Applied Economic Consultants

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Case Studies

Consent to the Transfer of Control of Licenses, MediaOne Group, Inc., to AT&T Corporation

Ex Parte filing on behalf of AOL

In 1999, the FCC and other regulatory bodies were considering whether Internet Service Providers (ISPs) should have the right to access the broadband facilities of cable operators. ISPs such as AOL (before it merged with Time Warner) advocated an "open access" policy that would allow any ISP to offer Internet service on the broadband facilities of cable operators. Cable operators such as AT&T opposed the open access policy, claiming that unless their vertically-affiliated ISPs were guaranteed exclusive access, investment in broadband facilities would be impeded by reducing the profitability of investment.

applEcon prepared a white paper on behalf of AOL that investigated the cable operators' claim by examining the effect of an open access requirement on the incentives of cable operators to invest in broadband facilities. The paper showed that, contrary to the claims of cable operators, open access would not reduce the profitability of investment in broadband facilities. The evidence was drawn from both theory and fact. Evidence from US local phone companies and Canadian cable operators, all of whom were required to provide open access, showed that they were investing aggressively in broadband facilities. Theory showed that cable operators' market power in broadband facilities would allow them to charge non-affiliated ISPs a remunerative price for access to broadband facilities. applEcon conducted a quantitative analysis of the decision to invest in broadband facilities that empirically demonstrated the validity of its theoretical evidence.

applEcon's white paper provided policy makers with a sound economic analysis grounded in fact, in an environment in which contrary claims based solely on theory, devoid of any empirical evidence dominated the discussion. applEcon's white paper, "Investment in Cable Broadband Infrastructure: Open Access is Not an Obstacle" (November 5, 1999), was submitted to the FCC as an ex parte filing in the AT&T-MediaOne merger proceeding, Federal Communications Docket CS No. 99-251, "Consent to the Transfer of Control of Licenses, MediaOne Group, Inc., to AT&T Corp."