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Before Net Neutrality Eats the World (Part 3): The FCC's Disdain for Markets

(Note: On September 9, 2013, the United States Court of Appeals for the D.C. Circuit will hear oral arguments in Verizon’s challenge of the Federal Communications Commission’s December 2010 Order on “Preserving the Free and Open Internet.” This series explores fundamental issues at stake.)

Public policy as a rule forgets we are not immortal, that rulemakers are not omniscient.

Net neutrality, the Federal Communications Commission's (FCC) contribution to this conceit, forgets that not every network has been built yet, not every company yet created, and that the networks used and business models deployed by our descendants need not resemble or be managed like those of today.

In the vision of the Federal Communications Commission (FCC), cyberspace shall not solely occupy the realm of markets and trade; rather, Internet users have entitlements while the very benefactors who help make the net possible in the first place are not thanked but have obligations.

The agency set itself above in its initial proposal: “[W]e believe that high-level rules specifying impermissible practices will best promote and Internet environment” (NPRM, p. 21, paragraph 49).

In the Order on "Preserving the Free and Open Internet," the agency claims its framework is "protecting openness through high-level rules, while maintaining broadband providers’ and the Commission’s flexibility to adapt to changes in the market and in technology as the Internet continues to evolve."

"High-level rules" alongside "flexibility" mean anything goes. The original "high-level" language in the Telecommunications Act is precisely why the FCC continues interfering today, despite a mission centered around public interest and scarcity increasingly rendered moot by the Internet era.

Unsurprisingly, the agency asserts that "the benefits of ensuring Internet openness through enforceable, high-level, prophylactic rules outweigh the costs."

Actually no cost-benefit analysis exists, although outsides estimates peg net neutrality's cost in the billions.

As for "prophylactic," the word appears 11 times in the Order.

Let's ponder some of these high-level rules. In fulfillment of the four Principles contained in its 2005 Internet Policy Statement, the commission claims to be protecting the ability of consumers to:

[A]ccess the lawful Internet content of their choice[;] . . . run applications and use services of their choice, subject to the needs of law enforcement[;] . . . connect their choice of legal devices that do not harm the network[; and] . . . competition among network providers, application and service providers, and content providers.

Note that these are normal market offerings in a competitive, non-monopoly franchise environment. They are precisely the features that have emerged since the days of 28 kbps modems without the FCC's help, and one would expect them to flourish on an Internet constantly optimizing for an unseen future.

It is unfair for the agency to adopt a guardian pose. Monopoly regulation already arguably set such flexibility behind by decades. Yet, to these initial principles the Order adds new obligations on transparency and non-discrimination (p. 1). (These will be discussed in an upcoming "Before Net Neutrality Eats The World.")

The FCC proposes, not technology neutrality and indifference to special interests, but “to codify the principles as obligations of broadband Internet access service providers” (p. 37, paragraph 90), now consolidated in the Order (p. 17942):

A person engaged in the provision of fixed broadband Internet access service, insofar as such person is so engaged, shall not block lawful content, applications, services, or nonharmful devices, subject to reasonable network management.

But consumers and those who serve them are not at war in markets (indeed, vibrant capital markets mean users are shareholders in these very providers as well). An actual neutral stance would not dictate business models and obligations. Open and proprietary network management approaches must compete with one another.

Rather than “Preserv[e] the Free and Open Internet," rules drive markets in constrained directions by banning certain normal, contractual property-rights-based business practices and setting content and infrastructure companies at permanent odds.

Everything boils down to an inappropriate priestly attitude from the very agency responsible for overseeing decades of monopoly. Characteristic is the agency speaking of the Carterphone decisions (NPRM, p. 9, paragraph 25) as “enabl[ing] numerous innovations in customer premises equipment, including the answering machine, fax machine, modem [etc.]” with little acknowledgement of the legacy monopoly power that had until then prevented much innovation.

Congress has shown no interest in affirmatively enabling net neutrality. Despite its lack of authority, FCC’s mind is made up. if the Court won't stop it, congressional action will be required, particularly since one may infer that net neutrality is teeing FCC up to further regulate wireless.

Congress did pass a resolution of disapproval of FCC's final rule, but the Senate did not and the president promised a veto.

To the FCC, corporate giants are a problem. Ironically, consumer welfare would benefit from more corporate giants and a bit less of an agency leviathan more powerful than them all put together.

Consumers deserve the benefits of “communications without commissions” Indeed, the “rules specifying impermissible practices” should be directed straight at FCC: That is, it is FCC’s own intervention in today’s competitive markets that should be specified as “impermissible.” A draft bill to reject net neutrality read as follows:

“The Federal Communications Commission shall not propose, promulgate, or issue any regulations regarding the Internet or IP-enabled services”.

If the goal is network proliferation and massive new content and infrastructure wealth, even if the agency had the authority from Congress to impose neutrality, it would reject the idea. But FCC embodies what Thomas Sowell in Intellectuals and Society noted as a lack of consequences and a “vision of the anointed.”

Unseen ventures never get established and consumers suffer, but no one at FCC can be held individually accountable for anything.

A later installment of "Before Net Neutrality Eats the World" will discuss FCC self-assessment required for the agency to ever bring something to the table besides an appetite for regulation. Afterward, alternatives to coercive neutrality will be noted.

Next: Net Neutrality Order Fosters Political Vulnerability for All Market Participants, Including Proponents