Before Net Neutrality Eats the World (Part 7): Mandatory Dumb Pipes? But Why Sacrifice Genius?

by Wayne Crews on August 27, 2013 · 1 comment

in Deregulate to Stimulate, Economy, Regulation, Tech & Telecom

(Note: On September 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.)

It’s worthwhile to reflect on the prerequisites for massively greater infrastructure and broadband. Net neutrality mandates imply that private control by dominant vendors is against the public interest.

But a better starting point is to appreciate that today’s offerings are not broadband at all compared to future multimedia needs and specialized requirements. Neutrality imposed at 28 kilobits per second would hardly have been a benefit to anyone and would have left us much poorer.

Neutrality advocates sometimes indicate their preference for so-called “dumb pipes,” (see this critique by Adam Thierer) that merely shut up and carry all content; but we would more properly advocate a competitive dimension that acknowledges and encourages the “genius” of pipes.

To hold in 2013 that pipes should henceforth be “dumb” further indicates grave political failure approaching if the neutrality Order is upheld. It’s unfortunate enough that the Federal Communications Commission (FCC), the agency allegedly responsible for communications, would entertain shutting off the potential for unfettered experimentation in advanced network access, of differentiation of price and service.

But beyond that, why on earth regard smart pipes as incompatible with retaining “dumb” ones as consumers desire? Ironically, today’s network policy enshrining openness finds an FCC eager to impose dumb pipes at a time when sister electricity networks mired in regulation tout “smart grids” as one requirement for overcoming congestion and stagnation.

Neutrality shall usher in similar congestion and stagnation for communications.

In its Notice of Proposed Rulemaking that culminated in the Order on “Preserving the Free and Open Internet,” the FCC proclaimed that “[T]he Internet’s creators…chose an architecture that did not favor particular applications,” and attribute the net’s bounty to its non-proprietary standards.

Architecture matters, but so does creation of networks on which future architecture experimentation can unfold without seeking permission. What matters most for the long term as society becomes wealthier is Internet technology, not so much the Net as it happens to exist today with “dumb” pipes.

Neutrality proponents often talk about free speech. Engineering free speech is equally valid and must exist too.

Of specialized services , the Order (p. 17908) declares:

We recognize that broadband providers may offer other services over the same last-mile connections used to provide broadband service. These “specialized services” [such as some broadband providers’ existing facilities-based VoIP and Internet Protocol-video offerings (p. 17965)] can benefit end users and spur investment, but they may also present risks to the open Internet. We will closely monitor specialized services and their effects on broadband service to ensure, through all available mechanisms, that they supplement but do not supplant the open Internet.

Thus, these specialized or managed services — and anything and everything that gets defined as such in the future — are not actually exempted from regulation, any more than are content providers who think future rulings will not apply to them (They will suffer for net neutrality too; see “Before Net Neutrality Eats the World (Part 4): FCC Order Creates Political Vulnerability for All Market Participants“).

The division between the specialized services and ordinary was already somewhat arbitrary and not meant to be defined clearly, so as to preserve FCC authority in the future.

It is vital to appreciate the grave significance of the fact that the FCC is unwilling to even affirm that it will leave managed and specialized services alone:

[S]pecialized services may raise concerns regarding bypassing open Internet protections, supplanting the open Internet, and enabling anticompetitive conduct. For example, open Internet protections may be weakened if broadband providers offer specialized services that are substantially similar to, but do not meet the definition of, broadband Internet access service, and if consumer protections do not apply to such services. In addition, broadband providers may constrict or fail to continue expanding network capacity allocated to broadband Internet access service to provide more capacity for specialized services. If this occurs, and particularly to the extent specialized services grow as substitutes for the delivery of content, applications, and services over broadband Internet access service, the Internet may wither as an open platform for competition, innovation, and free expression. (p. 17965)

So there are no potential broadband offerings not vulnerable to regulatory predation from the FCC. The FCC did not ask for input to dissuade itself; it intends to regulate. This has never been a “should we?” proceeding, it was always a “we are going to” proceeding.

For that reason, upcoming installments of “Before Net Neutrality Eats The World” will look at what FCC should do instead, and at what Congress should do regardless of the Circuit Court decision.

Of course, nothing about fostering “smart pipes” precludes the maintenance and expansion of “dumb” ones with unfettered access. Dumb pipes can flourish alongside the new. That “background hum” of the open/”dumb” Net will escalate (just as fewer use dial-up anymore) alongside private investment in smart networks.

A true FCC contribution would that of being out front articulating the case for smart pipes, not treating the Internet’s infrastructure as a passive husk that fell out of the sky. Indeed, the agency seems to adhere to a “big bang” theory of infrastructure origins: It just showed up somehow, and we needn’t worry about where future generations of infrastructure come from.

Critical new developments in economics stress the private property rights foundation undergirding the creation of wealth in developing nations. What the FCC refuses to acknowledge is that foundation’s importance for wealth creation in frontier areas—broadband infrastructure deployment and pricing — in which property rights have yet to be adequately extended.

Capitalism is still historically new, but we’re fairly competent at legitimizing property rights for mundane “short and fat” property like a house or a car. But policymakers act useless when it comes to legitimizing proprietary approaches to “long and thin” property (or intangible property — another complexity of our era).

We lack a “John Locke for the digital age,” one might say. The proper policy is to allow both open and proprietary network approaches to flourish, not impede the latter, while political philosophy catches up to technology.

Liberalization and the embrace of proprietary regimes afford room for neutrality, properly construed; but a compulsory neutrality regime will hinder proprietary decisions over pricing and access policies and effectively “ban” new infrastructure. This collapse in leadership will be worsened by efforts to extend neutrality regulation to wireless services that, compared to what is yet to come if regulators can only restrain themselves, barely exist.

Stubbornly refusing to allow dumb pipes to have a consciousness locks in an inferior Internet to the gain of no one except its overseers. The “capital-I” Internet of today may not be the same as not-yet-created multimedia networks that may exist in the future; those will have numerous dedicated purposes and it would be punitive for them to blindly adopt an overly open architecture that is an artifact of the Internet’s partly public origins.

Future networks may use Internet technology, but perhaps not all use the same physical network. This is especially feasible as societies generations from now become wealthier and unforeseen network industry ventures spawn an assortment of dedicated networks. Online security and safety might be one driver: Metcalfe’s Law about networks growing in value as members are added is true, but so is a corollary; that if miscreants on your network are deliberately devoted to destroying it or otherwise creating pandemonium or preventing you from making airtight security, privacy or service guarantees to anyone, then the value of your network rises as you eject them.

Note that, in contrast to the net neutrality vision, the competing networks vision is one of a future of vastly greater, smarter and more diverse network-and-infrastructure (and content) wealth than imaginable today. Relatedly, even as we strive to protect political anonymity online, we may need/desire less commercial anonymity in some contexts, which could drive the creation of such networks. The open Internet of today may not prove useful enough for much of what will need to be achieved tomorrow.

Thus the proper stance from which to think about net neutrality is that we’re 10 years away from a communications revolution, and 20 years away from the one after that, and so on; or stated differently, that we don’t have any Internet or broadband today compared to the capabilities of unfettered future networks that will arise after we’re long gone. Today we have an Internet, tomorrow we may have “Splinternets” or “Cyberspaces”: nobody really knows.

But what we can say is that imposing neutrality on sub par network, and particularly extending the concept to new private networks, locks in the sub-par and “dumb.” Elevating the principle of mandatory net neutrality above the principle of shareholder ownership and wealth creation in pipes and spectrum deflects competitive forces away from the infrastructure development — and content-handling capability — that our descendants will need.

Price signals matter in advancing the great infrastructures of our day, and those of tomorrow. Price signals are in fact the fountain of growth. Price signals point to profit opportunity; they help direct where content provider and infrastructure owner investments go, creating wealth. A different, lesser kind of network evolves if that customizability is forbidden. The lesson is to not sacrifice the consumer benefits of tomorrow out of fear of a few bottlenecks.

In the electric power debate, there was something called a “stranded cost” that fearful utilities invoked should they become bypassed by a rival upstart. The ultimate stranded cost occurs when consumers, Wall Street and investors, and content providers abandon one’s network for an alternative. Such competitive incentives can help foster the right mix of openness and neutrality on tomorrow’s tangle of networks.

Freezing today’s Internet into a regulated public utility via net neutrality’s FCC-serving price and entry regulation will slow investment and innovation — meaning fewer new companies, networking deals, products and technologies.

Net neutrality turns the entire industry “dumb” — not just the pipes — ultimately hurting content companies too.

Compulsory neutrality undermines wealth maximization, including content maximization, both indirectly and directly.

Next time: What Is the True Source of an Open Internet?

Faustino aka Genghis Cunn August 29, 2013 at 1:15 am

The problem is the self-perpetuating nature of bureaucracy, where the incentives are to expand one’s remit rather than curtail it. I have been involved in many deregulatory exercises where my argument that the regulation was useless was accepted even by the bureaucrats involved, but they persuaded their ministers to retain it. The question is, how can we innovate to change this? In the Australian context, I’ve argued that you can’t go through a drawn-out de-regulatory process where defensive coalitions form, you need to give someone with appropriate background and skills an arbitrary role in cutting back unhelpful regulation through a short, sharp process. But I can’t see that happening.

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