I published an opinion piece today for CNET arguing against recent calls to reclassify broadband Internet as a “telecommunications service” under Title II of the Communications Act.
The push to do so comes as supporters of the FCC’s proposed Net Neutrality rules fear that the agency’s authority to adopt them under its so-called “ancillary jurisdiction” won’t fly in the courts. In January, the U.S. Court of Appeals for the D.C. Circuit heard arguments in Comcast’s appeal of sanctions levied against the cable company for violations of the neutrality principles (not yet adopted under a formal rulemaking). The three-judge panel expressed considerable doubt about the FCC’s jurisdiction in issuing the sanctions during oral arguments. Only the published opinion (forthcoming) will matter, of course, but anxiety is growing.
Solving the Net Neutrality jurisdiction problem with a return to Title II regulation is a staggeringly bad idea, and a counter-productive one at that. My article describes the parallel developments in “telecommunications services” and the largely unregulated “information services” (aka Title I) since the 1996 Communications Act, making the point that life for consumers has been far more exciting—and has generated far more wealth–under the latter than the former.
Under Title I, in short, we’ve had the Internet revolution. Under Title II, we’ve had the decline and fall of basic wireline phone service, boom and bust in the arbitraging competitive local exchange market, massive fraud in the bloated e-Rate program, and the continued corruption of local licensing authorities holding applications hostage for legal and illegal bribes.
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Should ISPs be barred under net neutrality from discriminating against illegal content? Not according to the FCC’s draft net neutrality rule, which defines efforts by ISPs to curb the “transfer of unlawful content” as reasonable network management. This exemption is meant to ensure providers have the freedom to filter or block unlawful content like malicious traffic, obscene files, and copyright-infringing data.
EFF and Public Knowledge (PK), both strong advocates of net neutrality, are not happy about the copyright infringement exemption. The groups have urged the FCC to reconsider what they describe as the “copyright loophole,” arguing that copyright filters amount to “poorly designed fishing nets.”
EFF’s and PK’s concerns about copyright filtering aren’t unreasonable. While filtering technology has come a long way over the last few years, it remains a fairly crude instrument for curbing piracy and suffers from false positives. That’s because it’s remarkably difficult to accurately distinguish between unauthorized copyrighted works and similar non-infringing files. And because filters generally flag unauthorized copies on an automated basis without human intervention, even when filters get it right, they often disrupt legal, non-infringing uses of copyrighted material like fair use.
Despite copyright filtering technology’s imperfections, however, outlawing it is the wrong approach. At its core, ISP copyright filtering represents a purely private, voluntary method of dealing with the great intellectual property challenge. This is exactly the sort of approach advocates of limited government should embrace. As Adam and Wayne argued back in 2001:
To lessen the reliance on traditional copyright protections, policymakers should ensure that government regulations don’t stand in the way of private efforts to protect intellectual property.
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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:
http://blip.tv/play/gYh4gci5IQI%2Em4v
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: Continue reading →
Today I am attending, and speaking at, a terrific event in downtown DC sponsored by the Catholic University Law School on“Implementing the National Broadband Plan: Perspectives from Government, Industry, and Consumers.” It’s being held at the offices of the law firm of Wiley Rein LLP. Edward Lazarus, Chief of Staff to FCC Chairman Julius Genachowski kicked off the event with a nice keynote address talking about the broad goals of the FCC’s coming National Broadband Plan. Lazarus broke the ice by joking with the crowd — which is heavily made up of communications industry lawyers — that “The FCC is doing everything it can to provide full employment for telecom lawyers. Whatever else we are failing at, we are succeeding at that.” Again, it was a joke, so I don’t want to make too much out of it, but… No, strike that, I do want to talk about that for a minute! Because this is actually a very important question: Exactly how much bureaucracy and deadweight loss to the economy (in the form of more lawyering and lobbying) is going to accompany the National Broadband Plan?
Two years ago, I posted an essay on “Lawyers, Lawsuits and Net Neutrality Regulation,” in which I attempted to highlight the uncomfortable fact that Net neutrality regulation will likely lead to a bureaucratic nightmare at the FCC and a lawyer’s bonanza once the lawsuits start flying in court. Of course, now we have Net neutrality regulations and a National Broadband Plan pending at the FCC, so the potential for bloated bureaucracy will only grow larger. Do you think I am exaggerating? Well, here are some facts to consider from our recent experience in the field of “telecom reform.” 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”):
Debate over the regulatory status of broadband heated up this week as trade associations and major broadband companies sent a letter to the Federal Communications Commission arguing strenuously against reclassification of broadband as “telecommunications service” subject to regulation under Title II of the Communications Act. One implication of Title II regulation is that broadband could be regulated like a public utility. Comparisons of broadband to services like electricity or railroads, which I discussed last week, also raise the prospect of public utility regulation.
Classic public utility regulation restricts entry and regulates prices to prevent firms from charging excessive prices. It’s typically used in situations where competition is believed to be impossible (or, where pre-existing policy decisions have created monopolies that aren’t going to go away very soon).
Broadband is not a monopoly; it is an oligopoly. Contrary to popular perception, that is not synonymous with “evil.” Although both monopoly and oligopoly end in “-opoly,” that doesn’t mean broadband competitors will charge monopoly prices, or even somewhat excessive prices. The only firm conclusion that emerges from economic literature on oligopoly is, “anything’s possible, depending on the specific facts and circumstances.”
But there are also firm conclusions that emerge from economic literature on public utility regulation. Just about every time the federal government has tried to impose public utility regulation on an oligopoly, it has ended up enforcing a cartel. This is what happened in the past with railroads, trucking, airlines, and brokerage firms. There are a few times federal price regulation did not enforce cartels in oligopolistic or competitive industries. In those cases, it usually created shortages — most notably gasoline and natural gas in the 1970s.
Title II regulation is not necessarily synonymous with public utility regulation. Title II could be used to impose some “nondiscrimination” requirements, without necessarily directly regulating broadband providers’ prices or profits.
But anyone who actually wants the FCC to regulate broadband providers’ prices and profits needs to read the peer-reviewed economics literature on the actual effects of public utility regulation in practice on the federal level. (More literature is cited here.) Then they need to explain why the results in broadband would be different. And the explanation needs to be better than “We know better now, we’re smart, and we promise.”
Tim Wu: Not Looking Happy about Being So Wrong
Three years ago this month, Columbia University Law School professor Tim Wu released a controversial white paper in conjunction with the New America Foundation entitled, “Wireless Net Neutrality: Cellular Carterfone and Consumer Choice in Mobile Broadband.” It contained a litany of accusations regarding supposed corporate shenanigans in the mobile marketplace, including: intentional crippling of features and functionality; refusal to allow 3rd party attachments or intentional curtailment of a market for 3rd party application developers; and various concerns about “discrimination” of one sort or another.
Here at the TLF, we responded quite forcefully. I think every one of us piled on this study in one way or another. (ex: Hance, Jerry, James, Tim Lee, me x 2, + a podcast). I called his proposal “a declaration of surrender” since Prof. Wu was essential calling the game early and raising the white flag on mobile competition. Further, I argued he was essentially asking for “the forced commoditization of cellular networks” which “would necessitate at return to the rate-of-return regulatory methods of the past.” Others were a bit more kind to him, but we were all pretty skeptical of his gloomy claims. However, each of us here also argued that the wireless market (especially the applications side of the market) was still developing and that we’d have to check back in a few years to see how well the hands-off approach worked out.
Well, thankfully, we now know for certain that Tim Wu’s was much too lugubrious in his outlook and far too quick to call for regulatory intervention to solve a non-crisis. On the occasion of the 3rd anniversary of the release of Prof. Wu’s paper, CTIA-The Wireless Association filed a short paper with the FCC taking stock of just how far the mobile marketplace has come in just three short years. The results are really quite remarkable, as CTIA’s letter notes: Continue reading →
FCC Chairman Julius Genachowski’s comparison of broadband with electricity in a speech this week has generated mixed reviews in the blogosphere. Manny Ju says that this shows Genachowski “gets it” — that he understands the transformational power of broadband and how it will come to be regarded as a ubiquitous necessity in the years ahead. Scott Cleland is more alarmed: “The open question here is electricity transmission is regulated as a public utility. Is the FCC Chairman’s new metaphor intended to extend to how broadband should be regulated?”
It may surprise some technophiles, but this kind of discussion even predates electricity. The advent of the railroads in the 19th century brought similar arguments. Railroads were usually a heck of a lot cheaper way of hauling goods and people across land than the next best alternative at the time: wagons. Railroads were “The Next Big Thing” that no town could do without — especially if the town lacked access to navigable waters. Lawmakers handed out subsidies (often in the form of land grants), then regulated railroads to control perceived abuses, such as discriminatory pricing for different kinds of traffic or traffic between different locations. Henry Carter Adams, the godfather of economic regulation in the U.S., said all shippers deserved “equality before the railroads.” Even today, commentators lament the rural towns that people abandoned because they lacked rail access. Deja vu all over again!
As long as we’re deja-vuing, let’s remember a few little problems America encountered down the railroad regulatory track:
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Subsidies created “excess capacity” — that is, more capacity than customers were willing to pay for. In some cases, subsidies attracted shady operators into the railroad business whose main goal was to get land grants or sell diluted stock offerings to the public, not build and operate railroads.
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Regulation ended up caretlizing railroads and propping up rail rates, which faced downward pressure because of the excess capacity.
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When another low-cost, convenient alternative (trucking) came along in the 1930s, truckers got pulled into the cartel when they too were placed under Interstate Commerce Commission regulation to keep them from undercutting rail rates.
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Despite cartelization, by the late 1970s, 21 percent of the nation’s railroad track was operated by bankrupt railroads, even though the railroads had shed unprofitable passenger service to Amtrak earlier in the decade. Part of the reason was excessive costs: Because access to freight rail service was still considered a right, regulation prevented railroads from abandoning money-losing lines. Part of the reason was restraints on competition: The regulatory passion for “fair” pricing kept railroads from competing aggressively with each other or with truckers. When the Southern Railway introduced its 100-ton “Big John” grain hopper cars in the 1960s, for example, it couldn’t offer shippers lower rates in exchange for high volume until it appealed an Interstate Commerce Commission all the way to the Supreme Court.
By the late 1970s, a Democratic president, a bipartisan majority in Congress, and economists across the political spectrum agreed that railroad regulation needed a radical overhaul. Regulatory reforms made it easier for railroads to abandon unprofitable service, in many cases turning track over to new, lower-cost short lines and regional railroads. Prices for more than 90 percent of rail traffic were effectively deregulated. At the same time, Congress deregulated rates and entry on interstate trucking routes. This encouraged rail-truck competition and also allowed each mode to specialize in serving those markets it could serve at lowest cost.
Rail rates fell, and railroads came out of bankruptcy. The current system is hardly perfect, but most economic research suggests that most consumers, shippers, and railroads are much better off now than they were under the old regulatory system. (For reviews of scholarly research on this, check out Clifford Winston’s paper here or my article here.)
Will we repeat the cycle with broadband? I don’t know, but to this railfan, the current broadband debate is looking soooo retro — as in 19th century!
I know, I know… do we really need to listen to another debate over Net neutrality?! I too have grown a bit tired of the issue, which has crowded out so many other important issues in the Internet policy world these days. Net neutrality simply sucks all the oxygen out of the room no matter what topic is being discussed. And it is so highly charged that it has become the equivalent of the abortion issue of the high-tech world; intellectual combatants can get so worked up over the topic that seemingly no rational debate can take place at times.
That being said, I do want to encourage everyone to check out this dynamite debate about “Demystifying Net Neutrality,” a Diffusion Group webinar which took place last week. It’s a very level-headed discussion of the issue that features my colleague Barbara Esbin, a PFF Senior Fellow and the Director of PFF’s Center for Communications and Competition Policy, and Chris Riley, a Policy Counsel at Free Press. You can now download and listen to the debate now from the Diffusion Group website. Barbara also wrote about the discussion over the PFF blog and walks the reader through the discussion. And you won’t be surprised to hear me say I think Barbara gets the better of Chris Riley in the debate!
One thing I found quite interesting in the debate was how Riley struggled to distinguish between “the Internet” versus “Internet access services” for purposes of delineating the proper confines of Net neutrality regulation. Like many other defenders of Net neutrality regulation, (see, most recently, for example, Rob Frieden, “Why the FCC’s Proposed Openness Principles Cannot and Should Not Apply to Internet Application and Content Providers“), Riley and Free Press want us to believe that this distinction is clear-cut and that regulation won’t have unintended consequences. Of course, such distinctions are always easier in theory than reality, and as Berin Szoka and I argued in our recently paper on “high-tech mutually assured destruction,” regulation always spreads. The march of regulation can sometimes be glacial, but it is, sadly, almost inevitable: Regulatory regimes grow but almost never contract.
Anyway, listen to the entire webinar discussion. It’s worth your time.
Northwestern Law Prof. James Speta has a new paper out that touches on many of the themes that Barbara Esbin, my colleague at The Progress & Freedom Foundation, has been covering in her excellent work explaining why the FCC doesn’t actually have have the vast, essentially unlimited authority over the Internet that it has asserted in its recent effort to enforce its non-binding 2005 net neutrality policy statement and its ongoing net neutrality rulemaking. (See her FCC comments on that issue here and Adam’s thoughts on this here.) Speta’s thesis also seems to parallel the approach taken under PFF’s 2005 Digital Age Communications Act (DACA), which emphasized focusing on on unfair practices and relying on a standard of consumer harm as in antitrust rather than trying to enshrine abstract principles like “neutrality” into law.
Anyway, here’s the abstract for Speta’s paper: Continue reading →
The Washington, D.C., fight over “net neutrality” in some ways only scratches the surface of what’s really at stake in the question of government regulation of Internet service providers’ treatment of online content. The downside of permitting FCC and Congressional authority over cyberspace “neutrality” is hard to overstate.
A former colleague and friend, now at New Media Strategies, sent me a January 2010 article—“The Splinternet means the end of the Web’s golden age”—about the proliferation of non-compatible devices used online, and th
e shielding of much new content behind logins and passwords, like the way News Corp. “hides” Wall Street Journal content behind a paywall, and other perceived insults. The author doesn’t see the trend as reversible, but the tone implies what an ominous development this somehow is, as if all this abundance and customization is negative, and that caution is in order.
But the realities of pay models and splintering—like the fact that some journalists have families to feed and can’t write for free, that Google doesn’t see much of what’s on Facebook, and that I can’t stream your iTunes—have no metaphysical, free speech, or public policy implications. Emergent splintering online represents the beginnings of a groundbreaking expansion of the Web’s basic capabilities, not a curtailment. (Besides, many with pro-neutrality views have been upset with Google lately anyway.)
This hand-wringing and use of the term “splinternet” reminded me of a related speculation I’d made in Forbes nearly 10 years ago about the tailoring of networks and pipes. Disturbed by then-burgeoning calls for regulation of the Internet emerging from various quarters over issues like privacy, spam, porn and cyber-trespass, I called for a “splinternet” mindset then and put it as follows:
The Internet needs borders beyond which users can escape damaging political resolutions of [policy] battles, which are rooted in the Internet’s non-owned, common-property status. Conflicting legislative visions in a cyberspace populated by exhibitionists at one extreme and would-be inhabitants of gated communities on the other, reveal the basic truth that not everybody wants or needs to be connected to everybody else.
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The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.