Before Net Neutrality Eats the World, Part 1: Net Neutrality vs. Infrastructure Wealth

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 (FCC) December 2010 Order on “Preserving the Free and Open Internet.” (That day, you’ll be able to stream a TechFreedom/International Center for Law & Economics luncheon panel discussing the proceedings.)

The arguments mark the critical culmination of a longstanding effort by FCC to expand power over speech and infrastructure in America in violation not merely of the Constitution and the rule of law (as plaintiffs and allies certainly allege; my organization took part in an amici curiae brief), but of common sense, economic efficiency, and consumer welfare.

The Order, the prior 2009 Notice of Proposed Rulemaking (see CEI filing to FCC) and the even earlier Notice of Inquiry on Broadband Industry Practices (see CEI filing) asserts national government authority over the Internet’s future with respect to broadband access and pricing.

Unelected FCC commissioners contemplate this action without authority from Congress, and even with such authority, it should have and would have been challenged.

Net neutrality contends that the government should oversee the Internet rather than the private productive sector. It contends that Washington should decree that Internet service providers treat online traffic the same, in “non-discriminatory” fashion as to be decreed by regulators rather than defer to consumer demand, market and technological realities, and competitive pressures. Those competitive pressures already greatly militate against unreasonable blockage of traffic flow and easy access to content.

No credible case exists for universal neutrality rules in contrast to a potential rifle shot to deal with legacy (clearly diminishing) market power owing to past exclusive franchises and other legacy government-created monopoly power. And even here, unfavorable press generally does the trick. I don’t think antitrust is the solution as some do, but the industry does not require sweeping regulation because somebody might misbehave.

Fundamentally, banning or de-legitimizing entire proprietary business models is the opposite of “openness.” Legitimizing proprietary approaches to network access, strategies and pricing (and enjoying the infrastructure wealth creation that such property rights foster) is the crucial challenge for policymakers.

America’s challenge is not for FCC to “do something” in the communications and Internet realm, but rather to scale back its central control so we may move beyond regulatory impediments that have limited our creative freedoms in expanding infrastructure and content access.

Occasional problems during this transition are less representative of the free market—-which has labored under decades of sweeping communications regulation—-than of the preemptive role of government, its derailment of institutional evolutionary market processes, its blocking of freedom by inhibiting growth in what should be far more vibrant areas like infrastructure expansion.

Neutrality is the telecom industry’s equivalent of the destructive, Enron-pushed “retail wheeling” scheme that has de-legitimized electricity liberalization for the foreseeable future (where, for many reasons, transmission capacity remains gravely inadequate, and even a threat to security and safety). The grid is straining. We don’t want that to happen to the Internet.

At stake is less today’s ground-level dispute, but rather the principle of proprietary control vs. the principle of collective control in the creation and management of infrastructure and communications wealth decades hence. Competition in the creation (and creative destruction) of networks matters as much as competition in the content and “stuff” deployed across those conduits

Flows and grids must be liberalized; not just the communications flows, and net neutrality believes itself to be doing.

Coercive neutrality’s fixation with only content undermines consumer well-being and Internet robustness. And, not paradoxically, it means a less open, less neutral Internet for future generations. This “Before Net Neutrality Eats the World” series leading up to the oral arguments will explore this fact further.

The principle of compulsory access to technologies and networks is one to reject in today’s world; it was a mistake in yesterday’s, when “natural monopoly” was never a problem. Well connected insiders successfully banned competition and tied us to “utilities” for a century or better in all our great infrastructure industries.

In that sense, given the experience with the rent seeking and cronyism that economic regulation always attracts, this series contends that “well-meaning” is about as valid a characterization of net neutrality as “unintended” would be for the consequences, which will hurt generations of consumers but benefit industry cronies, bureaucrats and “consumer groups.”

When liberalizing a heavily regulated segment of a mixed economy (here, telecommunications), the gauge of the impending reform’s appropriateness is simple: The body of private activity subject to regulation must decline rather than increase.

Instead, the FCC is on a growth path, just like the rest of the Washington bureaucracy. The wealth, infrastructure, content, options, consumer benefits and security to be created in a competitive regime vastly exceed what “neutrality” can sustain on a regulated, more stagnant, Internet. Net Neutrality is Not Neutrality.

Next time: An Alternative Case for Agency Neutrality