The 5-Part Case against Net Neutrality Regulation (Debate vs. Ben Scott of Free Press)

by on February 25, 2010 · 30 comments

Yesterday I engaged in a lively luncheon debate about Net neutrality regulation with Ben Scott of Free Press at a Catholic University Law School event on “Implementing the National Broadband Plan.” To open the debate, I made a very quick 5-Part Case against Net Neutrality Regulation. I argued that the the objections to a Net neutrality regulatory regime can be grouped into 5 major categories: (1) Legal; (2) Economic; (3) Engineering; (4) Practical; and (5) Philosophical / Principled. Down below you will find my working notes to see how I then elaborated on each objection in a bit more detail. And then Ben and I engaged in some spirited banter for the next 45 minutes.

Unfortunately, it doesn’t appear that the video of our debate is online just yet, but once it is I will post it here. However, the folks from NextGenWeb asked me to shoot a short 2 1/2 min video clip after the debate summarizing my remarks. If you can stand the sight of my big fat head in your browser for that long, here ya go:

The 5-Part Case against Net Neutrality Regulation

The objections to a Net neutrality regulatory regime can be grouped into 5 major categories: (1) Legal; (2) Economic; (3) Engineering; (4) Practical; and (5) Philosophical / Principled. Each objection will be briefly summarized below:

(1)   The Legal Case

  • The FCC utterly lacks the authority to regulate in this way: The Commission’s current effort, which is tantamount to throwing stuff at wall to see what sticks, is troubling. They should go to Congress for authority.
  • Importantly, Sec. 230 & 706 of the Telecom Act cannot be the hook: They were deregulatory in nature & aimed at keeping govt’s hands off the Net.
  • Litigation nightmare: Regardless of how the FCC or Congress plows forward, we’re going to get tied up in the courts for years if we continue down the regulatory path. It will become “full employment” for telecom lawyers.

(2)    The Economic Case

  • NN will likely create substantial disincentives to invest and innovate: At a time when we’re trying to build out broadband infrastructure the last thing we should be doing is disincentivizing network investment.
  • NN could regress into old fashion rate or return / price control regime. In the history of network regulation, price and rate controls have always accompanied service regulations.
  • Sharing is not competing: If this is all just greasing the skids for a new line-sharing or forced access regime, well, we’ve been there before and it didn’t end well. Creating networks built on paper is a worthless endeavor.
  • Facilities-based competition, not infrastructure sharing is the path forward if we want truly robust & competitive networks and markets.
  • Contestability counts: This is a contestable market. Threats of new entry at margins keep incumbents on their toes.

(3)   The Engineering Case

  • We shouldn’t be freezing networks in stone: (Can you imagine if we would have frozen 1999 walled garden model in place?) The Net was “designed for change” (Richard Bennett) and it should be allowed to adapt to changing circumstances.
  • Flexibility is crucial for fast-moving technologies & networks: In particular, we need to grant network managers the flexibility to deal with congestion, latency, malware & other unforeseen problems.
  • Innovation at the core of networks is every bit as important as innovation at the edge: We don’t want stagnation at the core or networks, and the applications that ride on them, will suffer.

(4)   The Practical Case

  • The FCC just isn’t very good at regulating fast-moving industries & technologies: And its track record is poor when it comes to incentivizing new things (remember Video Dialtone? Open Video System rules?)
  • No such thing as a “simple rule” when it comes to Net neutrality or network regulation in general: Consider the paperwork burden generated by just three major “competition” rules the FCC issued in an attempt to implement the Telecom Act and define the “cost” of unbundled network elements (“UNEs”):

o   Local Competition Order (1996): 737 pages, 3,283 footnotes
o   UNE Remand Order (1999): 262 pages, 1,040 footnotes
o   UNE Triennial Review (2003): 576 pages; 2,447 footnotes
o   That’s 1,575 pages and 6,770 footnotes worth of regulation in just three orders!
o   This was all implemented following the passage of a bill (The Telecom Act) that was supposed to be deregulatory in character! And this doesn’t even begin to cover the tens of thousands of pages of legal filings, economic studies, consultant reports and other filings submitted to the FCC and state agencies by groups and individuals looking to have a say in the matter. That’s an enormous deadweight loss.

  • The potential for industry capture grows in proportion to size of the regulatory regime: Alfred Kahn, author of the seminal Economics of Regulation said it best long ago: “Responsible for the continued provision and improvement of service, [the regulatory commission] comes increasingly and understandably to identify the interest of the public with that of the existing companies on whom it must rely to deliver goods.”
  • Markets need not be perfect to be preferable to government regulation: That’s especially true in light of the inefficiencies associated with bureaucratic regulation.
  • Community policing can help: Any deviations from “neutrality” will be policed by the watchful eyes of the digital world (and the press) and the white hot spotlight of public attention will scrutinize every carrier move (and already is). Plus, experts and technical bodies (ex: Net Neutrality squad) will be watching.

(5)   The Philosophical/Principled Case

  • Whatever happened to “Hands Off the Net”? Do we believe in markets or not? And are we willing to let the experiment we started with the Telecom Act continue or not?
  • NN is a declaration of surrender and a call to return to the era of public utility-style regulation. We should not give up so easily on the idea of facilities-based competition. Even just two major rivals per region is better than one regulated monopoly.
  • The slippery slope of regulation is real: Neutrality mandates will gradually spread to other layers of the Net and cover content and applications. (FCC is already hinting at interest in regulating in the cloud and other Net services and content). Google and Apple’s necks will be on the neutrality chopping block next.
  • There are some First Amendment concerns in play here, but not those raised by regulatory advocates (Net Neutrality is not the Internet’s First Amendment as the regulatory advocates claim; the First Amendment is the Internet First’s Amendment).

  • Brett Glass

    Very well argued, Adam. There's justification for correcting the market failure in special access (which the FCC does have authority to do), but none for network neutrality regulation.

  • q-jimmy

    There's no “market failure” in special access–just second tier operators like Sprint trying to take other people's property for free.

  • Larry Downes

    That's a great outline and a terrific way to organize the argument. I would add to the engineering section the likely problems with enforcement. How does the FCC investigate a complaint of “non-neutral” behavior? There's no way to avoid, at least on a sampling basis, deep packet inspection. No one's really talking about implementation.

  • Brett Glass

    No, q-jimmy; we have market failure in special access as evidenced by the fact that incumbents are extracting monopoly rents and engaging in anticompetitive practices. Government should not act when markets work, which is why it should not imposed “network neutrality” regulation. But when they fail (and government actually helped to break this one), there is good reason to intervene. We need healthy markets.

  • Pingback: The 5-Part Case against Net Neutrality Regulation « Internet Freedom Coalition

  • q-jimmy

    If they're charging monopoly rents, that just creates the incentive for new competitors in the market, or new technologies that bypass the incumbents.

    People who ask for “special access” reform want nothing more than to line their own pockets at the expense of the customers and shareholders of the companies whose pipes they want forced access to.

  • q-jimmy

    And what's to stop the “intervention” at one place? In a lot of cities there is only one broadband provider. Should the prices these companies charge be regulated.

  • Brett Glass

    Unfortunately, “q-jimmy”, those monopoly rents are preserved by high barriers to entry and anticompetitive tactics. Read the filings in FCC docket 05-25 for more. The market for middle mile access and special access is badly broken. The same can't be said for the last mile, where there are few barriers to entry other than “special access” price gouging. Fix the middle mile and there's no need to regulate the last mile.

    By the way, does the “Q” in your moniker above happen to stand for “Qwest?” Just wondering.

  • q-jimmy

    The special access docket is one group of companies looking to benefit themselves arguing with another group of companies who don't want their pockets picked.

    “Barriers to entry” are everywhere, even in the last mile. How can I come in to compete with FIOS? Verizon can always just lower its prices and keep customers away. There's nothing special about special access.

    The free market should be allowed to run its course. A plan to reduce middle mile investment by price regulation will stop it in its tracks.

  • Cheeky

    Adam, you somehow manage to achieve a really close shave without a nick to speak of. Blade or Electric?

  • Brett Glass

    Oh, and by the way: It's worth noting that it was government intervention that originally broke the market. The incumbents' long distance lines were built with monopoly rents (generated by a government-guaranteed monopoly) and USF funding (a tax whose proceeds were forwarded to the incumbents). It is financially infeasible to duplicate the infrastructure without similar subsidies — which no new entrant can get. The government broke the market and must intervene to fix it.

    It's also worth noting that those who are justifiably complaining about special access price gouging do not want anything for free. They merely want to rent infrastructure at a price that does not constitute anticompetitive price gouging — which is more than fair, since the incumbents got that infrastructure for free thanks to government largesse. For more, see my article at http://ow.ly/1bigv

  • q-jimmy

    The idea should be to increase competition in the middle mile, and not to regulate prices. I dont think middle mile is a natural monopoly.

  • Brett Glass

    The middle mile is not a “natural monopoly.” But an unassailable “unnatural monopoly” has been created there by government. Government must do one of two things to fix the market: (a) regulate rates or (b) heavily subsidize competition in the same way that it subsidized the original infrastructure. There is no other way to undo the damage.

  • http://www.martingeddes.com/ Martin Geddes
  • http://kennethyounger.com Kenneth Younger III

    Was the debate recorded? If so, will it be appearing somewhere online?

  • Brett Glass

    Martin, I liked that speech…. Thought it was particularly sensible and gave one that made similar points at the same conference a few years later. Alas, the group was ideologically fixed on “network neutrality” regulation and the questionable arguments behind it. I'd welcome your thoughts on how a small ISP can survive if the regs are adopted (see http://www.brettglass.com/nprmcomment.pdf).

  • http://www.martingeddes.com/ Martin Geddes
  • http://kennethyounger.com Kenneth Younger III

    Was the debate recorded? If so, will it be appearing somewhere online?

  • Brett Glass

    Martin, I liked that speech…. Thought it was particularly sensible and gave one that made similar points at the same conference a few years later. Alas, the group was ideologically fixed on “network neutrality” regulation and the questionable arguments behind it. I'd welcome your thoughts on how a small ISP can survive if the regs are adopted (see http://www.brettglass.com/nprmcomment.pdf).

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