eBusiness

FCC Could Mess Up Internet With 'Net Neutrality' Rules No One Needs
Barbara S. Esbin

Barbara Esbin is a senior fellow at the Progress and Freedom Foundation.

The Federal Communications Commission has proposed rules that would shift service and network management decision-making from Internet service providers to regulators in the name of "preserving the open Internet." Yet the FCC hasn't addressed what consumer harms it aims to remedy and whether the costs of imposing this remedy are exceeded by the benefits. Simply put, the case has not been made for regulating America's dynamic Internet sector at this time.

The FCC's proposed rules codify and expand its 2005 Internet policy principles--four aspirational goals intended to preserve "openness" for consumers while giving providers flexibility to manage their networks. Although such principles, as opposed to rules of law, are not legally enforceable, they can and do act as behavioral guides. They were developed with industry and consumer group input and reflect a broad policy consensus that, subject to the needs of reasonable network management, providers should deliver services they have promised; adequately inform subscribers about services purchased; not impede consumer access to or use of lawful content, applications, and devices; and behave in a neutral manner with respect to transmission of online traffic.

Despite its recognition that the policy principles have helped preserve Internet openness, the FCC is now poised to take far more intrusive action. FCC Chairman Julius Genachowski states that the rule making addresses "the dangerous combination of an uncertain legal framework with ongoing as well as emerging challenges to a free and open Internet." However, there is no clear mandate from Congress to the FCC to regulate in this area and impose network neutrality or any other mandates on providers. To the contrary, the agency's authorizing statute suggests the opposite conclusion: The Internet should remain unfettered by federal or state regulation.

Second, the evidence marshaled in the FCC's notice of ongoing and emerging Internet challenges is less than compelling. The FCC claims that broadband Internet markets are insufficiently competitive today to protect consumer interests. Yet a 2007 Federal Trade Commission report found no market failure and warned regulators to proceed with caution. The FCC acknowledges that broadband service providers face growing traffic volume demands that must be managed but claims that they have the potential--the opportunity, means, and motive--to act in an anticompetitive fashion when transporting Internet traffic across their networks. FCC detectives point to economic theory suggesting providers have incentives to act in an anticompetitive manner against competing providers of content, applications, or services. What is missing from this crime scene investigation is the body--the actual evidence that providers are behaving anticompetitively or are likely to.

The FCC also cites a handful of instances where service providers have interfered with or blocked Internet traffic or have merely threatened to do so. But what provider would repeatedly risk the wrath of its customers? Routinely infuriating your best customers is not a good business plan. Moreover, we have antitrust laws and enforcement authorities capable of policing actual anticompetitive behavior in the Internet sector as they do for all other sectors of the economy.

The information and technology sector is one relative bright spot on an otherwise gloomy economic horizon. Why is the government suddenly turning its guns on companies actively deploying broadband infrastructure? As Walter Wriston once said, "Capital goes where it is welcome and stays where it is well treated." Broadband providers invest tens of billions of dollars annually in networks. Although the concept of "neutrality" may sound enticing in academic circles, if such mandates prevent operators from gaining a fair return on their investments, they will, over time, cease investing. This runs contrary to the national effort to deploy broadband Internet more widely at a lower cost.

Today, there are some 121.2 million broadband Internet services lines in the United States but precious few instances where network operators supposedly violated the FCC's network neutrality principles. This is a good indication of the magnitude of any serious neutrality problem: It is infinitesimal compared with the number of broadband providers and customers. Perceived violations are met with nearly immediate and widespread public backlash through the very medium that is allegedly at risk: the free and open Internet.

The imposition of unnecessary rules is never cost free, and it is the consumer who will ultimately bear those costs--in the form of higher prices or less innovative offerings. We also know that regulatory regimes, like kudzu, grow quickly once planted and that the FCC's new network neutrality regime could soon grow to encumber Internet providers in the applications and search layer, such as Apple, Google, and others.

Lacking evidence that regulation is now necessary to combat either market failure or other consumer harms, the FCC is left to postulate a dystopian world without network neutrality rules. It claims that unless it acts now, we risk losing what we value most about the Internet. In other words, it creates what economists would call a "counterfactual."

But we don't need economic theory to tell us what a world without network neutrality rules would look like because we already live in that world. And in the real world, the fact is that the Internet ecosystem we have is functioning quite well to satisfy customer needs without the ministrations of the FCC. In fact, one might go so far as to say it functions as well as it does because of that.

Read why the FCC should act, by Andrew Jay Schwartzman of the Media Access Project.

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