Net Loss, from the WSJ, April 5, 2007 …
Europe’s old state telecom monopolies have been broken up, only for competition and consumers to face a new threat: re-regulation by Brussels. Nowhere is this prospect more apparent than in the debate over “Net neutrality.” Like the U.S., the EU can either allow the Internet to develop as rapidly and excitingly as possible, or it can freeze progress in its tracks.
Unfortunately, the latter option looks more and more likely. Draft laws are due in July on the EU’s “standardization policy for the information and communication technology sector.” EU Information Society Commissioner Viviane Reding says the goal of the new policy is “to foster content creation and distribution in the multiplatform media business.” That sounds encouraging enough until you view it through the Commission’s promise to “closely monitor attempts to call into question the neutral character of the Internet.”
There’s been a big to-do the last few days over Craig Newmark’s article analogizing network neutrality to your ability to call the pizza joint of your choice without interference by your phone company. Cory, Julian, Ezra, and Tom all weighed in. Julian thinks that this scenario isn’t so problematic because companies can already buy extra phone lines to help their customers get through faster. Ezra insists that companies should be competing on the basis of pizza quality and delivery time, not their ability to shop for telecommunications services.
The thing I find frustrating about this discussion is that the usefulness of an analogy depends crucially on its similarity to the real world. And in this case, the pro-regulatory side has been so vague about what the real-world fear is that we can’t even begin evaluating whose analogy is more apt. Tom begins to get at this when he encourages us to differentiate between changes designed to make the network work better and changes that are simply designed to extort more money out of application service providers. An even better reaction is this post by son1:
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I’m starting a research project on network neutrality, and I’m hoping some of our smart readers can point me to stuff I ought to be reading. Below the fold I’ve got a brief summary of what I’m looking for. If you’ve ever studied the technical, economic, or political aspects of Internet routing policies, I would be eternally grateful if you could click through and give me your suggestions.
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I really wish that the pro-regulatory people would stop scaring musicians with wildly implausible horror stories:
The Rock the Net campaign, made up mostly of musicians who are on smaller record labels or none at all, said they are fearful that if the so-called “Net neutrality” principle is abandoned their music may not be heard because they do not have the financial means to pay for preferential treatment.
Some said they do not want to pay. The Web, they said, has allowed many unknown musicians to put their music online, giving fans instant access to new music and giving bands greater marketing capabilities.
This is implausible on so many levels that I don’t even know where to begin. I’ve argued in the past that ISPs are unlikely to have the bargaining power to extract preferential access fees, that any fees are likely to be bundled with basic connectivity, and that ISPs have little or no control over what appears on a user’s screen.
But let’s say I’m wrong about all that and a dystopian future does materialize in which the Internet is limited to the websites of a handful of deep-pocketed corporations. Then independent artists are screwed, right?
Well, not really. How do artists reach fans now? A lot of them use sites like MySpace, Blogger, and YouTube. Sites, in other words, run by large corporations with deep pockets. Even in the exceedingly unlikely event that the Internet is somehow closed off to all but the largest corporations, it’s likely that Google and News Corp. will pay what’s necessary to ensure that their own properties continue to function.
So to buy the artists’ fears, you not only have to believe that the telcos will succeed in radically transforming the Internet at the logical layer, but you also have to believe that they’ll be able to twist the arms of companies like Google that control the content layer into changing their sites to lock out local artists. Not only does it seem exceedingly unlikely that they’d be able to do that, but it’s not even clear why they’d
want to. If News Corp is paying the appropriate bribe to give MySpace preferential access, why would Verizon care what kind of content MySpace is making available?
Bob Pepper, the senior managing director of global advanced technology policy at Cisco Systems, has penned an outstanding editorial on Net neutrality regulation in TechNewsWorld.com. When Bob served as the FCC’s chief of policy development he was, in my opinion, the most brilliant and thoughtful regulator I ever had the chance to work with in my life. He had an appreciation of the benefits of markets that is still on display in this excellent editorial:
Looking ahead, Internet users and content/applications providers will continue to require more choice and flexibility in terms of service selection, service quality and price points. In contrast, new net neutrality regulation could have the perverse effect of degrading all levels of service or freezing in place the current state of providers and services. Companies would find it more difficult to differentiate themselves, offer new services, and enter new markets, a situation that would be anti-competitive and counterproductive for consumers.
Perhaps even worse, greater regulation would almost certainly squelch risk-taking, investment and inventiveness over the long term, as companies would lose incentives to form new ventures, alliances and services and explore new ways to create value consumers would want. Indeed, net neutrality regulation takes us down the wrong path of reduced competition, less consumer choice and greater government involvement and oversight.
To a large extent, the Internet has become so popular, successful and useful because it enriches and empowers people at the individual level. That spirit must not be jeopardized by ill-advised, untimely government regulations. Instead, it must be preserved as we go ever deeper into a new era of high-bandwidth applications and exciting new broadband services.
I hope Bob’s old colleagues over at the FCC are listening!
Drew Clark is hard to beat to the punch on anything. By the time I had finished reading Google’s lastest explanation of its position on net neutrality, he was up and posted with an excellent commentary on its meaning. Now that’s competition.
As Drew reported, Google’s new Washington Telecom and Media Counsel Rick Whitt, tried to clarify Google’s net neutrality position yesterday, which had been muddled after comments by his Google colleague Andy McLaughlin. Whitt explained that nothing had changed. Yes, the issue will ultimately be solved by competition, but that’s a long-run solution, maybe 20 years out. Until then, strong rules are needed.
But Google’s support of net neutrality rules was never in doubt. What I find more interesting is what Whitt did not address: Andy McLaughlin’s statement that the FCC should not be have a role in enforcing any such regulations, and that this should be seen as “an attorney general or FTC problem.” That would be a significant shift, putting Google at odds with most of its colleagues on the net neutrality bandwagon, as well as the leading bills on the subject.
I have some sympathy for Rick Whitt’s complaint that it’s hard to have a debate when anything that’s slightly off-message becomes an ad in the Wall Street Journal. (If there’s any concern on this point, I’ll promise not to run a Wall Street Journal ad on any this). But Whitt’s statement still leaves open more questions than answers. And nothing has been heard of late from McLaughlin himself to explain all this.
In any case, welcome to Google, Rick. You’ve joined the company at an interesting time.
A colleague sent me this YouTube video:
http://www.youtube.com/v/c4988qaCvvM
Although I think it make some good points, I think it gets a couple of things wrong. One is the point about “smart” networks. I’ve discussed that in detail before, so I won’t belabor it here. The other thing that seemed off to me is this notion that we’ve got an “exaflood” on its way, and if we don’t have enough bandwidth, the Internet’s architecture won’t be able to “keep up” with the demand.
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Proponents of neutrality regulation have been touting a new study by three economists at the University of Florida on the effects of net neutrality. 
The study looks at two questions: who would be the winners and losers if broadband service providers offered premium service for content delivery for a fee?, and 2) would the use of such fees increase the incentive of broadband service providers to expand capacity?
The authors conclude first that broadband service providers would benefit, and content providers would be worse off, and second, that there would be no increased incentive for expanding networks. Regulation advocates have grasped this report as confirmation of their case for mandated net neutrality. “The Internet with Net Neutrality is unequivocally better for consumers,” exclaimed SaveTheInternet.com in a post on the report.
The problem is that the study says no such thing.
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