Controlling the Internet

Net neutrality regulation is still a bad idea.

By Hance Haney Published on February 24, 2015

Under pressure to impose net neutrality-type regulation in the late ‘90s, the Democratic chairman of the Federal Communications Commission said that the “best decision government ever made with respect to the Internet was the decision that the FCC made . . . not to impose regulation on it.” Indeed, a bipartisan consensus has allowed the Internet to flourish in the absence of suffocating government regulation for three decades. Unfortunately, all that may be about to change.

The FCC is expected to reverse course this week and regulate broadband Internet access in a party-line vote under a 1934 law. The decision is almost certain to be appealed, and it could lead to years of disruptive litigation that jeopardizes investment and innovation.

To understand net neutrality, recall that in the early days of broadband, cable operators marketed their own in-house Internet service providers — such as @Home and RoadRunner — whereas telephone companies simply provided access to hundreds of unaffiliated ISPs including AOL, CompuServe and Prodigy. The independent online service providers wanted the same access to cable networks that legacy regulation afforded to the telephone system. Former FCC chairman William E. Kennard refused to go there, choosing to reduce regulation whenever possible rather than expand it.

Until now, the FCC has defined broadband as an information service, a designation upheld by the Supreme Court. But the commission is expected to rule that broadband should now be classified as a highly-regulated Title II “telecommunications” service, not as an unregulated information service.

The FCC had long attempted to distinguish communication from data processing activities, but by the early ‘80s it concluded that communications and data processing had become so intertwined that it was impossible to draw an “enduring line of demarcation” between them. In the Telecommunications Act of 1996, Congress determined that hybrid services combining both telecom and computing components (“information” services) would not be regulated at all.

The 1996 Congress wanted to promote maximum investment and innovation in advanced communications services that include computing functionality. Congress declared its intent “to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation.”

Current chairman Tom Wheeler of the FCC says regulation can be accomplished while encouraging investment in broadband networks, because the FCC will voluntarily forbear from imposing rate regulation, tariffs and last-mile unbundling. But he must know that this is an empty promise, since FCC commissioners come and go. Anyone can petition the FCC to impose more regulation at any time, and nothing will prevent the commission from going down that road if it chooses.

Internet openness is chiefly a function not of regulation but of investment and innovation in bandwidth abundance. With enough bandwidth, all packets travel at the speed of light. But if regulation discourages investment, packets share congested pipes and all regulators can do is ration a scarce resource.

Open networks are more profitable than closed networks. When Congress passed the 1996 law, open telephone industry revenues far surpassed closed cable industry revenues. Today, broadband Internet access is on track to surpass cable televison in profitability. Other so-called “walled garden” experiments of the past — where a service provider restricts or interferes with consumer access to content of their choice — have all ended in failure. The Internet wants to be free, and so far it’s managed quite well without Washington.

Then again, the net neutrality debate isn’t really about open networks. Republican leaders in Congress are offering to pass a bill that would prevent blocking and paid prioritization. These are the chief methods cynics believe broadband providers might use to discriminate against unaffiliated content providers. The Republicans are still looking for Democratic co-sponsors, and this probably reflects the fact that the Republican proposal would prohibit reclassification of broadband as a “telecommunications” service — a prohibition that would prevent the FCC from getting its regulatory paws on the internet.

Former chairman Kennard successfully resisted pressure to regulate broadband in 1999. When faced with a similar set of choices, he concluded: “No one has offered a practical solution to me that avoids drawing us into this quicksand of regulation. . . . When I look at the cost of regulation versus the benefits, when I look at the prospect that we can have a robust, competitive broadband marketplace, I conclude that we have to resist the urge to regulate and let it play out for just a while longer.”

Chairman Wheeler should say the same thing today. The last thing the internet needs is the stifling grip of the regulatory state.

 

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