By Geoffrey Manne & Berin Szoka

As Democrats insist that income taxes on the 1% must go up in the name of fairness, one Democratic Senator wants to make sure that the 1% of heaviest Internet users pay the same price as the rest of us. It’s ironic how confused social justice gets when the Internet’s involved.

Senator Ron Wyden is beloved by defenders of Internet freedom, most notably for blocking the Protect IP bill—sister to the more infamous SOPA—in the Senate. He’s widely celebrated as one of the most tech-savvy members of Congress. But his latest bill, the “Data Cap Integrity Act,” is a bizarre, reverse-Robin Hood form of price control for broadband. It should offend those who defend Internet freedom just as much as SOPA did.

Wyden worries that “data caps” will discourage Internet use and allow “Internet providers to extract monopoly rents,” quoting a New York Times editorial from July that stirred up a tempest in a teapot. But his fears are straw men, based on four false premises.

First, US ISPs aren’t “capping” anyone’s broadband; they’re experimenting with usage-based pricing—service tiers. If you want more than the basic tier, your usage isn’t capped: you can always pay more for more bandwidth. But few users will actually exceed that basic tier. For example, Comcast’s basic tier, 300 GB/month, is so generous that 98.5% of users will not exceed it. That’s enough for 130 hours of HD video each month (two full-length movies a day) or between 300 and 1000 hours of standard (compressed) video streaming.

Second, Wyden sets up a false dichotomy: Caps (or tiers, more accurately) are, according to Wyden, “appropriate if they are carefully constructed to manage network congestion,” but apparently for Wyden the only alternative explanation for usage-based pricing is extraction of monopoly rents. This simply isn’t the case, and propagating that fallacy risks chilling investment in network infrastructure. In fact, usage-based pricing allows networks to charge heavy users more, thereby recovering more costs and actually reducing prices for the majority of us who don’t need more bandwidth than the basic tier permits—and whose usage is effectively subsidized by those few who do. Unfortunately, Wyden’s bill wouldn’t allow pricing structures based on cost recovery—only network congestion. So, for example, an ISP might be allowed to price usage during times of peak congestion, but couldn’t simply offer a lower price for the basic tier to light users.

That’s nuts—from the perspective of social justice as well as basic economic rationality. Even as the FCC was issuing its famous Net Neutrality regulations, the agency rejected proposals to ban usage-based pricing, explaining:

prohibiting tiered or usage-based pricing and requiring all subscribers to pay the same amount for broadband service, regardless of the performance or usage of the service, would force lighter end users of the network to subsidize heavier end users. It would also foreclose practices that may appropriately align incentives to encourage efficient use of networks.

It is unclear why Senator Wyden thinks the FCC—no friend of broadband “monopolists”—has this wrong.

Third, charging heavy users more isn’t just more equitable, it’s actually a solution to the very problem Wyden worries about: ensuring that ISPs have an incentive to encourage Internet use. Tiered pricing means they actually benefit from heavy use. So rather than try to slow use or discriminate against bandwidth-heavy applications—which is how the Net Neutrality fight started—ISPs will continue to build out faster networks.

Now, it’s certainly possible that, if the basic tier were set low enough or if additional data were expensive enough, cable companies could discourage their subscribers from canceling a cable subscription and switching to a competing service like Netflix. But it’s hard to see how a 300 GB basic tier deters anyone, especially when users can buy additional blocks of 50 GB for just $10/month—enough for nearly two more hours a day of streamed video. If there actually were a problem here, antitrust law could address it far better than blunt pricing restrictions. Indeed, such an investigation is already ongoing.

Finally, Wyden would require that broadband providers count content download from them against your usage—fearing that a “discriminatory cap” would harm competing video providers. But if the “cap” is high enough, who cares? Under antitrust law, such “discrimination” is illegal only if it harms consumers—and it’s hard to see how consumers suffer from being able to download more video. Would they really be better off if every hour of video they streamed from their cable company meant an hour less they could stream from Netflix? That’s what Wyden’s bill would require.

The recent kerfuffle over Comcast’s decision in October to make some of its television (pay per view) content available through Xbox without counting against Internet usage limits brought this point into stark relief. While activists like Public Knowledge decried the decision for the same reasons Wyden does now, they missed the fact that by removing some of its content from usage limits Comcast was actually freeing up users to access more content at lower prices.

If Wyden’s concern is that usage-based pricing would allow ISPs to extract “monopoly profits” from users who bump up against tiers, then “preferencing” some of their own content will reduce, not increase, that risk: Users would be able to access, say, bandwidth-heavy video content just as they do television content now—without it counting against Internet usage limits. That this might “discriminate” against other Internet-based content providers does not mean that it harms consumers—quite the opposite, in fact. Again, to the extent that it might, antitrust rules are more than sufficient to discourage such practices in the first place or punish them if they arise— without restricting firms’ ability to price their content and manage their networks to ensure a reasonable return on their investments.

Pricing structures for broadband are still evolving. Just this year, Comcast moved from its original 250 GB cap—which it never enforced—to today’s 300 GB basic tier, and other broadband providers will likely follow suit. Those plans will probably continue to evolve towards pricing structures that minimize network congestion—like offering periods of unmetered use in the middle of the night, when network use plummets. That would go a long way to allaying concerns about the effect of tiered plans on competition, since Netflix could send your favorite shows and the next movies in your queue to the device of your choice while you sleep. But pricing structures also have to allow sensible, fair recovery of costs—which the Wyden bill would simply ban.

So much for not blithely regulating the Internet, Senator!

[Cross-posted at Truth on the Market]

Chairman Mao–er… Martin–has canceled (WSJ) the FCC’s December 18 meeting, when the Commission was set to vote on Martin’s proposal to rig an auction to give away a valuable piece of spectrum (“AWS-3”) to M2Z networks.  In exchange for a sweetheart deal on the spectrum, the company would have been required to use a quarter of it to provide a free (but very slow) wireless broadband service.  Martin had initially proposed to require that the service be made porn-free, but eventually suggested that users over 18 would be able to opt-out of network-level filtering.

Two weeks ago, when it became clear that Martin would attempt to ram this proposal through while he still could, I asked how the ascendant Left would respond:

Will the defenders of free expression triumph over those who see ensuring free broadband as a social justice issue?  Or will those on the Left who usually joining us in opposing censorship simply remain silent as the government extends the architecture of censoring the “public airways” onto the Net (where the underlying rationale of traditional broadcast regulation–that parents are powerless–does not apply)?

I’m glad to see that the deathblow to this unconstitutional proposal did indeed come from the political Left–specifically, from Sen. John Rockefeller, (D-W.Va.) and Rep. Henry Waxman, (D-Calif.), who will be responsible for overseeing the FCC in the new Congress.  (The Bush administration had already opposed the proposal, as with so many of Martin’s abuses, had failed to stop it.)

With President-elect Obama having declared that, “Here in the country that invented the Internet, every child should have the chance to get online,” it seems almost certain that the Administration will press ahead with some kind of universal broadband proposal of its own.  But what would such a proposal look like?  If it’s another public broadband utility, would it include network-level filtration like Martin’s proposal?  If so, will the Democratic opponents of government censorship stick by their principles and fight that, too?

I suspect we may find that what’s constitutional is politically impossible (unfiltered free Internet) and what’s politically possible (filtered free Internet) is unconstitutional.

As a constitutional matter, the courts have rejected network-level filtering mandates because user-installed filtering tools are a “‘less restrictive” alternative.   In comments filed on this proposal in July, a broad coalition of free speech groups (including my PFF colleague Adam Thierer) explained why Martin’s proposal violated the First Amendment–and why even allowing users to opt-out of the required filtering would not make the proposal constitutional:

First, … [the] filtering mandate is so sweeping in its scope that it would violate the rights of older minors to receive content to which they have a constitutional right to access (but which arguably might be “harmful” to a five-year old).  Second, the stigma of having to sign up for a central, nationwide list of – effectively – “people who want access to adult content” would be a chilling and unconstitutional burden on adults’ right to access lawful content.  Under the First Amendment, the government cannot force people to “sign up” in order to receive lawful speech…  This is especially true because of the broad sweep of content blocked by [the proposal] and the availability of highly effective and less restrictive alternatives in the form of client-side filtering tools. Third and finally, wholly apart from the constitutional rights of those accessing the Internet through the AWS-3 network, the proposed filtering mandate would also violate the constitutional rights of speakers and content providers on the Internet who want to speak to the broadest audience possible.  It would be flatly unconstitutional for the government to select and anoint one, or even a limited number of, filtering “blacklists” of content that must be blocked – even if a private party (the AWS-3 licensee) does the selection under an FCC mandate.  Unless the filtering “blacklist” only contained sites that had been adjudicated to be illegal for minors (on a nationwide basis, presumably), the filtering mandate would be precisely the sort of unconstitutional prior restraint squarely rejected by the Supreme Court in Bantam Books, Inc. v. Sullivan.

But as a political matter, it may turn out that this kind of free broadband proposal just won’t fly without network-level filtering requirements (and an opt-out)–however unconstitutional that might be.  While the courts and any reasonable person might recognize that client-side filtering (installed by users) offers  parents highly effective controls over what their children can access, the truly Puritanical element in America probably won’t care–at least on the level of political rhetoric.  One can easily imagine the opposition from “social conservatives” to the idea of using the public airwaves to make “smut” available to minors.  Coming from the Obama Administration, such a proposal could easily be lampooned as a “Porn Bailout.”   Republicans–who so often seem to prefer fighting the “culture wars” over trying to promote something as arcane as, say, constitutionally limited government–might try to cast any public broadband utility without network-level filtering as a “liberal” plot to corrupt America’s children (think Jocelyn Elders’ endorsement of masturbation as Surgeon General).  After all, why should I have to pay for your porn–let alone your kid’s porn?

Even if Obama and Congressional Democrats have the votes to override such opposition, would they have the political nerve (or think it worth the political capital) to ram through a free broadband scheme that relies on parents to do their own filtering–and that could thus be attacked (however unfairly) as making porn available to kids?  Or would they conclude (probably correctly) that existing broadband subsidies could be significantly expanded without facing such a strong political push to impose filtering mandates as a condition of public support–and choose this “safer” course?  The problem, of course, is that unless broadband is completely free, some people still wouldn’t pay for it and even if it were free, others still wouldn’t use it.

Or perhaps Kevin Martin could continue his crusade to free the world from content he (and the traditionalist Republican base he’s been cultivating) finds objectionable by insisting that subsidies should only go to broadband providers that offer censored Internet packages (essentially opt-in for filtering).  This is, of course, essentially what he has done throughout his time as Chairman in his relentless “war on cable”–looking for every opportunity to coerce cable providers into “voluntary” agreements to provide cable programming on an a la carte basis.  What better way for Martin to revive his political career?  Though Martin’s native North Carolina is trending Democratic, its socially “conservative” voters might hail well Martin’s ostentatious commitment to “protecting the children.”

The Progress & Freedom Foundation has just launched the new Center for Internet Freedom.  CIF offers an alternative to the proliferation of advocacy groups calling for government intervention online by offering timely analyses and critiques of proposals that diminish the vital role of free markets, free speech and property rights.  We aim to drive the Internet policy debate in new directions by emphasizing a layered approach of technological innovation, user education, user self-help, industry self-regulation, and the enforcement of existing laws consistent with the First Amendment.  Such an approach is a less restrictive—and generally more effective—alternative to increased regulation.  

Here are some of the issues I’ll be working on as CIF’s Director in conjunction with my esteemed colleagues Adam Thierer, Adam Marcus, and adjunct fellows: 

• Defending online advertising as the lifeblood of online content & services, especially in the “Long Tail”;
• Emphasizing market solutions to problems of privacy protection, especially regarding the use of cookies and packet inspection data;
• Protecting online speech and expression both in the U.S. and abroad;
• Defending Section 230 immunity for Internet intermediaries;
• Opposing online taxation and legal barriers to e-commerce and digital payments, especially at the state and local levels; and
• Ensuring that Internet governance remains transparent and accountable without hampering the evolution of the Internet.