A better idea for Net neutrality

This is the notion, peddled actively in Washington by Google, Amazon, Microsoft, and Yahoo, along with self-styled "consumer" groups, that broadband network operators such as AT&T and cable operators such as Comcast must not be allowed to discriminate among content providers or favor their own content. The Net neutrality proponents even argue that the nondiscrimination prohibition should apply to wireless and all other technology platforms that deliver Internet access to consumers. Unfortunately, the Net neutrality forces appear to be gathering strength just as the broadband marketplace is becoming vigorously competitive, rendering a new government Internet mandate unnecessary. Adoption of a broad Net neutrality prohibition will impose monopoly-era public-utility-style regulation on new broadband services in an era characterized by competition.

Witness the bill (S. 2360) introduced on March 2 by Sen. Ron Wyden, a Democrat from Oregon. His "Internet Non-Discrimination Act of 2006" provides that a network operator "shall not interfere with, block, degrade, alter, modify, impair, or change any bits, content, application or service transmitted over the network of such operator." Nor shall it "discriminate in favor of itself or any other person, including any affiliate or company with such operator has a business relationship in (A) allocating bandwidth; and (B) transmitting content or applications or services to or from a subscriber."

Thus far, there have been virtually no complaints that any network operator has actually engaged in any discriminatory conduct.

Finally, in the true style of all public utility regulation, Wyden's bill provides that "a network operator shall?offer just, reasonable, and non-discriminatory rates, terms, and conditions" for all its broadband services. Other legislative proposals containing broad Net neutrality prohibitions have been offered as well.

Thus far, there have been virtually no complaints that any network operator has actually engaged in any discriminatory conduct. No network operator has entered into a business arrangement, say, that somehow favors Amazon's content over that of Borders. There have been a few statements made by AT&T Chief Executive Ed Whitacre and other network operator executives to the effect that network owners ought to have the flexibility to consider charging content providers such as Google or Yahoo a higher fee for speedier service on their Internet backbone facilities if these content providers desire some form of premium service to better serve their customers.

In a competitive marketplace, the government usually does not require that vendors treat all customers and all suppliers alike for all purposes. Very often such differences in treatment in a competitive marketplace reflect economic efficiencies to be realized from that result in cost savings, and these cost savings enhance overall consumer welfare. Avoiding broad prohibitions on such differential treatment gives operators the freedom and flexibility to invest with confidence in new facilities and innovative services consumers may value.

So the Wyden bill and others containing specific Net neutrality provisions are a bad idea. There is a better approach that should go far to assuage the Net neutrality advocates' fears. This is to adopt a regulatory framework under which specific Net neutrality complaints are adjudicated on a case-by-case basis under an "unfair competition" standard that is tied closely to real-world marketplace developments.

At the Progress and Freedom Foundation, we have proposed just such a framework, and Sen. Jim DeMint, a Republican from South Carolina and member of the Senate Commerce Committee, has embodied it in a bill (S. 2113) introduced in December 2005 called "The Digital Age Communications Act." Under S. 2113, network operators would be prohibited from engaging in unfair competitive practices that present a threat of abuse of significant market power.

When Net neutrality-like complaints alleging anticompetitive abuse are filed with the Federal Communications Commission, it would be required to resolve them quickly, applying a rigorous economically driven analysis of the marketplace circumstances that exist at the time. This would include examination of factors such as the number of existing and potential competitors in the market, whether barriers to entry exist, the likely impact on investment and innovation, and, foremost, on consumer welfare of the alleged abusive practice.

At a hearing last month, Sen. Ted Stevens, the Alaska Republican who is chairman of the Senate Commerce Committee, remarked that trying to define Net neutrality is like "defining a vacuum," definitely "not easy to do." Adopting legislation to prohibit something akin to defining a vacuum represents unsound policy, especially in an environment characterized by fast-changing technological developments and marketplace evolution. Such legislation is likely to freeze in place, or at least substantially retard, further development of new broadband networks and Internet service applications.

This case-by-case approach at the heart of DeMint's competition-based Digital Age Communications Act bill is preferable to adoption of legislative provisions that include vague definitions of prohibited conduct that sweep overly broadly. It's far better to consider Net neutrality claims in the context of a specific set of marketplace circumstances.

In today's environment it is unlikely there will be many instances when government intervention is necessary, because if one operator favors certain content providers in a way that consumers dislike, they will flock to another provider that doesn't. In any event, if regulatory intervention is necessary, under the DACA proposal the remedy can be tailored to rectify the abuse while at the same time not prohibiting in a scattershot fashion a wide range of other pro-competitive conduct that might enhance consumer welfare.

Net neutrality advocates should step back from the precipice. They should support a regime, like DeMint's Digital Age Communications Act, that offers a forum for resolving claims of abuse without neutering the Net in the name of neutrality.