How Government Control of Internet Threatens Innovation: My Op-Ed on Net Neutrality

by on September 25, 2009 · 26 comments has just published an editorial that I penned about Monday’s net neutrality announcement from the FCC.

Does Obama Want to Control the Internet?

by Ryan Radia

The federal government may gain broad new powers to regulate InternetObama Economy providers next month if Federal Communications Commission Chairman Julius Genachowski gets his way. In a milestone speech on Monday, Genachowski proposed sweeping new regulations that would give the FCC the formal authority to dictate application and network management practices to companies that offer Internet access, including wireless carriers like AT&T and Verizon Wireless.

Genachowski’s proposed rules would make good on a pledge that President Obama made in his campaign to enshrine net neutrality as law. The announcement was met with cheers by a small but vocal crowd of activists and academics who have been pushing hard for net neutrality for years. But if bureaucrats and politicians truly care about neutrality, they would be wise to resist calls to expand the government’s power over private networks. Instead, policymakers should recognize that it is far more important for government to remain neutral to competing business models — open, closed, or any combination thereof.

Consider the Apple iPhone. The remarkably successful smartphone has arguably been a game-changer in the wireless world, having sold tens of millions of handsets since its 2007 launch and spurring dozens of would-be “iPhone killers” in the process. If you listen to net neutrality advocates’ mantra, you would assume the iPhone must be a wide open device with next to no restrictions. You would be mistaken. In fact, the iPhone is a prototypical “walled garden.” Apple vets every single iPhone app, and Apple reserves the right to reject iPhone apps if they “duplicate [iPhone] functionality” or “create significant network congestion.”

Why, then, has the iPhone enjoyed such popularity? It’s because consumer preferences are diverse and constantly evolving. Most users, it seems, do not place openness on the same pedestal that net neutrality advocates do. Proprietary platforms like the iPhone have advantages of their own– a cohesive, centrally-managed user experience, for one– but have disadvantages as well.

In the battle between open and closed devices, wireless subscribers have voted with their wallets. So far, they have preferred the iPhone over open source devices like the “Google phone.” In the intensely competitive wireless market, the iPhone’s success shows that innovation can occur, and even thrive, within the confines of proprietary ecosystems like the iPhone.

But under the FCC’s proposed neutrality rules, the iPhone and similar devices that place limits on the content and applications that users can access would likely be against the law.

To be sure, the virtues that neutrality proponents espouse– open access, transparency, democracy, and the like — are all legitimate, even important values. Arguably, the open nature of the Internet has been instrumental in fostering many of the innovations that consumers enjoy today. But it is wrong to assume, as neutrality proponents do, that today’s “capital-I” Internet is the end all, be all network, and that the future of global communications ought not include some proprietary elements.

Technological innovation is an unpredictable beast. Networks for transmitting data that have yet to emerge — so-called “splinternets” — may well reshape the nature of global communications in years ahead. One need only look to the FCC’s widely criticized telephone and cable regulations to witness how rigid federal mandates can thwart high-tech evolution and steer the market in unnatural directions.

Fortunately, not all hope is lost for consumers. A group of Republican Senators, led by Sen. Kay Bailey Hutchison (R-Texas), have announced that they will lead a charge in Congress to thwart the FCC’s push for neutrality. And if the FCC bites off more than it can chew and enacts overly broad rules, network providers may well challenge the agency in court. Only two weeks ago, the FCC was sharply repudiated by a federal circuit court for ignoring the facts in its regulation of the cable industry.

If net neutrality ultimately goes through, the threat to infrastructure wealth creation is serious. When regulators gain new powers, they rarely cede them in response to marketplace changes without a fight. Under a neutrality regime, the telecom industry would likely retreat, take fewer risks, and divert investment toward more fruitful pursuits. It’s no coincidence that the Internet, a sanctuary of governmental restraint, has spawned such unparalleled innovation. In the relentlessly fast-moving digital age, regulatory intervention is a recipe for entrenching the status-quo.

Ryan Radia is an information policy analyst at the Competitive Enterprise Institute in Washington, D.C.

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