Should Broadband Internet Services To The Home Offer Choice of ISP?

1. Should Broadband Internet Services To The Home Offer Choice of ISP? YES! Group E: *Brian Bohan *John Musacchio *Randi Thomas *Wanyu Tsai

2. Criteria for Answering the Question • Public Must Benefit through • Lower Prices • Broader Access • Variety of Services • Higher Quality

3. Narrowband to Broadband • Nearly all home users using dial up access • Barrier to entry for dial up ISPs low • over 4,000 ISPs available • Appetite for bandwidth causing migration to broadband • barrier to entry prohibitively high to ISPs • ISP choice threatened

4. Broadband Internet Players • Cable Industry • Telecommunications Industry

5. Cable Industry • A few big players getting bigger • Regional monopolies • Only one ISP per Regional Cable Co. • Usually partially owned by cable co. • @Home-TCI • Road Runner-Time Warner • Controls how end user experiences Internet • Controls quality of service

6. Telecommunications Industry • Pre 1996: Looked a lot like cable today • RBOCs Monopoly provided high price solutions: • ISDN, TI, T3 • Sat on DSL technology • 1996 Telecommunications Act • unbundled infrastructure and services

7. Impact from the Act • Data CLECs emerge • Introduced DSL to market • RBOCs forced to respond • Multiple Broadband ISPs offering variety of services

8. Does Sufficient Competition Exist in Cable Today? • Negative will Argue Current Competition between Broadband is sufficient • We will show that it is not • To have true competition, the cable infrastructure must be opened to ISPs

9. DSL vs. Cable Not Sufficient • Pocket Argument • More profit in Virgin areas • Cost Argument • Cable = $40/mo vs. $60 for DSL • Cable technology enjoys greater economies of scale due to shared resources • Momemtum • Cable outselling DSL 10 to 1 • Merger Mania • AT&T planning to spend $5.7bn on TCI network upgrades • Industry planning to spend $10bn in ‘99 on upgrades

10. Introduce Two-Layer Model • Cable Company leases/sells infrastructure to ISPs at “reasonable rate” • ISP and cable company split monthly fee • Cable companies continue to pay for infrastructure build out • ISPs pay for web servers, caching, content, etc.

11. ConsumerSurplus Demand for cable Internet access in a built-out region PM PC ATC MC QM QC Why this model • Within One Region • Increased Expansion into New Regions

12. Build-Outs in Today’s Model • Big initial infrastructure + Marketing costs • Marketing for new build-outs involves huge cost/risk • Cable/ISP company assumes costs & risks • Must achieve subscription rate to cover these costs • Non-Trivial Issue: 500K subscribers out of 20 million with access = 2.5%: • Cable company manages this risk by building out slower than they could

13. Build-Outs in Two-Layered Model • ISPs will assume the cost of marketing • They market agressively • AOL spends upwards of $300 for every new subscriber • 3.9 million new subscribers in 1998 • Primary demand stimulated nationwide • Cable companies can then rapidly expand service to new areas • Result: More Access for the Public

14. Multiple ISPs Mean Variety • AT&T wants to be your big brother • $57 bn to buy TCI & $54 bn to buy MediaOne • TCI/MediaOne biggest cable provider • reaching 25 million homes, potentially 60 million • “They could rule the world” - Securities Analyst • Imagine NBC as your only TV station • @Home will be just that, controlling all content • Increasingly important as Internet goes multimedia

15. Policy Goals Achieved The Consumer Wins! • Thanks to competition in ISP layer... • We have lower prices • As a result of shared risks and costs • We have broader access • Due to more choice of service providers • We have variety of services

16. Vote Yes on Opening Cable