Events Overtaking Net Neutrality

by on November 8, 2008 · 10 comments

The conventional Beltway wisdom would be that net neutrality legislation should have a real chance now with the election of President-Elect Barack Obama and strengthened Democratic majorities in the Senate and House.

But there are two recent developments which make the case for net neutrality regulation less compelling.

Free Airwaves

The Federal Communications Commission approved the use of unlicensed wireless devices to operate in broadcast television spectrum on a secondary basis at locations where that spectrum is open, i.e., the television “white spaces.” In other words, a vast amount of spectrum will soon be available to provide broadband data and other services, and the spectrum will be free.

George Mason University Professor Thomas W. Hazlett notes that

[S]ome 250 million mobile subscribers in the US paid about $140 billion to make 2 trillion minutes’ worth of phone calls in 2007, accessing just 190MHz of radio spectrum. The digital TV band, in contrast, is allocated some 294MHz—and it’s more productive bandwidth. Tapping into this mother lode would unleash powerful waves of rivalry and innovation.

Most of the television spectrum is either unused or isn’t used efficiently. FCC Chairman Kevin Martin expects that devices using the spectrum could be on the market within a year to 18 months.

Hazlett laments that since 90 percent of consumers subscribe to cable service the broadcasters really don’t need their assigned frequencies, and suggests that if digital TV frequencies were auctioned off taxpayers could be compensated to the tune of $120 billion. This is a good point.

But, as an alternative, the government could also come back later and tax the unlicensed uses of the spectrum. Either way, the money would be collected from the same consumers who are also the taxpayers. The value of auctions lies in preventing politicians and bureaucrats from awarding spectrum to their friends and relatives or from picking winners and losers, not in sucking money from the private sector. Here, the spectrum is being awarded not to profit-making entities who hired the most gifted lobbyists, but to the public at large.

The real significance of the FCC’s decision is consumers who are dissatisfied with the broadband services provided by telephone, cable and cell phone companies or satellite providers will soon have even more options. This fact undermines the case for net neutrality regulation, which is premised on the false notion that most consumers of broadband services are captives of a single phone company and/or a single cable provider. Absent the validity of this false rationale, regulation which tells broadband providers who can use their networks and at what prices is an unjustified restraint on the free speech rights of broadband providers.

Harvard Law Professor Laurence H. Tribe, a First Amendment scholar, addressed the question: “Can broadband providers be forced to act as common carriers”? at a 2007 conference sponsored by the Progress & Freedom Foundation. He concluded that the Supreme Court decision in Hurley v. Irish-American Gay, Lesbian & Bisexual Group of Boston, 515 U.S. 557 (1995) is the decision which “would probably apply here.” In that case, the the Supreme Court upheld the decision of the event’s organizers to exclude GLBG from marching in the parade.  The Court ruled that a parade is not merely a conduit for the speech of participants.

Alternatively, another Supreme Court precedent which might be applicable is Turner Broadcasting System, Inc. v. FCC, 512 U.S. 622 (1994), which obligated cable operators to retransmit the signals of local broadcasters. But I agree with Tribe that this is less likely because cable franchises at the time conferred what the Supreme Court believed were a “monopolistic opportunity [for the cable operators] to shut out some speakers.” This is no longer true. Although the opportunity to exclude certain speakers still exists, cable operators are not monopoly providers. Telephone, cell phone and satellite providers — and unimagined services utilizing unlicensed white spaces — offer similar services. Disappointed speakers can seek other platforms.

Therefore, the FCC decision permitting unlicensed uses of television white spaces significantly improves the possibility that net neutrality legislation would be struck down by the courts as unconstitutional.

Verizon Wireless + Google vs. Microsoft

Another recent development are the talks Verizon Wireless is having with Google and Microsoft (see this and this), who are competing for the privilege of having their search bar featured as the default search feature on Verizon Wireless handsets. If Verizon Wireless features a default search bar, subscribers who want to use a competitive search service would have to navigate to the competitor’s web site. A lot of times consumers don’t bother to do that. Google has claimed in the past that when default search bars are available, they are the starting point for 30 to 50 percent of a user’s searches.

Only one search provider gets to be Verizon Wireless’s search partner. One search provider gets to sit at the end of a fast lane; the others don’t.

“Fast lane” may not be a perfect metaphor, because traffic may not actually be prioritized across the network; but from a consumer perspective there are fewer clicks and the search may seem faster overall. Fast lane is the favorite metaphor of net neutrality proponents, and I suspect it provides a clue as to why Google became such an enthusiastic supporter.

Google is making a massive investment in data centers to deliver faster results, including one in the home state of Sen. Ron Wyden (D-OR), and wanted to make sure its competitors couldn’t easily and cheaply duplicate that investment with the help of broadband providers. According to this source,

Google has found that for search engines, every millisecond longer it takes to give users their results leads to lower satisfaction. So the speed of light ends up being a constraint, and the company wants to put significant processing power close to all of its users.

A former Google executive is quoted as saying “Google wants to raise the barriers to entry by competitors by making the baseline service very expensive.”

The purpose of net neutrality regulation is to ensure “equal treatment” for all consumers and businesses. Sen. Wyden, sponsor of one of the earliest net neutrality proposals, reportedly explained he “didn’t oppose companies offering different speeds of service at different prices, a practice already undertaken by several major Internet providers, provided that content is treated equally within each level of service.”

If Wyden’s bill had become law, Verizon Wireless wouldn’t be able to provide Microsoft or Yahoo faster access than it offers Google — even if they need it and are willing to pay for it but Google doesn’t and isn’t.

Perhaps net neutrality regulation could be drafted more fairly — like allowing broadband providers to build a fast lane, but guaranteeing that anyone could pay an identical fee for the same fast access. This would mean that broadband providers couldn’t build fast lanes unless they could build them big enough to accommodate anyone who might seek to use them. The likely outcome is the fast lanes wouldn’t get built at all.

There may be yet other ways a net neutrality regulation could be structured, but they would all create uncertainty, complexity and pitfalls for broadband providers.

Google has been a major proponent and — one suspects — has provided significant support for the enactment of net neutrality regulation. That the company is now bidding against Microsoft for the right to share some portion of its colossal advertising revenue with Verizon Wireless may indicate that Google thinks it has found a more acceptable way to limit the ability of its competitors to easily and cheaply duplicate its investment in data centers, that it is no longer banking on net neutrality becoming law, or both.

If Google is the successful bidder, it may have less of an incentive to provide support for net neutrality regulation.  Even if Google isn’t the successful bidder, the negotiations prove that there are mutually-beneficial and pro-competitive partnerships which are nevertheless discriminatory and could be outlawed by net neutrality regulation.

But these partnerships can be beneficial for consumers — if Verizon Wireless can obtain advertising revenue it may be able to reduce wireless subscription fees. Google CEO Eric Schmidt has even suggested that your mobile phone could be free, subsidized by targeted ads.

Permitting the unlicensed use of white spaces and participating in negotiations with Verizon Wireless to feature a default search bar both had Google’s full support.

These two events reduce the likelihood that net neutrality will become the permanent law of the land.

  • mwendy

    I wish I could be as hopeful as you, Hance. But, the white spaces roll out is at least 2 years away, after NAB and others exstinguish their due process channels.

    When you have people like Moby making the pitch for NN, and it being entirely acceptable to those on Capitol Hill – you know we've left the land of reason to some distopian wonderland.

    The only thing that may slow down NN is the fundraising possibilities – if Congress grant's a quick win to Ben Scott, George Soros et al, they won't get large off of PAC contributions.

  • TruePath

    Not only does 90% of the US subscribe to cable but even if universal over the air service was deemed necessary it would be much more efficient to utilize satellite TV (e.g. like DIRECTTV)

  • TruePath

    Not only does 90% of the US subscribe to cable but even if universal over the air service was deemed necessary it would be much more efficient to utilize satellite TV (e.g. like DIRECTTV)

  • mwendy

    I wish I could be as hopeful as you, Hance. But, the white spaces roll out is at least 2 years away, after NAB and others exstinguish their due process channels.

    When you have people like Moby making the pitch for NN, and it being entirely acceptable to those on Capitol Hill – you know we've left the land of reason to some distopian wonderland.

    The only thing that may slow down NN is the fundraising possibilities – if Congress grant's a quick win to Ben Scott, George Soros et al, they won't get large off of PAC contributions.

  • TruePath

    Not only does 90% of the US subscribe to cable but even if universal over the air service was deemed necessary it would be much more efficient to utilize satellite TV (e.g. like DIRECTTV)

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