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April 23, 2017

Don’t Make the Internet Safe for Monopolies

This week I’m going to Washington to argue against regulating Internet access as if it were phone service. Twenty years ago I was there for the same reason. My concern now as it was then is that such regulation will damage the economy and reduce opportunity by stifling innovation and protecting the current dominant players from the startups which would otherwise threaten them.

At that time the proponents of Internet regulation were most regional monopoly telephone companies, who were regulated themselves (and very comfortable living in a regulated environment). The then small Internet industry (including me) argued that startups were not monopolies and could not afford the batteries of lobbyists and regulatory compliance lawyers needed to survive in a regulated world. “Imagine,” we said, “if each new Internet app had to be approved by some commission or another”.

Fortunately Federal Communications Commission (FCC) Chair Reed Hundt, a Democrat appointed by Bill Clinton, and a majority of commissioners agreed with us. The Commission policy on Internet regulation became one of forbearance. The monopolists were right to worry. The Internet was disruptive. If they had won, there would be no such thing as Skype or Vonage; calls to China would still be $3.00 minute; and 800 numbers might still be more important than websites for shopping. Google, Netflix, Facebook, and Amazon wouldn’t be the companies they are today.

Hundt’s successor William Kennard, also appointed by Clinton, listened carefully to all arguments and continued the policy of benign forbearance. Innovation flourished. When Bush was elected,  Internet folk were afraid that his FCC appointees would be more responsive to telco lobbying. We could no longer argue that the Internet was a fledgling industry but could and did argue the public benefits of innovation and rapidly evolving business models. Michael Powell, Bush’s first appointee as FCC Chair, and the Commission debated and then issued the “Pulver Order” declaring that Voice over IP was not a telecommunications service. That meant in practice that the FCC, whose mandate only extends to telephony services, would have no reason to regulate the Internet.

The FCC did NOT regulate the Internet from then until now. However, in the waning days of the Obama administration, the FCC promulgated a regulation saying that Internet access is a telecommunications service (regardless of whether voice over IP is involved.). Therefor the FCC has the right to regulate Internet access as it used to regulate monopoly phone service. Big reversal.

Those who now want regulation are Google, Facebook, and other major Internet players. They are good marketers so this regulation is called “Net Neutrality”. Who could be against a neutral Internet where all bits are equal? Ironically it is the telcos and cable companies (ISPs) who are on the other side and against reregulation; they are the ones who will be regulated.

There are four major things wrong with the “Net Neutrality” regulations as promulgated (they are not yet in effect):

  1. All users of the Internet as well as the economy itself will suffer if regulation is used to throttle innovation – that’s as true now as it ever was.
  2. This regulation protects the powerhouse incumbents – Google, Facebook et al – from effective and needed competition. It protects them on one side from rich ISPs (why?) and on the other side from would be new providers of Internet access (think mesh networks, access from drones, whatever) who won’t be able to satisfy the regulations made for the technologies they are obsoleting.
  3. There is probably no legal justification for the FCC regulating the Internet. FCC has jurisdiction over basic telecommunications service. They said the Internet isn’t such a service for years; just saying it is all of a sudden a basic telecommunications service doesn’t make it so.

Google may yet regret its call for regulation of any part of the Internet value chain. A Wall Street Journal story last week says that Google is working on an ad-blocking filter for its Chrome browser. Will the FCC next declare browsers a telecommunication service and require browser neutrality?  

With all due respect to many people I respect who support the “Net Neutrality” regulations, I’m as much against regulating the Internet now as I was 20 years ago although I no longer have any direct financial interest except as a consumer. I hope both that the legal challenge to this extension of the FCC’s reach will continue and that the current FCC will undo the harm that its immediate predecessors did and return to the policy which has so successfully supported economic growth and innovation for the last twenty years.

See https://www.bna.com/pai-engages-silicon-n57982087000/ for a Bloomberg story on this issue.

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