governing the broadband ecosystembauerj/bauer-katp-mobile-broadband-2014-fin.pdf · environment...

Governing the Mobile Broadband Ecosystem

Johannes M. BauerKorea Association for Telecommunications Policy

20th Anniversary Global WorkshopHonolulu, Hawaii, June 27, 2014

Background and motivation

• Policy makers worldwide are experimenting with measures intended to boost the benefits of mobile broadband

• Regulatory theory and practice use simplifying assumptions that deviate in many ways from the workings of advanced communication systems

• Requires understanding of the conditions under which the existing approaches are acceptable and when alternative approaches are needed

Overview

• An international comparison of selected mobile broadband performance metrics

• Re‐conceptualizing governance in highly interrelated systems

• Implications for policy research and practice• Recap of main points

Comparative performance

Mobile broadband players

Mobile networks

Network equipment

DevicesDevelopment platforms,operating systems

Voice, data, messaging services

Componentmanufacturers

Towers,spectrum

Applications, content, mobile commerce

Devices U

sersAd

vertise

rs

Governance (voluntary, mandated, spontaneous)


External enviro

nment External environm

ent

Performance (mobile broadband adoption, infrastructure quality, innovation rate, prices, overall economic and societal impact

Fixed networks

Global mobile traffic

Source: Akamai, 2014

Peak mobile Internet traffic(1H 2014)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

North America Europe Asia Pacific Latin America Africa

Outside top 5

Webbrowsing

Communications

Social networking

Tunneling

Marketplaces

Real‐time entertainment

Source: Sandvine, 2014

Wireless broadband subscriptions(in 106, as of June 2013)

Source: OECD Broadband Portal, 2014

Wireless broadband adoption(per 100 inhabitants, as of June 2013)

0

20

40

60

80

100

120OECD wireless broadband subscriptions per 100 inhabitants, by technology

Dedicated mobile data subscriptions

Standard mobile broadbandsubscriptionsTerrestrial fixed wireless

Source: OECD Broadband Portal, 2014

Network quality(average and peak download speeds, mbps)

8.5 7 5.9 8.9 7.9 7.8 5.4 4.7 4.1 3.9 1.8 1.7

16.1 15.2

27.7

55.5

37.528.9

135.6

28.6

111.2

19.7 19.513.1

Average Peak


North America

Europe, Middle East, Africa Asia Pacific

Caribbean, Latin America


Mobile penalty(average page download time in milliseconds)

0

2000

4000

6000

8000

10000

12000

14000

millisecon

ds

Broadband

Mobile


Heterogeneity and divergence

0

1

2

3

4

5

6

7

8

9

0.0 20.0 40.0 60.0 80.0 100.0 120.0

Average mob

ile dow

nloa

d speed

Mobile broadband adoption per 100 inhabitants

Own calculation, based on OECD (2014), Akamai (2014)

r=0.38

Re‐conceptualizing governance in highly interrelated systems

An interrelated (eco)system

Network equipment


Towers,spectrum



External environment


Development platforms,operating systems



Users

Advertise

rs

External enviro

nment

Devices

Fixed networks

Devices

Mobile networks

Rationales for governance• Market power and dominance

– Bottlenecks in the system (e.g., local access)– Horizontal market concentration– Vertical integration across layers of some players

• Coordination requirements– Numbering (e.g., Domain Names)– Interoperability (e.g., standards, roaming)

• Externalities and public good effects– Overall innovation dynamics of the system– Economic effects on communities– Instability and volatility of the sector (e.g., security, reliability of equipment supply)

– Quality of infrastructure platforms

Governance instruments

Networks

Network equipment

DevicesDevelopment platforms,operating systems



Towers,spectrum


Devices U

sersAd

vertise

rs



External enviro

nment External environm

ent


Spectrum policy

Standards

R&D policy

Open data Net neutrality

Universal service

Access to content

Roaming, MVNOs

E‐government

Public procurement

ROW policy

Governance challenges (Bauer, 2014)#1: Pervasive interdependencies

– Policy and regulation lead to adjustments of directly and indirectly affected players

#2: Policies work as constellations– Policy instruments rarely act as single, additive factors;

rather they work as constellations that need to be aligned with national and sector conditions

#3: Direct and indirect costs of regulation– More differentiated types of intervention are typically

associated with higher direct and indirect costs#4: Technology, economics and policy co‐evolve

– Dynamic adjustments by players seek to increase “fitness” relative to legal and regulatory framework (but not necessarily toward higher welfare)

Challenge 1: interdependencies• Highly interrelated system even though not all segments are connected equally – Convergence and platform mobility– Prevalence of two‐ and multi‐sided markets– New forms of competition (e.g., WhatsApp, KakaoTalk)

• Implications for regulatory theory and practice– Interventions percolate through system– Policy has direct and multiple indirect effects – Limited theoretical and empirical foundations

• Unanticipated positive and negative effects will regularly occur, require continuous adaptation

The case of wireless net neutrality• Spectrum of governance options from “strict” to “weak” to “no” neutrality rules

• Effects of various policy options on innovation performance highly contested among stakeholders

• Research findings contingent on modeling assumptions– Gans (2014), Choi (2010) find positive effects of strict neutrality on network investment and app innovation

– Majority of researchers find negative effects of strict neutrality on network investment and positive effects on app innovation (e.g., Krämer et al. 2013)

– Bauer (2014) clarifies that effects differ depending on type of innovation and argues for an intermediate approach

–

Modeling systemic relations

Strict net neutrality

Innovation incentives for app developers

Innovation incentives for

network operators

+

Overall innovation performance

+

+

+

Overall effect contingent on relative strength of relations, can be (+) or (–)

20

+

Innovation scenarios• Differences between innovation types recognized in

industrial organization research (e.g., Malerba and Orsenigo, 1996; Aghion et al., 2005)

• Modular innovation– Coordination between relevant players can be achieved via

interfaces (e.g., app economy)– Standardized access to network and logical platforms expands

set of profitable innovations– Stricter net neutrality facilitates modular innovation

• Coupled innovation– Coordination between relevant players requires knowledge

sharing, large‐scale coordination– Facilitated by temporary exclusivity and barriers to entry– Stricter net neutrality stifles coupled innovation

–

Scenario 1: stronger positive feedbacks




network operators

+


+

+

+

Overall effect (+)

22

+

–

Scenario 2: stronger negative feedbacks




network operators

+


+

+

+

Overall effect (–)

23

+

24

Tuning the system to optimal performance

Investment-, Innovation-incentives

Strict neutrality

No neutrality

NL N* NU

Challenge 2: policy constellations• Institutional economics suggests that policy does not effect performance in an additive fashion (as often tacitly assumed)

• Rather, policy variables affect outcomes as “constellations”, that is in combination with other policy and contextual factors

• Therefore, policy makers need to get the set of relevant factors right rather than just specific instruments

• Consistency seems to be more important than the specific course of action (Finger et al., 2005)

Complex patterns of causation

26

O

F4

I2

I1

F1

O

F4

F … explanatory factors, I … policy instruments, O … outcome

Sufficientconditions

Necessary condition

F5

Jointly sufficientcondition

Jointly necessary condition

I2

F1

I1

The case of platform access• Dependence on contextual factors

– Belloc et al. (2012) show that no best practice model applies across all OECD countries

– Rather, best policy contingent on national (and probably local) conditions

• Importance of appropriate policy constellation– Bauer et al. (2013) examine determinants of infrastructure

quality– Effects of unbundling policy can be positive or negative,

depending on context• Tsai and Bauer (2014)

– Use Qualitative Comparative Analysis (QCA) to systematically examine interactions among policy variables

– Detect varying interaction patterns among universal service, LLU, competition policy

Restating the policy problem• Existence of an effective policy

– Does a stable relation exist between a single instrument (a constellation of instruments) and performance given the working of the mobile broadband system?

• Feasibility of an intervention– Do policy makers have a sufficient control span over necessary and sufficient conditions to design and implement successful interventions?

• Anticipated net benefits– Taking into account all direct and indirect effects, do the expected benefits exceed the expected costs?

Implications for policy research and practice

Implications for theory• Choice of appropriate modeling approach

– Most of current regulatory theory is based on static equilibrium models

– Not necessarily wrong but only holds if an acceptable approximation

– Dynamic modeling framework needed if not• Attention to interdependencies

– Current models are only appropriate if these interdependencies are weak

– If not, need to adopt theoretical and empirical models that allow taking them into account

– Expand use of Qualitative Comparative Analysis (QCA, e.g., Ragin, 2000) and computational models (e.g., agent‐based, system dynamic, e.g., Sterman, 2000)

Implications for practice• Explicit consideration of actual and potential costs of

regulation– Need to go beyond assumptions of omniscient, omnipotent and

benevolent policy makers– Build on early efforts to develop a generalized political economy

of regulation– Endogenize feasibility conditions into policy research and

practice• Toward more adaptive regulation

– Need to examine the co‐evolutionary dynamic of the system– Ask different questions (e.g., what might the unanticipated

consequences be?)– Continuous monitoring to fine‐tune regulation ex post based on

outcomes, possibly based on ex ante enforcement framework (Yoo 2012)

Recap of main points

Take away• Mobile broadband (like advanced communications in general) is a highly interrelated system of players

• Research and policy often fall short of taking these interrelations explicitly into account

• Stronger reliance on dynamic economic approaches and systemic models can help overcome theory deficits

• Consideration of direct and indirect costs of regulation as well as attention to co‐evolutionary trajectory of system can help improve practice

• Nations can learn from each other but need to calibrate policy to their specific goals and conditions

References• Aghion, P., N. Bloom, R. Blundell, R.Griffith, R. and P. Howitt (2005), ‘Competition

and innovation: An inverted‐U relationship’, Quarterly Journal of Economics, 120, 701‐728.

• Bauer, J.M. (2014), ‘Platforms, systems competition, and innovation: reassessing the foundations of communications policy’, Telecommunications Policy, 38.

• Bauer, J. M., Y. Schneider and P. Zenhäusern (2013). ‘Impact of sector‐specific regulation on ICT infrastructure quality’, paper presented at the 24th European Regional Conference of the International Telecommunication Society (ITS), Florence, Italy, October 23‐25, 2013.

• Belloc, F., A. Nicita and M.A. Rossi (2012), ‘Whither policy design for broadband penetration? Evidence from 30 OECD countries’, Telecommunications Policy, 36(5), 382‐398.

• Choi, J.P. and B.‐C. Kim (2010), ‘Net Neutrality and Investment Incentives’, RAND Journal of Economics, 41(3), 446‐471.

• Finger, M., J. Groenewegen and R. Künneke (2005), ‘The quest for coherence between institutions and technologies in infrastructures’, Journal of Network Industries, 6(4), 227‐259.

• Gans, J.S. (2014), ‘Weak versus strong net neutrality’, NBER Working Paper 20160, May 2014.

References …• Krämer, J., L. Wiewiorra and C. Weinhardt (2013), ‘Net neutrality: A progress

report’, Telecommunications Policy, 37(9), 794‐813. • Malerba, F. and L. Orsenigo (1996), ‘Schumpeterian patterns of innovation are

technology‐specific’, Research Policy, 25(3), 451‐478.• Ragin, C.C. (2000), Fuzzy‐set Social Science. Chicago, IL: University of Chicago Press.• Sterman, J.D. (2000), Business Dynamics: Systems Thinking and Modeling for a

Complex World. Boston, MA: McGraw‐Hill.• Tsai, H.‐Y.S. and J.M. Bauer (2014), Effects of public policy on the quality of

broadband services: A comparative analysis of Internet download speeds, paper presented at the Conference of the International Communications Association, Seattle, WA, May 23‐26, 2014.

• Yoo, C.S. (2012), The Dynamic Internet: How Technology, Users, and Businesses are Transforming the Network. Washington, D.C.: AEI Press.

Contact

Johannes M. BauerProfessor and Chairperson

Department of Media and InformationMichigan State University, USA

Email: [email protected]: www.msu.edu/~bauerj

Twitter: @jm_bauer

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