Thursday, March 31, 2005

Common Carrier Regulation

Can common carriage survive if some network service providers are not required to provide common carriage? Comment on and critique the Noam article, as well as presenting your own ideas.

1. What is a common carrier?

A common carrier is a quasi-public provider of services to the public at large. Of course, there are objections to the term quasi-public; but even though these are generally private shareholder companies, the high level of government involvement in their operations and management, through regulation, does give them a public cast. Generally, they are involved in the sale of infrastructure services in transportation and communications. The legal principle of common carriage is used to insure that "no customer seeking service upon reasonable demand, willing and able to pay the established price, however set, would be denied lawful use of the service or would otherwise be discriminated against." ( Eli Noam, The Impending Doom of Common Carriage, p. 4.) Common carriers gain limited liability in exchange for this lower level of control over their customers. Significantly, a carrier does not have to claim to be a common carrier for it to be treated as such under the law; a designation of common carriage depends upon a carrier's actual business practices, not its charter. Most important to this determination is whether or not the carrier presents itself to the public as indifferently able to serve all clients.

Common carriage is also thought to be an economically efficient response to reduce the market power of carriers through government regulation, preventing discrimination and/or censorship and promoting competition. It is also said to promote the basic infrastructure, reduce transaction costs from carrier to carrier, and extend some protections for First Amendment rights from the public to the private sector.

2. Noam's prophecy of doom: What are the threats to common carriage?

Eli Noam in The Impending Doom of Common Carriage(1993), points out two threats to the operation of telecommunications carriers under the principle of common carriage: contract carriers and integrated systems.
2.a. Contract Carriers.
Contract carriers, such as cable television, are not restricted by the requirements of common carriage, and have no regulatory impetus to serve everyone on the same terms. They trounce common carriers in competitive markets because as they intrude into the common carrier's market niche, they siphon off the best and most lucrative customers, leaving the common carriers with only unprofitable traffic. Contract carriers:
  1. Can price discriminate more advantageously than a common carrier.
  2. Do not have to serve as common carriers.
  3. Can be selective about their customers.
  4. Can gain from the management of competition among their customers.
2.b. Integrated Systems.
Integrated systems will also swamp common carriers as users build networks to serve their needs rather than relying on common carriers, according to Noam. As control shifts to the users, common carriers are in danger of having no place left for themselves. In these situations, users construct private networks within which they control the use of and access to the network.

3. Neutralizing one threat: do networks need common carriers?

Noam's argument is at its most persuasive when asserting that contract carriers threaten the operation of carriers under principles of common carriage, and that integrated systems will change the telecommunications industry. However, he goes too far in saying that systems integration will be the coup de grace for common carriers, after they have been weakened by contract carriers.

Doubtlessly, the move towards integrated systems will affect common carriage requirements and may shrink the influence of the common carriers in the future. However, there is still a need for coordination between various networks, which will call for common carriers. A network designed for Citicorp will be different than one designed to optimally fit the needs of one engineered for the Chicago Board of Trade. But these networks may still need to communicate with each other, and with a variety of other tailored networks. It is redundant and inefficient to have teams of programmers and telecommunications experts within each company, masterminding gateways to each network individually. It is a much sounder business practice to use a common carrier to connect to the myriad of networks with which a business needs to communicate. This need of networks to communicate with one another will require common carriers. The "network of networks" requires common carriers to provide internetworking capabilities. Noam allows for this in stating that "the underlying transmission and switching segments of such a network are most likely provided by common carriers..." ( The Impending Doom of Common Carriage, p. 26)

Networks do need common carriers to provide this internetworking service, and mediate between the different systems and standards of each network. Such an internetwork will reasonably be a common carrier, providing a service to the public at large without discrimination as to usage or content.

4. Cause for hope: can a doomsayer's Principles rescue common carriage?

Noam offers a more sophisticated alternative to giving up on common carriage in Principles for the Communications Act of 2034: The Superstructure of Infrastructure (December, 1994). His principle ofthird-party neutral interconnection would preserve the free flow of information and keep transaction costs at a minimum. Noam writes in part 2 of this essay:

A carrier can elect to be private by running its own end-to-end infrastructure, thus having full control over its content, use, and access. However, if it interconnects into other networks and accepts transmission traffic from them, it cannot screen the traffic and pick some bits over other bits. This means that while a private carrier can be selective in its choice of its direct customers - whether end-users, content providers, or carriers - it cannot differentiate among its customers' customers.
This allows for users to control the information they use and receive, without threatening the ability of other users to do the same. A more restrictive network in such an internetworked system would not limit the information available to less restrictive networks. Noam's Principles allow for the preservation of common carriage among increasingly privatized, integrated systems which can survive the competition from contract carriers.

5. Can common carriage survive?

Common carriage can survive; the demand for openness and seamless internetworking from end users will ensure this. However, common carriers will exist in a substantially different form than what we are used to today, and Noam's Principles are relevant for the evolution of common carriers. Common carriers in the future will provide value-neutral switching layers and transmission. But it is unlikely that content-blind networks will exist - there is too much pressure on smaller networks to be responsible,and liable, for the content on their networks. (for example, the Communications Decency Act (S.314), sponsored by Senator James Exon (D-Neb.)). Unfortunately, the lack of common carriage at the lower levels - where the users interface with the internet - has severe consequences for free speech and universal access.

Common Carrier Regulation

A discussion memo for IPPS 744: Information Networks Policy.

March 31, 1995.

by Eva Lyford
Institute of Public Policy Studies
University of Michigan