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An Antitrust Analysis of the Case for Wireless Network Neutrality

Jul 2009
Working Paper
08-040
By  Gregory Rosston, Michael Topper

The ongoing debate about possible implementation of regulatory rules requiring “network neutrality” for wireless telecommunications services is inherently about whether to impose a prohibition on the ability of network operators to control their vertical relationships. Antitrust analysis is well suited to analyze whether a wireless network neutrality rule is socially beneficial. Implementing network neutrality rules would be akin to using a per se antitrust rule regarding vertical relationships instead of the rule of reason analysis typically applied to vertical relationships in antitrust. Per se rules are used to prevent actions that rarely, if ever, have any pro-competitive benefits, such as price-fixing agreements. Rule of reason analysis is used when there are potential efficiency gains from the actions under investigation.

Some vertical practices of the wireless carriers, such as bandwidth restrictions, may appear to be anticompetitive, but may also have plausible efficiency justifications so should be judged under rule of reason analysis. Economic examination of the wireless industry shows significant competition between networks which reduces the concern about vertical relationships, but some areas that should be monitored by antitrust and regulatory authorities. We propose several regulatory changes that would likely increase wireless competition and lessen the perceived need for prophylactic network neutrality rules while at the same time allowing efficiency-enhancing vertical relationships.