Yesterday, if you paid attention reeeeally carefully (1, 2, 3, 4), you probably figured out the D.C. Circuit had ruled that Congress hadn’t given the Federal Communications Commission power to regulate the Internet and that the FCC couldn’t bootstrap that power from other authority. It was a rare but welcome affirmation that the rule of law might actually pertain in the regulatory area.

But the Open Internet Coalition put out a release containing threat exaggeration to make Dick Cheney blush:

“Today’s DC Circuit decision . . . creates a dangerous situation, one where the health and openness of broadband Internet is being held hostage by the behavior of the major telco and cable providers.”

That’s right. It’s a hostage-taking when consumers and businesses—and not government—hammer out the terms and conditions of Internet access. Inferentially, the organization representing Google, Facebook, eBay, and Twitter believes that Internet users are too stupid and supine to choose the Internet service they want.

What these content companies are really after, of course, is government support in their tug-of-war with the companies that transport Internet content. It’s hard to know which produces the value of the Internet and which should gain the lion’s share of the rewards. Let the market—not lobbying—decide what reward content and transport deserve for their roles in the Internet ecosystem.

As I said of the Open Internet Coalition’s membership on a saltier, but still relentlessly charming, day: “[T]hese companies are losing their way. The leadership of these companies should fire their government relations staffs, disband their contrived advocacy organization, and get back to innovating and competing.”

Panel #2 at this year’s “State of the Net” pre-conference featured a lively debate about net neutrality and investment. It included a debate between Hal Singer of Empiris LLC and Michael Livermore of the New York University Law School. It also featured the comments of Markham Erickson of the Open Internet Coalition and Christopher Yoo of the University of Pennsylvania Law School.  The panel was ably moderated by Susan Crawford.  Here are some highlights of what proved to be a fun and feisty debate, which began with the comments of Hal Singer:

Hal Singer, Empiris LLC

• FCC wants to constrain pricing flexibility for networks
• Not clear we need price regulation for service delivery in absence of clear market power
• FCC offers novel “collective action” theory to justify regulation, but doesn’t make sense and doesn’t apply here
• Investment at edge of network will not decline in absence of Net neutrality regulation
• Outlawing priority delivery would discourage investment in new networks AND applications
• “Net neutrality would harm the very folks it seeks to protect”; end users will see price hikes
• Investment at core is crucial

Michael Livermore, New York University Law School

• says there is market failure that justifies Net Neutrality regulation + positive externalities with regs
• w/o Net neutrality rules there will be under-investment at both core and edge
• govt subsidies are 1 way to subsidize infrastructure & content, or can use pricing rule / regulation
• need a pricing rule to protect content creators and encourage investment
• will need to ensure fair returns for ISPs as part of regulation

H. Singer

• says that Livermore’s theories about Net Neutrality and investment are equivalent of “bunch of crap”!
• if you lower the expected return on an investment, you will see less investment

M. Livermore

• flips it, says we will see less investment from content providers with regulation of infrastructure providers

Susan Crawford

• what are the “harms”?

M. Livermore

• says harms deal with externalities and need to have regs to incentivize positive externalities

H. Singer

• fears of quality of service (QOS) prioritization are overblown

M. Livermore

• while some may benefit, problem with QOS is that some users are left less well off
• ISPs will set the price point incorrectly and harm other parties

H. Singer

• who is harmed?
• will carriers be forced to get permission to innovation

M. Livermore

• new entrants into marketplace will be harmed w/o regulation to ensure “open system”
• big boys will prioritize service and drive little guys away

H. Singer

• priority service is being mistakenly conflated with general access to networks
• we should strive for equality of opportunity, not outcome
• Net neutrality proponents keep creating new rationales for regulation, but no showing of harm

Markham Erickson – Open Internet Coalition

• The way the Net works now is relatively efficient
• Equate prioritization with a “tax” on providers
• don’t want to encourage ISPs to be getting returns though QOS efforts

Christopher Yoo – Univ. of Penn. Law School

• Big surprise with FCC Net Neutrality docket was how many comments were AGAINST regulation
• Most understood connection between regulation and investment
• NN debate often looks too much to the past
• Internet as we know it today (layered model) is fine, but network is evolving and flexibility is needed for new network applications (ex: multicasting, mobility, security, interactive video)
• Shouldn’t regulate to address ambiguous harms; will have unintended consequences
• wireless networks are particular problem since they operate differently; NN regs would hurt
• horror stories driving debate… remember AOL-Time Warner?  ended up being no big deal (Indeed!)

M. Erickson

• fears “slow lane” for most edge providers
• says ISPs will not re-invest “fast lane” money

C. Yoo

• raises First Amendment implications for Net Neutrality regulation
• some intermediaries will filter content to help focus people of best content; Is that allowed?

Audience Questions

• is there a third way that doesn’t “destroy the Internet?”
• what about negative externalities? (esp. congestion) (Livermore says change price structure for end users)