The decision by the Federal Communications Commission to begin the process of imposing an Internet neutrality rule is curious as well as wrongheaded.
The financial crisis should be a potent reminder to communications regulators that the best of government intentions can create horrible, though unintended, consequences. Easy monetary policy by the Federal Reserve, for instance, aimed at countering a recession in 2001, helped create a dangerous housing bubble.
Like physicians and Fed governors, regulators should first seek to do no harm. And that is especially true when they are trying to impose a solution in search of a problem.
Broadband prices, for one, are on the decline. The average cost of consumer broadband has dropped to less than $20 a month from $50 in 2001. And more people have access. As late as 2004, 70 percent of households still used dial-up modems for web access. Today, just 10 percent do, with broadband speeds doubling over that period. Tough to find a market failure here.
Of course, the Internet has hardly reached its potential. But future network upgrades to handle high bandwidth applications will be costly. One way to pay for them would be to charge higher rates to Google, Amazon and other corporate users who generate huge volumes of traffic.
Not surprisingly, content providers are in favor of net neutrality and the de facto government-created subsidy it would create at the expense of telecommunications companies.
Net neutrality is merely another form of rent-seeking that seeks to manipulate regulators for private gain. The goal: Use the FCC to turn the telcoms into highly-regulated utilities that would absorb the cost of future network build-outs — before passing it along to consumers, of course.
The Open Internet Coalition, which represents Google, Amazon and eBay, sees things differently, saying the FCC decision advances a regulatory framework that “promotes innovation and consumer choice on the Internet.”
But not only do more consumers have access to ever-faster broadband, they have more choices. In addition to the telcoms, America has four nationwide 3G wireless providers and a fifth, Clearwire, readying a nationwide launch of a 4G WiMax service.
The FCC nonetheless is pushing forward with seemingly little concern about the unintended consequences of intervening in a well-functioning sector vital to the American economy.
At the very least, the FCC will likely face years of court battles over the rule, that could serve to paralyze the sector. Now there’s your systemic risk.
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I have to admit that I have read Mr. Pethokoukis’ blog several times to try to understand his points. His statements show a lack of understanding of the issues as well as not understanding of how business models are changing due to the Internet.
The issue at hand is the ability of service providers to use technology to control the consumer’s experience while using the Internet. For example, certain providers slow down their competitors Internet Phone (VoIP) service using what is know as “traffic management”. While there are benefits to “traffic management”, the issue at hand is that it needs to be applied in a way that is service provider neutral.
Mr. Pethokoukis refers to consumer choices. While having choice among who delivers your Internet connection is certainly good, it is choice of content that is the focal point of this discussion and in fact the value of the Internet is to enable consumers to access a diverse set of content.
The telecom business has evolved over the past 100 years to meet changing consumer demands and competition. This has meant that telecoms needed to evolve their business models to adjust to geometric rises in demand, predatory pricing strategies and changing network traffic from voice to data.
Having spent most of my career building networks and developing business models for networks, I will say that keeping the Internet open will not lead to all the doom that we hear and read from people like Mr. Pethokoukis. I will say that telecoms will need to evolve to compete; otherwise they will be relegated to become just a low margin utility that passes high margin content over their “network plumbing”.
But, of course this is not the first time the telecoms have faced this challenge and they have been bruised a bit but still remain in business and very profitable.
- Posted by Tom GolwayArticle author is a corporate shill, otherwise the article makes no sense.
- Posted by TeacherTelcos/isps are actually lobbying politicians to stop net neutrality from seeing the light of day:
http://www.pcworld.com/article/174280/su rprise_mccain_biggest_beneficiary_of_tel coisp_lobby_money.html
This is from a guy who doesn’t even know how to use a computer.
How is it best for people if there is no regulation of the big boys? We’ve already seen what a “market failure” is with the banking industry. Regulations were ripped down; the destruction of the Glass-Steagall is a prime example of this. Contrary to popular belief (this fallacy is also mentioned in the article) the FED is not government body; it is a privately owned organization owned by private banks. Alan Greenspan has admitted to this.
Check your facts Pethokoukis.
- Posted by Bob ZingerThis is a vast oversimplification of the forces at play here. The author acts as if allowing ISPs to regulate the content will leave the internet as it normally is. In Australia we already have metered bandwidth, with certain sites not counting towards that bandwidth in an attempt to encourage them. It blows.
- Posted by AussiemooI hope the author got a good payout from whatever ISP or TelCOM company he chugs pole for.
One of the biggest factors in “broadband” becoming cheaper is the definition is being changed, but the author prefers to mislead people.
Basically instead of everyone getting access to cheap cable modems, which is what people think of as broadband, jerkoff corporations try to define DSL and other crap internet that are slightly better then dial up, as broadband.
Nice work around.
Watch out too because McCain is trying to destroy net neutrality as well.
- Posted by Moose