Just say no to Ma Bell-era Net neutrality regulation

A revived regulatory regime would again induce stagnant markets, limited choice, lackluster innovation, and zero competition, argue Berin Szoka and Adam Thierer of the Progress & Freedom Foundation.

Editors' note: This is a guest column. See the bios of Berin Szoka and Adam Thierer below.

The announcement this week of Google and Verizon's proposed compromise framework for Net neutrality regulation seems to spell an end for the old "hands off the Net" consensus. But is such Internet regulation really needed?

Hard-core Net neutralists like the group Free Press insist that this deal isn't sweeping enough to protect the "free and open Internet." But in fact, the Net continues to do just fine without heavy-handed regulation. As Paul Misener, Amazon's vice president for global public policy, explains , managed services like video streaming, telemedicine, online gaming, and VoIP actually benefit consumers without degrading or blocking traffic, and the Internet has remained "free and open" without regulation for more than four years.

Free Press' Derek Turner decries this as "fake Net neutrality" and would ban all managed services, lest they "secure today's online giants a spot in the fast lane, while everyone else is left fighting over the scraps." Indeed, how dare Internet service providers improve their networks to provide the speed and reliability needed for tomorrow's applications and services? Turner insists that ISPs are simply "protecting themselves from the forces of competition and reducing their need to make investments in capacity expansions," and he demands government action to reverse that.

Actually, he's got it exactly backward: his regulatory regime would restore the old "Ma Bell" common-carrier model of plain-vanilla service and stifling regulation. Remember those old rotary-dial days? That regulatory model gave us stagnant markets, limited choice, lackluster innovation, and zero competition. But what else would you expect from price controls, rate-of-return proceedings, state public-utility commission meddling, etc.?

Advocates of broadband regulation should revisit the work of Alfred Kahn, the Democrat who spearheaded airline deregulation under President Carter. In his 1970 textbook, "The Economics of Regulation," Kahn documented the cozy nature of the traditional regulator-regulatee relationship and concluded: "When a commission is responsible for the performance of an industry, it is under never completely escapable pressure to protect the health of the companies it regulates, to assure a desirable performance by relying on those monopolistic chosen instruments and its own controls, rather than on the unplanned and unplannable forces of competition."

A regulatory regime would restore the old "Ma Bell" common-carrier model of plain-vanilla service and stifling regulation. Remember those old rotary-dial days?

Kahn has only regretted that he would have preferred dismantling the FCC--an agency so vulnerable to regulatory capture that even the Electronic Frontier Foundation, despite its soft spot for Net neutrality, considers its legal enforcement a "Trojan horse" for a broader regulatory agenda.

This historical context should make it easier to understand why Net neutrality regulation represents a return to the public-utility-style regulation that strangled competition in the railroad, telegraph, telephone, aviation, and other "network" industries--and why a victory for regulatory proponents would be tantamount to a declaration of surrender on the vision of competition at the heart of the 1996 Telecommunications Act (and indeed for the movement led by Kahn that finally succeeded in abolishing the Interstate Commerce Commission in 1985, after 98 years of stifling competition and innovation).

Banning prioritized services and essentially commoditizing the broadband "pipe," as Free Press advocates, will retard the only sustainable form of infrastructure competition: that among rival facilities. Although state laws discourage building new "pipes" by allowing local governments to extract unrelated concessions from broadband providers, and although FCC central planning of spectrum still impairs wireless broadband, competition is still flourishing. In some places, in fact, five different flavors of broadband can be found: cable, telco fiber, satellite broadband, competing 3G and 4G wireless, and broadband over power lines.

However much more competitive this market could be, it has worked well enough to prevent the competitive harms Turner fears and to encourage broadband providers to keep improving their services. Turner commits the classic "nirvana fallacy": comparing the status quo to a utopia, where consumers don't bear the cost of building infinite broadband capacity (instead of prioritizing services that require priority), and where regulation somehow promotes infrastructure investment, rather than the past realities of regulated monopoly service. Even just two major rivals per region--which the overwhelming number of Americans now have access to (PDF)--is better than the single regulated monopoly provider of the bygone regulatory days.

Is the FCC really up the task of regulating complex, evolving broadband networks? Can it be trusted to do so without engaging in other types of meddling--whether to advance economic or social or political interests? Is it naive to fear that the FCC will eventually use its leverage through "neutrality" regulations to meddle with online speech?

All regulatory regimes produce unintended consequences. Is the FCC really up the task of regulating complex, evolving broadband networks? Can it be trusted to do so without engaging in other types of meddling--whether to advance economic or social or political interests? Is it naive to fear that the FCC will eventually use its leverage through "neutrality" regulations to meddle with online speech?

After all, just a few weeks ago, free-speech advocates celebrated an appellate decision that once again slammed the FCC's broadcast speech controls . But the battle to undo that 80-year-old censorship regime is hardly over. FCC Commissioner Michael Copps certainly thinks that the "public interest" rationale of broadcast regulation applies to broadband. President Bush's second FCC chairman, Kevin Martin, spent years trying to force cable operators, supposedly on economic grounds, to offer programming a la carte by channel as part of his crusade to clean up cable television.

The FCC has repeatedly used merger reviews to impose unconstitutional conditions, such as Sirius XM Radio's "voluntary" race-based channel set-asides (PDF). The Kennedy, Johnson, and Nixon administrations all used the leverage of the "Fairness Doctrine" to squelch criticism from broadcasters. In short, all regulation gives government discretion in enforcement; discretion means leverage, and leverage will be abused. This is simply the nature of regulation; its dangers (and costs) far outweigh the imperfections of today's competitive-enough broadband marketplace.

Moreover, regulation spreads, and "neutrality" regulation likely won't end with infrastructure providers. Already, we hear calls by academics like Jonathan Zittrain and Dawn Nunziato for "device neutrality" or "application neutrality," and the same rationale would likely apply in other circumstances. Some academics have already proposed a "Federal Search Commission" to deal with "search bias." If this prospect seems remote, consider the recent New York Times editorial calling for search neutrality in all but name (and our response).

Eventually, we'd need a full-blown Federal Information Commission with a Search Bureau, a Cloud Computing Division, and several other ministries to micromanage the many flavors of neutrality regulation. How many decades will pass before some future Jimmy Carter--recognizing that neutrality regulation has stifled innovation at both the "core" and the "edge" of the Internet--recruits the next Alfred Kahn to dismantle the Internet's overweening bureaucracy?

Fortunately, there is a constructive alternative to Net neutrality regulation (PDF). Watchdogs like EFF and the Net Neutrality Squad already monitor network management closely, partly through crowdsourcing tools, and scrutiny by the tech media itself provides a strong check on ISPs' behavior. ISPs are working with application and content providers like Google and Microsoft to develop best practices for network management and minimize the kinds of disputes Free Press fears.

Only when such self-regulation fails should government intervene on antitrust principles--to remedy substantial consumer harms (or likely harms), and prevent unfair or deceptive practices. This is what we at The Progress & Freedom Foundation proposed in 2005, in what became the Digital Age Communications Act bill.

The path back toward real Internet freedom lies in restoring the presumption of liberty enshrined in the First Amendment--not a sword with which the government can ensure fairness, diversity, or openness, but a shield against government meddling in media, communications, and online markets.

That path requires greater faith in the power of technology to break down barriers to entry, disrupt incumbency, and radically transform even sluggish markets. The investment and innovation needed to fuel that relentless process of creative destruction can occur only beyond the long shadow of the regulatory state.

 

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