by Cord Blomquist, Alex Nowrasteh, Ryan Radia
February 28, 2008

Net neutrality is making headlines again. Rep. Markey (D-Mass.) recently introduced the Internet Freedom Preservation Act of 2008 (HR 5353). If it were to pass, it would be the first net neutrality rule to become federal law. In his introductory statement, Markey called the bill one of the “guide stars for U.S. broadband policy.” It would be more appropriate to call the legislation the Siren of U.S. broadband policy and its clarion call will cause many brave Internet entrepreneurs to wreck on the rocks of regulation.

Like many bills floating through Congress, Markey’s is full of vague language. Stating that consumers cannot be burdened with “unreasonable interference” or “unreasonable discriminatory favoritism,” the bill leaves more than enough room for creative interpretations of this statute both by the FCC and the courts.

And creative interpretation is no foreign concept to Chairman Kevin Martin’s FCC. The FCC will soon announce its verdict on Comcast's managing of peer-to-peer file sharing and recent remarks by Chairman Martin suggest Comcast may be slapped with a heavy fine for its alleged neutrality violation. Yet Martin can’t point to any law or official FCC rule that Comcast has allegedly broken. Instead, he can only claim that Comcast has violated the FCC principles of neutrality—principles that have no force of law and are problematic on their own. The FCC is already stretching the meaning of their own set of “guide stars,” so should we really give them another?

Not if we value innovation. Since its inception, the Internet has thrived without centrally imposed neutrality, evolving as a free structure that dynamically meets demand for connectivity with new supplies of bits and bytes. This has meant new copper, coaxial, and fiber optic cables crisscrossing the country—the profitability of which depends on owners’ ability to manage them. Neutrality denies this control and therefore undermines profitability and continued expansion of broadband network. In short, there’s no such thing as a free broadband connection.

To Illustrate just why this is true, look again at Comcast. In an effort to provide the largest number of customers with the greatest quality of service, Comcast slows or sometimes blocks peer-to-peer programs, like BitTorrent. But it’s easy to understand why as BitTorrent and programs like it are designed to use as much bandwidth as possible. Most of the time this isn’t a problem, but during Internet prime-time—when kids return home from school and parents return home from work—this literal torrent of downloads can make simple activities like email and web browsing grindingly slow.

Comcast only blocks these services when total demand on the network is very high, but leaves them alone during off-peak hours. This is a generous move considering that such programs are expressly prohibited in Comcast’s terms of service, and especially gracious considering that BitTorrent is used by the minority of users and often for the illegal transfer of copyrighted material.

Without slowing or stopping peer-to-peer services, the vast majority of users will have their experience severely degraded—even to the point of making it impossible to load a web page. If Comcast can’t manage its network, its users will flee and the company could go bust—leaving consumers with even fewer options in the broadband market. Is this the kind of policy the FCC bills as pro-consumer?

Still, neutrality advocates insist the solution is simple—just build more capacity. But Comcast and other companies have already spent billions doing just that. Yet even with upgraded pipes, BitTorrent’s appetite won't be satisfied.

If you speak to an experienced urban planner, they’ll tell you that suburbs don’t just spark demand for highways—it’s also the other way around. As highways wind their way through the countryside, they enable new communities to spring up.

Similarly with online traffic, building bigger pipes won't be a permanent fix to the "bandwidth crunch" as traffic will soon fill the added capacity. We see this happening now as more and more services such as Netflix Instant Play, Amazon Unbox, and Apple’s iTunes offer increasingly huge files for consumers to download. So it’s not as though someday we’ll have enough capacity for the BitTorrent downloads to resume unhindered. Instead, supply and demand of network capacity will forever be a game of cat and mouse.

Some broadband subscribers simply want to browse the web and check email. Others enjoy voice over IP services like Skype, online gaming, and video-conferencing. Meeting the needs of a consumer base whose preferences are growing ever-more diverse is a real challenge for ISPs.

Yet Chairman Martin is determined to put an end to the creative solutions emerging in the free market, preferring to replace this dynamism with an FCC commissar of bandwidth, dictating uniform standards for connectivity. Where the market has created the need for innovation and experimentation, Martin sees the need for regulation and bureaucracy—reducing smart networks to dumb pipes.

But why can't Comcast offer a network for consumers who want cheap, fast internet access without file sharing-induced slowdowns? Likewise, why shouldn't companies like Time Warner be able to offer a network with complete application neutrality but strict bandwidth metering? A variety of offerings are what we should expect from the market, not the washed-out grayness of government-imposed uniformity.

If Chairman Martin wants to truly benefit consumers, he needs to take a radically different approach. Rather than micromanaging the limited competition that exists today, the FCC should seek to significantly expand competition. This means rolling back regulations that prevent more parties from entering the market.

Privatizing spectrum so that blocks of radio waves can be bought and sold like ethereal real-estate would create a boon for consumers as it would allow a whole new contingent of wireless Internet providers to enter the market. Reforming archaic satellite spacing rules would allow more Internet-in-orbit providers to offer their services to consumers, especially in rural areas. Preempting additional state and local restriction on broadband competition—often referred to as “franchising”—would open up wire-line competition to more than the traditional two players.

Rather than trying to fix the problems of regulation with more regulation, we need to go to the heart of the matter. What small problems exist in the telecommunications market are the result of government failures, not the failures of the marketplace.

The FCC should go the way of Civil Aeronautics Board—it should turn over regulation of networks to the competitive forces of the free market. Rather than protecting consumers, the FCC has served to stymie competition. By believing in a fatal conceit—namely, that government bureaucrats are smarter than free people acting in open markets—the FCC has slowed down the economic wonder that is the internet. Its time for the FCC to get out of the way and let competition bring what it always brings—lower prices, better quality, and a freer America.