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AOL, for example, is both an access provider and content provider. Mindspring, on the other

hand, simply provides access.

56.

In the future, however, ISPs are potential vertical competitors to access providers

who could provide competitive packages of content, or differently optimized caching servers, or

different mixes of customer support, or advanced Internet services. This ISP competition would

provide a constant pressure on access providers to optimize access.

57.

The benefits from this competition in the history of the Internet so far should not

be underestimated. The ISP market is extraordinarily competitive. This competition has driven

providers to expand capacity and lower prices. It has also driven providers to give highly

effective customer support. This extraordinary build-out of capacity has not been incented

through the promise of monopoly protection. The competitive market has provided a sufficient

incentive, and the market has responded.

58.

The second cost is the risk that legacy business models will improperly affect the

architecture of the net. Broadband is a potential competitor to traditional cable video services.

Traditional cable providers might well view this competition as a long term threat to their

business model, and they may not want to change to face that competitive threat. By gaining

control over the network architecture, however, cable providers are in a position to affect the

development of the architecture so as to minimize the threat of broadband to their own video

market. For example, a broadband cable provider that has control over the ISPs its customers use

might be expected to restrict customers’ access to streaming video from competitive content

sources, in order to preserve its market of traditional cable video.

Questions. http://www.home.com/support/netscape/faq/faq.html(Visited November 8, 1999).

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59.

The third cost of such control by a strategic actor is the threat to innovation.

Innovators are less likely to invest in a market where a powerful actor has the power to behave

strategically against it. Innovation in streaming technologies, for example, is less likely when a

strategic actor can affect the selection of streaming technologies, against new, and competitive

systems.

60.

One example of this cost to innovation is the uncertainty that is created for future

applications of broadband technology. One specific set of such applications are those that count

on the Internet being “always on.” Applications are being developed, for example, that would

allow the net to monitor home security, or the health of an at-risk resident. These applications

would depend upon constant Internet access.

61.

Whether, as a software designer, it makes sense to develop such applications

depends in part upon the likelihood that they could be deployed in broadband cable contexts.

Under the End-to-End design of the Internet, this would not be a question. The network would

carry everything; the choice about use would be made by the user. But under the design proposed

by the merged company, AT&T affiliates would have the power to decide whether these

particular services would be “permitted” on the cable broadband network. Cable has already

exercised this power to discriminate against some services. They have given no guarantee of

non-discrimination in the future. Thus if cable decided that such services would not be permitted,

the return to an innovator would be reduced by the proportion of the residential broadband

market controlled by cable.

62.

Our point is not that cable would necessarily discriminate against such

technologies. Rather, our point is that the possibility of such discrimination increases the risk an

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innovator faces when deciding whether to design for the net. The increasing risk is a cost to

innovation, and this cost should be expected to reduce innovation.

63.

Perhaps some of these costs could be remedied by competition from other

broadband providers. If cable companies restrict the nature of ISP service for broadband cable,

then to the extent there is competition from DSL, DSL might have a competitive advantage over

cable.

64.

But not all of the costs to the Internet market from this change in architectural

design could be remedied by competition from other broadband providers. In particular, the cost

to innovation would not be remedied by competition among providers. That cost is borne by the

market as a whole, not by particular consumers in the market. Consumers individually don’t feel

any cost from this threat to innovation. They therefore have no additional incentive to move from

one kind of provider (cable) to another (DSL). Thus, if the increase in strategic power dampens

the willingness to invest in broadband technologies, there is no mechanism by which that effect

will be felt, and remedied, by broadband consumers directly.

65.

More importantly, given the approach that the FCC has adopted for this case in

particular, there is no reason to expect that the cost will be avoided in other cases. As each new

broadband technology enters the Internet market, the FCC’s position in this case would imply

that that new technology too could violate this principle of End-to-End design. Only xDSL

would be required (because of existing statutory obligations) to maintain the principle of End-to-

End design with respect to ISP choice.1 3And even if xDSL does provide a competitive market

for some ISPs who want to serve broadband access (on which more below), it simply makes no