I’ve been pretty critical of Bill Herman’s paper on network neutrality regulation, so I wanted to highlight a section of the paper that I thought was extreme sensible, and I hope that Herman’s allies in the pro-regulatory camp take his recommendation seriously:
I would offer just two minor improvements by way of clarification. First, the bill is reasonably clear but could be more explicit so that the prohibition on broadband discrimination applies only to last-mile BSPs and not to intermediate transmission facilities, where the market is highly competitive and, due to packet-switching, very unlikely to lead to bottlenecks. It may be the case that, for some services, content or application discrimination is necessary; but senders and receivers should be able to choose freely among intermediate service providers or choose not to use such services. Second, the bill should add an additional clarification for establishments such as schools, libraries, government buildings, and Internet cafes that provide Internet service via computer terminals that are owned by the establishment. In the bill’s current exemption permitting BSPs to offer “consumer protection services” such as anti-spam and content filtering software, BSPs are required to offer such services with the proviso that end-users may opt out. In the case of establishments offering patrons access to the Internet on establishment-provided computers, the owner of the computer–not the user–should be able to choose whether or not such software is optional.
If we do wind up with new regulations, I think it’s very important that they be limited to those segments of the Internet where there is at least a plausible case that the lack of competition endangers the end-to-end principle. That’s clearly
not the case for the Internet backbone, for high-end Internet service targeted toward businesses, or among the thousands of businesses, such as hotels and coffee shops, that now offer Internet access.
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I wanted to quickly follow up on my earlier post regarding Peter Huber’s excellent essay about how Net neutrality will lead to a bureaucratic nightmare at the FCC and a lawyer’s bonanza once the lawsuits start flying in court. I realized that many of the people engaged in the current NN debate might not have followed the Telecom Act legal wars that took place from 1996-2004 which frame the way both Huber and I think about these issues and why we are so cynical about regulation.
Let’s start with the bureaucracy that can be spawned by seemingly simple words. For example, the Telecom Act of 1996 contained some extremely ambiguous language regarding how the FCC should determine the “cost” of various network elements (wires, switches, etc..) that incumbent telecom operators were required to share with their competitors. Now how much legal wrangling could you expect over what the term “cost” meant?
Well, in the years following passage of the Telecom Act, entire forests fell because of the thousands of pages of regulatory and judicial interpretations that were handed down trying to figure out what that word meant. In fact, let’s take a quick tally of the paperwork burden the FCC managed to churn out in just three major “competition” rules it issued in an attempt to implement the Telecom Act and define the “cost” of unbundled network elements (“UNEs”):
That’s 1,575 pages and 6,770 footnotes worth of regulation in just three orders. This obviously does not count the dozens of other rules and clarifications the FCC issued to implement other parts of the Telecom Act. Nor does it include the hundreds of additional rules issued by state public utility commissions (PUCs), who actually received expanded authority under some of these FCC regulatory orders.
Again,
this was all implemented following the passage of a bill (The Telecom Act) that was supposed to be deregulatory in character !!! But wait, it gets worse.
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The always entertaining Peter Huber has a piece in Forbes this week entitled “The Inegalitarian Web” explaining why Net neutrality regulation “is great news for all the telecom lawyers (like me) who get paid far too much to make sense out of idiotic new laws like this one.”
Huber notes that NN advocates are trying to make the case that just “a simple two-word law is all we really need–an equal rights amendment for bits” to achieve Internet nirvana. But, in reality, he argues, “It will be a 2 million-word law by the time Congress, the Federal Communications Commission and the courts are done with it. Grand principles always end up as spaghetti in this industry, because they aim to regulate networks that are far more complicated than anything you have ever seen heaped up beside an amusing little glass of chianti.”
After explaining how NN would
not block Google, Amazon, Microsoft or other major intermediaries from cutting bit-mangagement deals with Akamai or other Net traffic managers, Huber goes on to explain how it’s going to be difficult to figure out how to draw lines after that:
“So what will [Net neutrality regs] block? Now, at last, we’re getting close to where the lawyers will frolic. What the neutralizers are after is what they call “last mile” and “end user” neutrality. But that only raises two further questions: How long is a mile, and where does it end?
The proposed law would block any Akamai-like technology embedded in the very last switch, the last stretch of wire that links the Net to digital midgets like you and me. That would be any technology that–for a fee–caches content or provides priority routing to speed throughput. But the ban on the fee would apply only if two legal conditions are met. First, the hardware or software that gives preference to some bits over others would have to be situated close to us midgets. Second, the fee would be banned only if it was going to be charged to someone quite far away. Exactly how close and how far, no one knows. Give us five or ten years at the FCC and in the courts and we lawyers will find out for you. Do you follow the arcane distinctions here?”
Of course, the NN proponents tell us not to worry about any of this. Just trust the friendly folks down at the FCC to use their collective wisdom to define “network discriminiation” and come up with an perfectly efficient set of regulations to govern the high-speed networks of the future. It’s all so simple! (Right.)
I’ve finished reading Bill Herman’s paper. It’s got a lot of interesting material in it, so I’ll be discussing it in several posts over the next few days.
Having finished the paper, I remain convinced that Herman hasn’t given much thought to the details of how the discriminatory pricing regime he envisions would actually work. He seems to imagine that AT&T can simply send Google a bill for ten million dollars and Google will whip out its checkbook and pay it. This, it seems to me, is highly improbable. To see why, let’s look at the other end of the market—the millions of tiny websites like this one that are only frequented by a few hundred people every day.
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Thinking about Bill Herman’s argument that network discrimination threatens freedom of speech, and his broader point that broadband ISPs can use their control over the “last mile” to force Internet users to do or not do certain things (mostly, give them more money), it occurs to me that Hayek’s discussion of coercion in chapter 9 of The Constitution of Liberty has some relevance:
Coercion occurs when one man’s actions are made to serve another man’s will, not for his own but for the other’s purpose. It is not that the coerced does not choose at all; if that were the case, we should not speak of his “acting.” If my hand is guided by physical force to trace my signature or my finger pressed against the trigger of a gun, I have not acted. Such violence, which makes my body someone else’s tool, is of course, as bad as coercion proper and must be prevented for the same reason. Coercion implies, however, that I still choose but that my mind is made someone else’s tool, because the alternatives before me have been so manipulated that the conduct that the coercer wants me to choose becomes for me the least painful one.
Now, I should say at the outset that Hayek would
not have regarded an ISP trying to manipulate its customers as coercion, as he was thinking about cases where a coercer was able to exert broad control over peoples’ lives through threats of violence. But I think that what Herman claims AT&T will do to Internet users is analogous (albeit much less severe) to Hayek’s description of how states can coerce their citizens.
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Since I’ve been criticizing a paper opposing neutrality regulation lately, it seemed only fair to criticize the other side for a change. A reader wrote in to point out that Bill Herman has recently released a new version of his paper advocating neutrality regulations. Before I get started with my critique, I want to mention that I’ve interacted with Herman in the past, and he’s a smart and thoughtful guy. I didn’t find myself persuaded by his paper, but it’s a well-written and thorough argument for his position.
In this post, I’ll critique one of the two arguments he makes in parts II and III of the paper, in which he sketches out the dangers posed by network discrimination: the contention that without new regulations, ISPs will begin censoring Internet content. It seems to me that the paper demonstrates one of the same shortcomings I noted in the Hahn/Litan paper: although it talks a lot about network discrimination in the abstract, it’s extremely vague about the details of how such a regime would actually work.
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“Cog” at The Abstract Factory has a pretty damning critique of the Hahn/Litan paper’s citation of RFCs. He considers each of the four RFCs in turn and makes a pretty compelling argument that none of them say what Hahn and Litan say they say.
Before I get to Cog’s post, I should note that I was wrong in saying they didn’t cite the RFCs in question. There is, apparently, a short version and a long version of the paper, and I was looking at the shorter version, from which the footnotes are omitted. But they did offer them in the full version.
Anyway, I’ll just quote Cog’s comments on one of the four RFCs Hahn and Litan quote:
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A couple of other quick points about the Hahn/Litan paper:
Throughout the paper, the authors fail to distinguish between neutrality as a means and neutrality as an end. The standard argument for regulation isn’t that all Internet services must operate at precisely the same speed. It’s that certain means of advantaging some traffic over others–namely, network providers setting up routing policies that prioritizes incoming traffic based on who has paid extra for the privilege–will be damaging to the Internet as a whole. You can agree or disagree with that premise, but I don’t think it’s that hard of a point to understand. And it obviously doesn’t implicate services like Akamai, which aren’t network providers at all, and who achieve “non-neutral” ends through scrupulously neutral means.
The AEI-Brookings Joint Center has a new paper on network neutrality regulation.
The economic logic of the paper is impeccable; price discrimination often benefits consumer because it allows service providers to provide premium services to those willing to pay, while giving other consumers the option of bare-bones service at cut-rate prices. The example they use is airline seats: both first class and coach passengers benefit from the airlines’ price discrimination–those who care about comfort get a nicer ride, while those who care more about price get a cheaper ticket.
But like most people commenting on this issue–on both sides of the debate–Hahn and Litan are frustratingly vague about how exactly the price discrimination regime would work. For example:
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WASHINGTON, January 23, 2007–Those who would “Save the Internet” came to Memphis last week and declared victory in their struggle. They also hosted a party to celebrate and launch the next phase of the battle: going on the offensive.
The SavetheInternet.com Coalition is, of course, David to the Bell companies’ Goliath. Over the last two years AT&T, Verizon Communications and their trade group the United States Telecom Association spent more than $50 million lobbying Congress to change the nation’s telecommunications laws, according to disclosure documents. But it was spent in vain. The Bell-favored bill, which had overwhelmingly passed the House, died last year in the Senate.
In contrast, SavetheInternet.com spent $250,000 on educating the public about its side of the story, said coalition spokesman Craig Aaron. “Save the Internet” opposed the Bell bill, and made “Net Neutrality” its rallying cry. The coalition gathered more than 1.5 million petition signatures supporting the notion that telecom companies must be stopped from controlling the content that flows over their broadband networks
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