Non-discrimination rules for ISPs and vertical integration: Lessons from cable television

The experience of cable television indicates that vertically integrated ISPs have plausible incentives to favor their affiliated content and to restrict entry of nascent rival content services, but these incentives are weakened in some respects, and strengthened in others, by differences in the economic architectures of cable and Internet broadband. Non-discrimination regulations designed to control such behavior are potentially more effective than in cable, but rules governing discrimination both in the upstream access and the downstream retail markets (as the FCC's no-unreasonable-discrimination rule appears to do) are likely to be necessary for effectiveness. Beneficial effects of vertical integration on financing and entry of cable programming networks should also apply to Internet video content development, but emergence since the 1970s of a robust programming supply industry with few vertical ties to cable suggests that such benefits will be less significant in the ISP case. Finally, the history of both the cable and ISP industries makes evident that the fundamental policy concern should not be vertical integration but horizontal market shares of ISPs, both at the local and national levels.