Before Net Neutrality Eats the World (Part 8): The Essential Elements of Non-Destructive Rulemaking

by Wayne Crews on August 28, 2013

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

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(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.)

As noted in the previous installment of “Before Net Neutrality Eats the World” on smart networks vs. dumb ones, capitalism itself is historically a relatively new phenomenon, and communications networks, as massive-scale private assets, lack the legitimization they deserve.

Consumers and competitors can rapidly and devastatingly react against bad business practices, should Internet providers attempt it; but reversing course under an inferior net neutrality regime is another story altogether.

Regulation cannot substitute for competitive enterprise. But one will scour the Federal Communications Commission’s (FCC) Order on Preserving the Free and Open Internet in vain for recognition that government failure is both endemic and harder to extricate from than mere bad business decisions.

Instead of “neutrality,” policymakers must extend property rights institutions, carrying on the important work of previous generations who established those concepts — not abandon them.

Such institutions have to be discovered and defended; they’re not obvious. For FCC and policymakers to simply retreat to “openness” on legacy networks represents a colossal shirking and disservice. Rather than strive to legitimize markets, the Order puts network owners on the defensive without a corresponding recognition that the behaviors at issue — special agreements, contracts — contribute to consumer welfare and are in fact prerequisites.

Often, the problem consumers face is not that no competition exists, but that it remains illegal or cumbersome thanks to franchise, zoning, and environmental barriers, or compartmentalization of network industries (electricity, water, rail, sewer, communications) into regulatory silos — all of which are the products of prior regulatory decisions and of regulators thinking within their squares, precisely as they are doing today with the concept of neutrality.

Liberalization of networks would be a massive stimulus. The Order is flawed in seeking justification for normal business behavior and its suspicion of enterprise, while ignoring the multitude of government barriers to liberalization and the unshackling of infrastructure wealth in the United States.

Only corporate motives are questioned by FCC in the 2005 Policy Statement and Order, when we should be asking instead what does FCC truly regard as the source of new infrastructure wealth, and what definable and limited political institutions best foster the hand-in-hand growth of content and network infrastructure.

For example:

  • In what sense does FCC recognize the relevant competitive unit is not merely the movement/flow of information across today’s existing networks, but the creation of networks as such?
  • Does FCC recognize that proprietary networks are consistent with consumer access? If not, why?
  • What is FCC doing to fairly define “discrimination” and to explain why the purely negative connotation is wrong? In what ways does FCC acknowledge “discrimination’s” essential function in infrastructure and bandwidth creation, consumer welfare, child safety, network security and other desirable features of content and service?
  • In what ways does FCC recognize “neutrality” or “openness” as merely one feature of many types of networks that potentially co-exist, rather that the defining characteristic of a system (the “capital-I” public Internet) it presumes to regulate?
  • What conditions does FCC regard as prerequisites for firms to undertake major infrastructure investments, and to build new networks? How are neutrality policies consistent with them?
  • Describe the proliferation of overlapping networks at the dawn of the communications age, and how, if America could achieve that with 1907?s GDP level, it undermines the case for compulsory net neutrality in 2013.
  • What is FCC’s assessment of imposed openness on homeland security, information security, privacy and the vulnerability of intellectual property to piracy?
  • What is the FCC’s assessment of the potential rent-seeking matrix, of who gains and what they gain from neutrality regulation?
  • How has the history of government “silo” regulation contributed to the scarcity of “pipes” to the home?
  • Describe FCC’s recent actions to promote alternatives to neutrality regulation such as assuring that regulatory silos are torn down and intra-industry partnerships are fostered (power, water, rail, sewer, Keystone-style gas) to secure more advanced communications.
  • Describe results of investigations into other alternatives to neutrality, such as reducing franchise, zoning, and environmental barriers.
  • Given FCC’s emphasis on regulation — rather than markets for redundancy, duplication and cross-industry rights-of-way and franchise reform — how would FCC impose net neutrality mandates without also embracing price and entry controls?
  • Will net neutrality further entrench FCC authority and increase its budget?
  • What does the FCC regard as the impact of net neutrality mandates on First Amendment protections, and would such mandates survive a challenge? (Randolph May of the Free State Foundation argues against the survival of such a challenge. “Net Neutrality Mandates: Neutering the First Amendment in the Digital Age,” I/S: A Journal of Law and Policy, Vol. 3:1, May 2007; my organization took part in an amici curiae brief.)
  • What would induce FCC to say it is causing harm and that it should step aside? Provide examples of existing policies FCC regards as destructive and is prepared to remove.
  • Short of future versions of the past decades’ wrenching telecommunications reform attempts, what more streamlined exit strategy does FCC envision when net neutrality mandates need similar rollback? (Upon emergence of broadband over power lines, for example, or expanded wireless mobile).
  • What has FCC determined to be the function and potential of user ownership (real estate developers, content companies, etc.) of portions of communications infrastructures in offsetting market power of providers, and in what way do these induce FCC to relax calls for neutrality?
  • Does FCC realize that broadly applied neutrality policies could rule out or dis-incentivize solutions like network user ownership that are required as part of a healthy competitive mix?
  • What is the agency doing to help halt antitrust investigations into the alternative networks and content ventures (like like it failed to do with respect to the long-delayed XM-Sirius merger, for example) in order to foster the kind of massive-scale infrastructure competition that would achieve the alleged ends of neutrality through purely market means?
  • What is FCC’s strategy to relinquish powers to other general regulatory agencies and avoid damaging duplicative and industry-specific regulation?

In the context of addressing FCC’s queries, it’s important to reflect on what institutions are the true sources of “openness” in civil society. Ensuring neutrality on a network that none of our descendants would want to use is an easy thing to do but hardly worthwhile. The choice today is one between bureaucracy and healthy competition. The federal agency claiming to protect networks can too easily herald their stagnation, creating a communications marketplace in which the players no longer resemble what would have emerged in a truly competitive market.

Again, an elemental misconception in this entire FCC proceeding is that the interests of infrastructure owners on the one hand, and content owners on the other (as well as consumers) legitimately conflict in a world where the option of turning to regulators for favorable political treatment is unavailable.

Rather, content and infrastructure are natural partners in a non-politicized environment characterized by free enterprise. In the most rudimentary sense, consumers of content are shareholders of infrastructure companies too.

Next time: The Rulemaking on Consumer Choice and Access to Content

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