The net neutrality debate, already heating up here in Washington since FCC chairman Julius Genachowski’s speech to the Brookings Institution last week, got additional fuel on Monday when the Washington Post weighed in with an oddly snide editorial opposing the chairman’s proposal to regulate the way ISPs manage their networks.
Federal Communications Commission Chairman Julius Genachowski promised that his agency’s plan for regulating Internet service providers (ISPs) will be “fair, transparent, fact-based and data-driven.”[snip]
That’s nice. But Mr. Genachowski failed to convincingly answer the most important question of all: Is this intervention necessary?
He and other proponents of federal involvement cite a handful of cases they say prove that, left to their own devices, ISPs such as Comcast Corp. and AT&T will choke the free flow of information and technology. One example alluded to by the chairman: Comcast’s blocking an application by BitTorrent that would allow peer-to-peer video sharing. Yet that conflict was ultimately resolved by the two companies — without FCC intervention — after Comcast’s alleged bad behavior was exposed by a blogger.
Mr. Genachowski is right to insist that ISPs be candid with the agency and the public about network management practices. Such disclosures are necessary, Mr. Genachowski asserted correctly, to “give consumers the confidence of knowing that they’re getting the service they’ve paid for” and “enable innovators to make their offerings work effectively over the Internet.” Transparency should go a long way toward allaying the concerns of those who fear ISP manipulation of markets. It also puts in doubt the need for Mr. Genachowski’s second, dubious offering.
Aptly dubbed an “immodest proposal” by the Free State Foundation’s Randolph J. May, the FCC would prohibit ISPs from “discriminating against” different applications. Mr. Genachowski explains it this way: ISPs “cannot block or degrade lawful traffic over their networks, or pick winners by favoring some content or applications over others in the connection to subscribers’ homes.” In short, ISPs, which have poured billions of dollars into building infrastructure, would have little control — if any — over the kinds of information and technology flowing through their pipes.
Love the “That’s nice.” But the Post‘s editorial writers might have been better off cooling the snark and actually grappling with the issue, not to mention the full substance of Genachowski’s speech.
First off, speaking as a blogger, the suggestion that important public policy issues such as the selective blocking of communications protocols ought to be left to the vigilance and goodwill of bloggers strikes me as a truly terrible idea.
More to the point, though, the Post seems oblivious, in a way that Genachowski, a former entrepreneur, is not, to the practical realities of economic incentives and the ordinary and predictable way profit-seeking businesses respond to them.
Even if the FCC’s actions with respect to net neutrality were to stop at mandating “transparency,” regarding their network management practices, for instance, a searching rulemaking procedure would still be critical to define what that means. From a competitive perspective, ISPs have no incentive to disclose what they’re actually doing to manage their networks, and every incentive to be as opaque as possible. The Post’s own example of the salutory effects of transparency–Comcast’s backtracking on BitTorrent throttling–proves as much. Until exposed, Comcast faced little incentive to disclose to its subscribers what it was doing and why, and so it didn’t. That’s not a value judgment. It’s an acknowledgment of how businesses make decisions in the real world.
Achieving meaningful transparency, therefore, will require the FCC to gain a detailed understanding of the techniques network operators use to manage traffic, how they can and are being applied, their impact on others in the value chain and possible alternatives. For transparency to translate into the operation of actual market forces, it will then need to mandate that disclosures be made in a way that ordinary consumers–not just the tech-savvy bloggers who tripped up Comcast–can understand them and act on them meaningfully.
Even then, however, outcomes at odds with the public policy goals of free and open competition and vigorous innovation are more likely than not because a lack of meaningful competition in most local broadband markets attenuates the disciplining effects of market forces, and because the vertically integrated structure of the telecommunications industry generally creates clear and predictable economic incentives for network operators to discriminate–issues at the core of Genachowski’s analysis but which the Post’s editorial writers glibly ignore.
And as many members of the Internet community and key Congressional leaders have noted, there are compelling reasons to be concerned about the future of openness [Genachowski said].
As American consumers make the shift from dial-up to broadband, their choice of providers has narrowed substantially. I don’t intend that remark as a policy conclusion or criticism — it is simply a fact about today’s marketplace that we must acknowledge and incorporate into our policymaking.
A second reason involves the economic incentives of broadband providers. The great majority of companies that operate our nation’s broadband pipes rely upon revenue from selling phone service, cable TV subscriptions, or both. These services increasingly compete with voice and video products provided over the Internet. The net result is that broadband providers’ rational bottom-line interests may diverge from the broad interests of consumers in competition and choice.
The third reason involves the explosion of traffic on the Internet. With the growing popularity of high-bandwidth applications, Internet traffic is roughly doubling every two years. Technologies for managing broadband networks have become more sophisticated and widely deployed. But these technologies are just tools. They cannot by themselves determine the right answers to difficult policy questions.
Network management, in fact, presents a classic case for regulation: The state has a compelling interest in preserving and promoting competition and innovation throughout the entire broadband value chain–not just among network operators–market forces are attenuated and the incumbent operators have strong and predictable economic incentives to act contrary to the public policy goals. There is no other force, apart from regulation, likely to shape a fair and reasonable outcome.
That’s not to say that any regulation the FCC (or Congress) might come up with would, perforce, be acceptable. The bill introduced by Reps. Ed Markey (D-Mass.) and Ann Eschoo (D-Calif.), for instance, is a pretty blunt instrument that takes little account of the real-world technical challenges network operators face and fairly screams “unintended consequences.”
But to ignore the plain economic incentives facing network operators, as the Post’s editorial would have the FCC do, or to expect that network operators would ignore them, transparently or otherwise, is simply not a credible analysis of the issue.