The net neutrality hairball comes rolling back


Net neutrality is back on the political docket as the Trump administration seeks to roll back advances made under the Obama administration. This matters to everyone and the debate about its future matters.

A recent article in Forbes by Larry Downes, “Why Is The Media Smearing New FCC Chair Ajit Pai As The Enemy Of Net Neutrality?” is a wake up call to all of those who thought the net neutrality debate ended in 2015 when the good guys won. But nothing is ever settled any more in Washington, DC and the churn generated leaves us with exactly the thing no economy needs for ongoing prosperity, uncertainty.

This is a story suffused with technical jargon both at the technology level and at the level of legalese that many people either take for granted or lose consciousness trying to fathom. On one side there’s a group that wants to see the Internet become a utility regulated in the same ways that all others are including telephone (but not all of telecommunications exactly since the Internet is part of that area, too), electricity, natural gas, and on smaller scales water and sanitation services.

On the other side there is a group that insists on wrapping the Internet in the cloak of “freedom” as in what the article described as,

In 2004, then-FCC Chairman Michael Powell outlined four principles of Internet freedom: The freedom to access lawful content, the freedom to use applications, the freedom to attach personal devices to the network, and the freedom to obtain service plan information.

Or as Anatole France wrote in 1894,

The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.

What’s happening is simple and won’t make your eyes glaze over. One side in a political debate classified the Internet as a public utility subject to the rules and regulations of utilities and the other wants to maintain a Wild West set of rules, what Downes called a

bi-partisan policy of light-touch regulation established in the early days of the commercial Internet.

If you agree with that you should also prepare to be snookered, and the reasons were delightfully brought forth in 2013 by Susan Crawford a lawyer specializing in telecommunications law. Her book, Captive Audience, The Telecom Industry and Monopoly Power in the New Gilded Age should be required reading for any of us concerned about net neutrality. The short answer to the question of the Forbes headline is simply that Mr. Pai, the new FCC commissioner really is the enemy of net neutrality.

Crawford paints a convincing picture of utility governance over centuries in the U.S. and policies that have been emulated abroad. There is no doubt that the light-touch worked during the Internet’s formative years, in fact as Crawford repeatedly demonstrates, a light regulatory touch is common when a new technology emerges and begins to diffuse throughout society and the economy.

During that early stage the new proto-utility is small, not widely used, expensive, and not generally woven into the fabric of society so that operating on rules whose origins may have been a jungle, makes sense.

Then some things wonderful and otherwise happen. Most of society can’t live without the new utility (good) and disparities in access between rich and poor and rural spring up (bad). As Crawford makes plain, and most of us know intuitively, the proto-utility’s cost of diffusing its wares throughout society is potentially the greatest obstacle to acceptance.

So the proto-utility seeks to maximize resources while claiming as much territory as possible to grow its market share and company size in a “go big or go home” effort. This means that cities get all of the love because an investment dollar hooks up more people in New York or London than it will in Portsmouth in either country.

The proto-monopolists are less interested in bringing their products and services to the hinterlands because it’s hard and expensive—can’t you just hear them wingding? Who will pay for this they typically ask? As a practical matter the answer is and must be, you, the proto-utility will pay. So a better question is why? And the answer to that question is really ingenious. Society grants the proto-utility an oligopoly or possibly even a monopoly (see AT&T before the break up) to ply its trade and asks in return that the neo-utility take all comers. That’s typically when government steps in with some commonsense regulation in the form of common carrier law.

Now, an important requirement for a common carrier acting as a public provider of anything is that it cannot discriminate or refuse service without a compelling reason and living in Portsmouth rather than New York or London is not compelling.

One tactic that cable and other Internet providers have used has been to buy up content companies, most famously, a few years ago Comcast (a cable provider) bought NBC and its associated companies so that it could say, “We’re not an internet company, we’re a content provider and we can charge whatever we want.” You can see Crawford for lots of detail.

Obviously there are two businesses lurking here, one a pedestrian utility maintaining its pipes, and the other a merchant of content; the two businesses are highly profitable together and thus they are loathe to part company.

It gets worse because acting in Wild West mode an internet provider can charge whatever it wants to a pure content provider for access to its pipes. This could easily be anti-competitive if both providers offered similar content and one had an edge simply because it also owned the pipes. In the Wild West that’s what happens but when a proto-monopoly takes the king’s shilling so to speak, the dynamic is supposed to change.

Worse still, the Internet is full of other stuff that has nothing to do with commercial content but increasingly runs the economy. Think of the subscription economy and all of the commerce done daily through software as a service (SaaS). It has nothing to do with the squabble between entertainment content providers but it sits there as a digital hostage.

All of this was worked out once during the Obama administration when on June 12, 2015, Internet Service Providers were classified as common carriers.

Economies run on certainty, settled law, contracts, keeping one’s word. Freedom is nice too, but as depicted by Michael Powell and taunted by Anatole France, it is devoid of meaning in this instance.

Based on this you might be tempted to say it doesn’t matter which way the net neutrality debate goes as long as it settles and stops so that we can get on with business. But that’s short sighted and wrong.

The idea of common carrier goes back to the common law, which has been the foundation of most of Western law for nearly a thousand years. Giving one set of providers the ability to opt out of the provisions that regulate and safeguard services that society has come to depend on opens the door for others.

What if your water provider suddenly had the ability to charge whatever rate it wanted or if your electric supplier decided to generate output in 50 Hz as they do in many European countries rather than in 60 Hz the North American standard?

The problem with reopening the net neutrality debate is that it encourages regulatory entrepreneurship in which a few get rich without inventing anything that would benefit society. It’s a form of rent seeking.

This debate is not, as the Forbes article calls it, an attempt to smear the new FCC administrator, it’s about the importance of settled law that enables society to advance. In short, watch carefully as this debate unfolds.

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