Before Net Neutrality Eats the World (Part 4): FCC Order Creates Political Vulnerability for All Market Participants

(Note: On Septe. 9, the U.S. 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.)

“You know who owns your pipes? Your customers. You have no right to set up a tollbooth.”
– Sen. Byron Dorgan (D-North Dakota), Sept. 17, 2007.

Not every issue should be a public policy question.

For instance, free market competition should be exempt from collective decisionmaking. And it is, until someone gets the ear of a regulator.

Net neutrality advocates certainly have accomplished this. Their stated premise is infrastructure companies should not control content; their unstated premise is it’s perfectly acceptable for content companies, in conjunction with an even more powerful government, to control infrastructure.

It’s difficult to exaggerate the damage to result from entrenching this extraordinarily interventionist idea further in law and policy at this stage of communications history.

An irony is that net neutrality advocates assure their own vulnerability to political predation if the Federal Communications Commission’s “Order on Preserving the Free and Open Internet” is upheld by the D.C. Circuit.

The many CEOs who wrote the FCC in favor of this rulemaking could regret it, and their boards, managers and shareholders should take note.

Net neutrality is a starting point, essential to a reason-for-being for the obsolete FCC. The body of intervention to follow will further enlarge agency power.

Alternatives to net neutrality from the opposite philosophical and economic standpoint — steps to promote broadband access that reduce agency power — require more alert CEO and board level advocacy.

Some firms that favor or once favored net neutrality found their own escalating market power rendered them vulnerable to the same political predation unleashed on the infrastructure industry.

Back in 2007 and 2008, it was merely a joke that one could make a perverse case for “Search Neutrality” (All search results shall appear first!). Then inevitably in today’s policy environment, computer code called Google was deemed an essential facility by detractors (a charge Adam Thierer and I could see coming a decade ago).

It is not only Internet access being improperly dubbed an essential facility or public utility. If network providers face regulation, search engines and other content regimes will get further predatory, retaliatory activism against search ranking algorithms, proprietary content placement, advertisement and other service pricing deals, cybersecurity mandates, information sharing orders, privacy standards and more.

Neutrality holds that broadband service providers are not entitled to set the terms on their privately owned network property. For them, First Amendment and Fifth Amendment rights shall not apply (see amici curiae brief from CEI, Cato Institute, TechFreedom and the Free State Foundation).

If that holds, major content firms increasingly will find they are not entitled to their business approaches either. The Notice of Proposed Rulemaking warning should have been heeded (p. 40, paragraph 101):

At least one commenter in this proceeding has suggested that we should read the Internet Policy Statement [of 2005] as embodying obligations binding on content, applications, and service providers in addition to broadband Internet access service providers. Although the question of Internet openness at the Commission has traditionally focused on providers of broadband Internet access service, we seek comment on the pros and cons of phrasing one or more of the Internet openness principles as obligations of other entities, in addition to providers of broadband Internet access service.

As it’s also been joked, business might win more battles to preserve free enterprise if it ever fought any.

Content and infrastructure, properly, are not enemies (and the boundaries between them can and should blur). Neither infrastructure nor content companies nor their customers benefit from a cannibalistic neutrality regime in which no one can change course and charge for (or pay for, or demand) premium quality services well beyond the capabilities of today’s communications technologies.

The very availability of selectively applied FCC (and Federal Trade Commission) regulation induces adversarial stances. So it’s in the interest of all sides of this debate — a clash of the titans in the good sense of the term, given the bounty consumers stand to gain from liberalization — to come to terms on a mutually beneficial FCC rollback instead of the hyper-regulatory regime that neutrality will impose. Net neutrality conflicts with the genuine needs of all — but comports well with agency turf building.

This is the crucial point in business and market history to make a choice between regulation or infrastructure wealth — and greater content wealth.

The temporary gain from securing temporary regulatory advantage pales in comparison to the rewards of network, content and communications liberalization.

Neutrality is in some ways like antitrust regulation; It serves as a non-market tool of (phony) competition whose non-objectivity everyone exploits to selfish advantage. Few explicitly oppose such “high-level rules,” as FCC calls net neutrality, even when they know they should. They awaken only when they are themselves the target.

Even critics sometimes unfortunately want regulation they can “live with,” as opposed to collectively registering the fundamental opposition that’s now urgent.

The problem is a deep one. Even FCC’s “principles” themselves are gravely flawed, and needed undressing years ago; few seemed willing to do that, now the price may be paid. (Upcoming installments of “Before Net Neutrality Eats The World” will challenge the premises of FCC’s principles it invokes to justify neutrality.)

At stake is not merely the destruction of infrastructure wealth for decades, but of content flexibility, consumer welfare and even infrastructure security and “cybersecurity.” Embracing infrastructure socialism (once again, one would think we would understand the definition of socialism by now) sets in place the machinery for endless future headaches. All must heed the Dorgan quote above.

The bigger the assets, the worse the consequences of flawed regulation and flawed political philosophy.

Next time: The Fallacies Motivating Net Neutrality.