the application at issue and also across networks.” The study suggests that assessment of management practices “is best suited to a case-by-case scrutiny rather than the implementation of a ‘bright-line’ rule.”

“Study after study show that a small minority of Internet users take up the lion’s share of network capacity,” said Lawrence J. Spiwak, President of the Phoenix Center and study co-author. “Our paper shows that rigid, prescriptive rules may harm consumer and social welfare because they may unwittingly ban entire categories of welfare enhancing traffic management tools. Instead, a fact-based, case-by-case approach is appropriate. The policy goal should be to free consumers from Internet slowdowns and disruptions caused by bandwidth hogs.”

The economic model employed by the study analyzes the role of “congestion externalities” that can be caused by bandwidth-greedy applications as well as the likely welfare consequences of network management designed to reduce congestion. A congestion externality can degrade the experience of all network users even when a network offers substantial amounts of bandwidth. “For example, in Japan, which is reputed to boast some of the highest broadband speeds in the world, a small number of users and P2P applications consume the vast majority of bandwidth available, to the point that some Japanese Internet service providers curb or restrict P2P traffic,” the study observes.

“When a network is congested because of a particular application or heavy user, that creates a negative externality that harms other consumers,” said Phoenix Center Chief Economist and study co-author George S. Ford. “As is typical with externalities, whether positive or negative, our analysis shows that private firms do not fully internalize the congestion externality. Thus, broadband providers should be expected to be too soft, not too aggressive, on congestion.”

“Our model not only provides a sound economic framework for exploring this important issue, it also provides guideposts for policymakers to use in resolving disputes,” said Thomas M. Koutsky, Phoenix Center Resident Scholar and co-author of the study. “If an application creates congestion and the provider can resolve that congestion with transparent actions that are fairly disclosed, our model shows that network users are better off.”

Phoenix Center Policy Paper No. 32, The Welfare Impacts of Broadband Network Management: Can Broadband Service Providers Be Trusted?, may be downloaded free from the Phoenix Center’s web page at:

http://www.phoenix-center.org/pcpp/PCPP32Final.pdf.

The Phoenix Center is an international, non-profit 501(c)(3) organization that studies broad public-policy issues related to governance, social and economic conditions, with a particular emphasis on the law and economics of telecommunications and high-tech industries.

   Phoenix Center for Advanced Legal & Economic Public Policy Studies   5335 Wisconsin Avenue, NW   Suite 440   Washington, D.C. 20015   Tel: (+1) (202) 274-0235   Fax: (+1) (202) 318-4909   E-mail: info@phoenix-center.org   Web Page: http://www.phoenix-center.org/   SSRN Author Number: http://ssrn.com/ author=365900  

Phoenix Center for Advanced Legal & Economic Public Policy Studies

CONTACT: Lawrence J. Spiwak of the Phoenix Center, +1-202-274-0235

Web Site: http://ssrn.com/ author=365900http://www.phoenix-center.org/