Thomas Koutsky

A Valley of Death in the Innovation Sequence: An Economic Investigation

The road between a discovery generated from basic research to a commercial product or process is long and, according to some, rife with significant roadblocks. Innovators and investors alike routinely claim that a ‘funding gap’ or ‘Valley of Death’ exists between basic research and commercialization of a new product. We show that the standard explanations for underinvestment in R&D are not the cause of this phenomenon. Rather, the Valley of Death occurs only in the presence of ‘non-economic’ investments (such as government expenditures on basic research) that are made in very early stage research without sufficient attention to the likely investment decisions at later stages of the innovation process. Other implications for the Valley of Death of government funding of R&D are also considered. Some policy implications of these findings are provided. Copyright , Beech Tree Publishing.

Market Power in Radio Markets: An Empirical Analysis of Local and National Concentration

The Telecommunications Act of 1996 contains provisions that allow increasing levels of concentration in local radio markets. Debate has focused on whether allowing greater concentration of broadcast media resources into fewer hands is a sound public policy. One fear of regulators is the effect of increased concentration on the market power of radio stations. Concentrating on intraindustry variations, this paper systematically assesses the link between radio station profitability and market concentration. The underlying assumption of the empirical analysis is that sale price (or present value) of the radio station includes the present value of future profits. The results do not support a strong relationship between increases in concentration and the profitability of radio stations, although we find group ownership to increase efficiency.

Competition After Unbundling: Entry, Industry Structure and Convergence

In the last few years, U.S. telecoms policy has shifted from encouraging the sharing of existing networks to facilitating the deployment of advanced communications networks. Given the large capital expenditures required for these networks, there can be only a few of such networks. In light of the natural forces that limit the number of facilities-based suppliers, it is vital for policymakers to investigate and implement rules that make markets more conducive to facilities-based entry, and eliminate any existing rules that discourage deployment. The purpose of this Policy Paper is to provide a simple conceptual framework that can be used to evaluate the effect of particular rules and regulation on the construction of advanced communications networks and the expansion of existing networks into new markets. We provide numerical examples and a number of applications to illustrate how the conceptual framework can be used to evaluate particular rules and regulations as to their effect on facilities-based entry. Applications include an analysis of convergence, regulated limitations on service offerings, the pernicious effects of cable franchising, and the potential for collusion.

The Frontier of Broadband Adoption Across the OECD: A Comparison of Performance

We assess the performance and efficiency of OECD countries with respect to broadband Internet subscription. Using the econometric techniques of Least Squares and Stochastic Frontier Analysis, we estimate scores indicating the efficiency with which a country converts its economic and demographic endowments into broadband subscriptions. With very few exceptions, we find that broadband subscription in OECD countries is consistent with those endowments – about two thirds of OECD countries have an efficiency rate of 90% or better. We find that economic and demographic endowments explain nearly all of the variation in broadband subscriptions (85%). This finding suggests that public policys role for broadband adoption should be targeted at improving or mitigating the adverse effects of underlying demographic and economic conditions, such as computer ownership and education programs.

The Burden of Network Neutrality Mandates on Rural Broadband Deployment

The purpose of this Policy Paper is to examine empirically the relative impact that a regulatory mandate like network neutrality would have on high-cost areas and to compare that relative burden to lower-cost urban areas. We find areas that are, on average, high-cost could be disproportionately affected by imposition of these mandates, even if the cost of complying with that mandate does not vary by geography. Using publicly available network cost models and data, we show that under plausible conditions, while network neutrality mandates negatively impact broadband deployment in all geographic areas regardless of average cost characteristics, such rules could disproportionately impact broadband deployment in high-cost areas. Moreover, our analysis that suggests the differential reduction in service availability for high-cost rural areas is six times as much as in lower cost, more urbanized markets.

The Impact of Video Service Regulation on the Construction of Broadband Networks to Low-Income Households

This Policy Paper demonstrates that policies that hinder a new entrants ability to sell video programming, such as forcing entrants to obtain a local cable franchise agreement, will strongly diminish that entrants incentive to deploy fiber to low-income households. Using publicly-available data from the U.S. Census Bureau, we employ a simple graphical analysis and a simulation of network deployment to show that a new entrant will pass substantially more households - and in particular low-income households - if that entrant can readily offer video with voice and broadband Internet access services than it will if its ability to sell video services is sharply curtailed or delayed. In our simulation, video service takes on the role of a silver bullet - i.e., when the network firm can bundle video, the percentage of poverty and minority homes with access to the network rises significantly. Accordingly, our analysis indicates that policies that make video competition more difficult will lead to significantly lower deployment of advanced broadband networks in low-income areas than would occur with pro-entry video policies.

'In Delay There Is No Plenty': The Consumer Welfare Cost of Franchise Reform Delay

Traditional phone carriers have announced ambitious multi-billion dollar plans to bulk up their networks with fiber in order to deliver a range of new services, including multi-channel video in competition with video incumbents. This competition promises to benefit consumers through lower prices, enhanced services and expanded choices from both incumbents and new entrants. Actual market entry, however, faces a significant barrier in the form of local franchise requirements that are delaying entry and could postpone competition for a substantial period of time. For that reason, public policymakers are being urged to speed the delivery of new services to consumers by reforming the franchise process. This POLICY PAPER seeks to assist policymakers by measuring the impact of delayed entry on consumers. Drawing on existing data that shows cable prices are about 15 percent lower in the face of wireline video competition, we find that a one-year delay in entry because of franchise requirements would cost American consumers

The Welfare Impacts of Broadband Network Management: Can Broadband Service Providers Be Trusted?

8.2 billion. The toll on consumers cumulates as reform is deferred so that four years of delay would cost consumers almost

Using Auction Results to Forecast the Impact of Wireless Carterfone Regulation on Wireless Networks (Second Edition)

30 billion in unrecoverable losses. These estimated losses may be understated, as we assume a 15 percent price decline, which is consistent with GAO analysis. A recent survey by Bank of America found substantially greater price declines, on the order of 28-42 percent, as the result of new wireline video competition from traditional telecommunications carriers.

BROADBAND AND ECONOMIC DEVELOPMENT: A MUNICIPAL CASE STUDY FROM FLORIDA

The extent to which broadband Internet service providers can engage in reasonable traffic management when faced with potentially congestion-causing applications like BitTorrent or other file-sharing applications is currently the subject of heated debate. This Paper provides a formal economic analysis of the likely welfare consequences of broadband Internet network management that is directed at controlling network congestion. We show that it is socially desirable to charge a congestion premium or utilize other traffic management techniques when congestion-causing applications impose a congestion externality and degrade the experience of other users. The most efficient traffic management actions would be targeted at applications that cause congestion externalities and not upon all applications generally. The model also suggests congestion externalities caused by applications may vary depending upon network capacity constraints and protocols. As a result, assessment of the reasonableness of network management practices is most logical on a case-by-case basis rather than imposition of a single bright-line test. Instead, our model indicates that if it is shown that a congestion externality is present and that a traffic management tool directly remedies that externality, it is appropriate to presume that this type of traffic management by a private firm is legitimate and welfare enhancing.