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Watch out we don't neuter the Net

In the battle over Net neutrality, policy analyst Randolph J. May warns against the imposition of ill-considered neutrality mandates.

The war raging over so-called Net neutrality has jumped from inside the Beltway to the nation's mass media, if not its consciousness.

Not surprisingly, the Internet--especially the blogosphere--is full of discussions on the fracas. Google the term "Net neutrality" and you'll get something on the order of 21 million entries. Include "blog" in the search request and nearly 6 million entries come back.

With all this back and forth, it's too bad so much of the discourse is uninformed and misleading. As I have explained here before, imposing broad regulatory mandates on broadband Internet service providers as urged by the Net neutrality advocates is a bad idea that will ultimately harm consumers. Rendering broadband providers perfectly neutral by dictating that they be nothing more than dumb pipes, unable to treat any applications or content that use their network facilities in any way differently, would, in fact, neuter the Net.

Take away the freedom to differentiate and the basis for effective competition is undermined.

The nub of the issue is not that complicated. Let me explain.

Broadband Internet access is not currently subject to the type of public utility regulation which, for most of the 20th century, characterized the old Ma Bell and its offspring. Because telephone companies were classified as traditional common carriers, their rates and terms of service were regulated by the Federal Communications Commission. This was appropriate in a narrowband era when the telephone service providers faced minimal or no competition.

But the Internet access marketplace in the broadband era is much different. It's been four years since the FCC determined that the broadband market is sufficiently competitive that it should not be subject to public utility-style regulatory mandates. That's why it is misleading for Net neutrality proponents to sloganeer that neutrality mandates need to be imposed to "save the Internet as we know it." Presently, absent such regulatory intervention, the number and variety of services and applications available on the Net grow exponentially each week.

Indeed, although overlooked by most observers, a full decade ago in the Telecommunications Act of 1996, Congress explicitly stated: "It is the policy of the United States to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by federal or state regulation."

Without doubt, the broadband Internet access market is even more competitive today than when the FCC and Congress issued these pronouncements. Granted, the market may not replicate the classical model of perfect competition--say, the wheat market taught in Economics 101 texts. Few markets do, and certainly no "network" industry requiring huge infrastructure investments running in the billions of dollars ever will. Today, the cable and telephone companies still have dominant market positions. But wireless and satellite companies continue to become stronger competitors. And large electric power companies lurk on the sidelines exerting competitive pressure, already testing delivery of broadband over powerlines.

In this increasingly competitive and technological dynamic marketplace, pleas from Net giants like Google, Yahoo and Microsoft for imposition of strict nondiscrimination obligations and rate regulation of facilities owners are particularly misplaced. Most of the proposals purport to prohibit any network operator from taking any action to "block, impair or degrade" consumers from reaching any lawful Web site. Yet there are no instances today in which consumers are complaining about being blocked from accessing a Web site, and it is difficult to imagine any service provider blocking access to a lawful site. The marketplace reaction likely would be swift and adverse.

As for the "impairing" and "degrading" strictures, there are two very important problems with prohibitions cast this way. First, there will be years of costly litigation over the meaning of these inherently plastic terms as myriad claims of alleged violations are adjudicated and readjudicated as services are rejiggered to try to pass regulatory muster. Second, and more fundamentally, the notion that network facilities owners must treat all applications and content providers alike--that is, neutrally--is at odds with the way we want a competitive marketplace to function. It is through the trial-and-error process of differentiation in the marketplace that new products and services valued by consumers are developed. Take away the freedom to differentiate and the basis for effective competition is undermined.

Strict Net neutrality mandates also mean ordinary Internet users must pay equally for the increased investment required to support some very resource-intensive activities, such as downloading movies or gaming. In effect, this is akin to imposing a retrogressive tax on those less resource-intensive consumers to subsidize sites, such as Google and Yahoo, which are responsible for generating the increased investment necessary to support high-traffic, high-capacity applications.

At bottom, in a world of mandated neutrality, the uncertainty and expense of ongoing litigation, coupled with the inability of network operators to enter into business arrangements that enhance demand by differentiating their offerings, will stifle innovation and investment. The Net will be neutered at the same time it is rendered neutral.

In that vein, henceforth, I suggest use of the term "Net Neut*" in the ongoing debate. That way, at least, the superficial appeal of the "neutrality" label will not be hijacked in the service of imposing a new regulatory regime likely to stall continued development of the Internet for years to come.