Revenge of the Bell Heads: How the Net Heads Lost Control of the Internet

TL;DR

This paper examines the regulatory and cultural differences between ISPs and telecommunication carriers, analyzing how their convergence impacts regulation, competition, and market dynamics, with telecommunication carriers likely to leverage regulatory processes more effectively.

Contribution

It provides a detailed analysis of the convergence between Internet and telecommunication services and predicts regulatory advantages for traditional telecom carriers over ISPs.

Findings

Telecommunication carriers will likely dominate regulatory negotiations.

Internet services are becoming more hierarchical and telecom-like.

Bell Heads are expected to outmaneuver Net Heads in regulatory contexts.

Abstract

A dichotomy in regulatory treatment and corporate cultures exists between Internet Service Providers (ISPs) and telecommunication carriers. Telephone company executives (Bell Heads) may resent regulation, but they accept their fate and work creatively to exploit anomalies and opportunities to secure a regulation-conferred competitive advantage. Most ISP executives (Net Heads) appear to embrace a libertarian attitude, strongly opposing any government involvement. Despite the clash of cultures, the telecommunications and Internet worlds have merged. Such convergence jeopardizes the ability of Net Heads to avoid some degree of regulation, particularly when they offer services functionally equivalent to what their Bell Head counterparts offer. This paper will assess the regulatory consequences when telecommunication and Internet services converge in the marketplace and in terms of operating technologies. The paper identifies commercial developments in the Internet to support the view that the Internet has become more hierarchical and more like telecommunication networks. The paper concludes that telecommunication carriers will display superior skill in working the regulatory process to their advantage. The paper suggests that Bell Heads will outmaneuver Net Heads particularly when the revenue siphoning effect of Internet-mediated services offsets the revenues generated from ISP leases of telecommunication transmission capacity.