The MetroPCS Net Neutrality Hullabaloo

by on January 12, 2011 · 14 comments

A group of regulatory advocates that includes Free Press, Media Access Project and the New America Foundation, have fired off a letter to the Federal Communications Commission (FCC) requesting action against the nation’s #5 mobile provider, MetroPCS.  These regulatory groups claim that “new service plans being offered by mobile provider MetroPCS block and discriminate against Internet content, applications and websites.” Wired’s Ryan Singel summarizes what the fight is about:

At issue are new, tiered 4G data plans from the nation’s fifth largest mobile carrier, which specializes in pay-as-you-go mobile-phone service. The new plans offer “unlimited web usage” for all three tiers, which cost $40, $50 and $60 a month. But MetroPCS’s terms exclude video sites other than YouTube from “unlimited web usage,” and block the use of internet-telephony services such as Skype and Tango.  The terms of service also make it very unclear whether users would be allowed to use online-radio services such as Pandora.

The parties petitioning the FCC for regulatory intervention claim that “MetroPCS appears to be in violation of the Commission’s recently adopted open Internet rules” even though they note that “these rules have not yet taken effect.”

There are four things I find interesting about this hullabaloo:

(1) The ink isn’t even dry on the FCC’s Net neutrality order and yet it already has the inside-the-Beltway lobbying machine humming.  We’re just a few weeks into the FCC’s new “light touch” Net neutrality regulatory regime and yet we’re already seeing pleadings like this one.  If this foreshadows what the future holds, it’s a troubling sign of things to come.  If the agency’s new regulatory regime sticks, I think it’s safe to say that such requests for market meddling will only increase as time goes on and the Internet will quickly be wrapped in innovation-stifling red tape.  Meanwhile, countless lawyers and lobbyists around the Beltway are licking their chops in anticipation of the lobbying and litigation bonanza that awaits.

(2) Choice is largely irrelevant to the pro-regulation Net neutrality crowd.  It seemingly doesn’t matter to these regulatory advocates that they and other consumers are free to shop around for alternative mobile plans.  In the field of competition policy, the ability to exercise such choice is typically the end of the story and no further discussion / intervention is considered warranted. These advocates, however, seemingly want control over all terms of service for all market competitors, even for the distant #5 players in the field.  I mean, for God’s sake, we are talking about MetroPCS here!  Does anyone seriously believe that there’s just no escaping their evil clutches?

And apparently we can look forward to more of this sort of across-the-board, damn-the-consequences market meddling thanks to what Randy May of the Free State Foundation refers to as “Infamous No. 78” of the FCC’s Net neutrality order. That provision of the order essentially says that the FCC can dispense with the notion that a showing of actual monopoly power and actual consumer harm should be the litmus tests for regulatory intervention. Instead, May notes:

by disclaiming reliance only on anticompetitive injury and consumer harm (generally present only when an Internet provider possesses market power), the Commission leaves itself largely at sea in enforcing its rules. By “at sea,” I mean, of course, that the Commission, as it acknowledges, is leaving itself with nearly unbridled discretion in deciding which Internet provider practices will be permitted and which will not.

Welcome to our brave new world of ‘anything goes’ Internet regulation.

(3) For Net neutrality proponents, “fairness” always trumps competition / innovation, regardless of the costs.  The people who work at these organizations are, no doubt, well-meaning in their pleadings for regulation. They really think they can make communications and broadband market outcomes more “fair” through the application of Net neutrality regulations and other rules.

But regulation is not costless.  Micromanaging markets can lead to less innovation, less investment, and less consumer choice. It can also dampen price competition. After all, while the regulatory advocates want us to get hot and bothered about the terms of service in this particular case, we should not forget the fact that, with this latest move, MetroPCS is attempting to inject more competition, new innovation, and lower prices into the mobile marketplace.  To reiterate, the company is offering a $40 per month entry level price plan for a new 4G LTE service bundle.  Most people would call this innovation. But Free Press, Media Access Project and New America Foundation want us to believe it is a massive anti-consumer scandal. What an astonishing bit of hubris.

Moreover, let’s imagine that these regulatory advocates get their way and the FCC preemptively denies this innovative move, or that the agency micro-manages the terms of the offering. Those regulatory groups would like us to believe that MetroPCS can absorb the cost of such meddling and that everything will be just fine and dandy.  Back in the real world, however, if you ask just about any serious investment analyst or market expert who monitors mobile markets what they think, most of them would first convey their shock that MetroPCS has even been able to last as long as they have given the cut-throat competition in this arena. Then they’ll tell you that the sort of price and service competition that MetroPCS is pursuing here could kill them. Finally they’d tell you that an increased regulatory burden on the company at this time is could very well result in one less competitor in the long run.

So, while the regulatory advocates will shower us with talk of how they are looking out for our best interests to ensure carriers play “fair,” from a consumer perspective, an additional competitor and more price competition is likely of more importance than a perfectly “neutral” mobile service offering.

(4) Net neutrality regulatory proponents seemingly have very little faith in “openness” prospering organically, even though it has. As I’ve noted before, no one disagrees that the Internet’s openness is what made it great, or that consumers benefit from the free flow of traffic and applications over broadband networks.  But the regulatory advocates assume that only sweeping controls on broadband networks will make that a reality. The fact is, the Internet has never been more “open” than it is today. There’s a simple reason for that: It’s what most people demand. It’s also smart business.  No company ever got rich in this space by blocking traffic.

Having said all that, it may be the case that not everyone cares as much about perfect openness as others do. [See my essay from last year on the many flavors of “openness” and how defining the term is challenging.] As noted above, many consumers would be happier with cheaper price plans and more varied service options. (I bet that is particularly true of many MetroPCS customers since the company seems to target that market niche).  And guess what technophiles… not everyone out there is dying to have Skype or Pandora at their fingertips.  Personally, I couldn’t live with out either of those services and would never own a smartphone or calling plan that disallowed them for any reason.  But I am not so arrogant as to assume that everyone else has the same values as me or that I should make this trade-off for the rest of the world.  If some consumers want to trade functionality off against an affordable entry-level 4G plan, who is to say they should not have that option?  Apparently Free Press, Media Access Project and New America Foundation, that’s who.

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