James Pethokoukis

Politics and policy from inside Washington

Net neutrality rules a blow to free markets

Dec 21, 2010 18:34 UTC

Milton Friedman had it right. Business is no friend of free markets. The Federal Communication Commission’s “net neutrality” ruling is more evidence of this. What the FCC should have done is called it a year, went on holiday and left the Internet alone.

Instead, it found a solution in search of a problem. And that solution was more or less supplied by Verizon and Google last August. To a great extent, the new rules codify that blueprint, which — at least as those companies see things — acknowledged both the inevitability of some government rule-making and the need to better divvy up future costs and revenues between telecoms and content providers.

The FCC’s new rules would ban providers such as Comcast and Verizon Communications from blocking or delaying lawful Internet traffic, such as online services offered by competitors. But the giant telecoms and landline providers would be allowed to sell faster service to content companies such as Google and Amazon. And they could increase rates for subscribers who use the Internet for tasks that gobble bandwidth such as high-definition video.

Certainly, it could have been worse. As I wrote last April:

This regulatory debate has been turned into an unusual David (scrappy web firms) vs. Goliath (entrenched telecoms) morality tale. Despite being three times larger by market capitalization, Google, for example, still has far more cachet than Comcast, which challenged the FCC. But what it all really comes down to is who will pick up the tab for future network upgrades to handle applications such as high-definition video.

In a net neutral world where prices were fixed at, essentially, zero, the telecom operators would pay — before passing costs along to consumers, of course. On the other hand, maybe operators want to charge content providers tolls for putting their traffic into express lanes. Or perhaps another business model is just around the bend. Under net neutrality, the current system would be locked into place.

Government should have high hurdles to clear before setting prices. In the end, net neutrality seems little more than rent-seeking by content providers. It’s akin to a computer maker successfully lobbying for price controls on shippers like FedEx when transporting goods from China. When it bought new planes, the shipper would have to eat the cost or pass it downstream.

Now the fight turns to Capitol Hill, with Republicans especially eager to do battle. The GOP views the ruling as an initial effort by the Obama administration to push its agenda through regulatory agencies now that Democrats no longer completely run Congress. Expect the Republican-controlled House to quickly pass a disapproval resolution under the Congressional Review Act to overturn the ruling. If the measure then gets 51 votes in the Senate, it would be up to President Barack Obama to sign or veto.

Hopefully his recent pivot to the center will continue for at least a little while longer.

COMMENT

Thanks President Obama for another sell-out by your administration. You are now fully engaged in complete double-talk. This is not net neutrality and you know it. This is a complete cave-in- your specialty – to the ATT’s, Verizons, Comcasts and Googles of this world. Along with the tax-cut fiasco you really are racking up quite a record as a Republican. What about a few considerations for the people who fought hard to elect you.

Posted by jefflz | Report as abusive

Net neutrality ruling strikes blow for freedom

Apr 7, 2010 00:28 UTC

Right about now the White House is probably thinking about packing the courts. Just as the Roosevelt-era Supreme Court voided a key New Deal effort to regulate commerce in 1935, a U.S. appeals court just put the kibosh on a Federal Communications Commission effort to regulate the Internet. This far and no farther, the court said to further federal intervention in the American economy.

The appeals court kneecapped FCC intent to impose net neutrality as part of its grand broadband plan. Such rules would seek to prevent phone and cable companies from potentially charging providers that supply huge amounts of bandwidth-gobbling traffic. This regulatory debate has been turned into an unusual David (scrappy web firms) vs. Goliath (entrenched telecoms) morality metaphor. Despite being three times larger by market capitalization, Google, for example, still has far more “cool” cachet than Comcast, which challenged the FCC. The Davids are also Friends of Obama, giving massively to his presidential campaign.

But what it all really comes down to is who will pick up the tab for future network upgrades to handle applications such as high-definition video. In a net neutral world where prices were fixed at, essentially, zero, the telecom operators would pay — before passing costs along to consumers, of course. On the other hand, maybe operators want to charge content providers tolls for putting their traffic into express lanes. Or perhaps another business model is just around the bend. Under net neutrality, the current system would be locked into place.

Government should have high hurdles to clear before setting prices. In the end, net neutrality seems little more than rent-seeking by content providers who wish to use government to distort market forces in their favor. It’s akin to a computer maker successfully lobbying for price controls on shippers like FedEx when transporting goods from China. When it bought new planes, the shipper would have to eat the cost or pass it downstream.

The Internet tussle is unlikely finished. The FCC might ask for the decision to be reconsidered or seek review by the U.S. Supreme Court. The Obama administration could also turn to Congress to clarify the regulator’s authority. A more radical option, one advocated by consumer groups, would be for the FCC to legally reclassify broadband. Such a move would give the agency broad power to regulate the Internet like it was the old-fashioned landline telephone service. That sort of command-and-control apporach hardly seems a policy suited for the 21st century.

COMMENT

Striking a blow for Goliath again, Jim? How in hell a hollow victory for the monolith of mediocrity could possibly represent Freedom© is an excursion into Newspeak as craven as it is unworthy of serious consideration.

It appears to take more mental effort than your average tea-partying Yahoo can summon up to comprehend the first thing about net neutrality, whereby individual communication freely prevails without constraint of corrupt court-facilitated corporate excuse-makers. Comcast violates this principle.

Just remember what happened to Goliath in the end. That is what’s in store for Comcast – and all who fail with it.

Posted by HBC | Report as abusive

Net neutrality creates systemic risk for US economy

Oct 23, 2009 18:30 UTC

The Federal Communications Commission decision to begin the process of imposing an Internet neutrality rule — network operators such as AT&T would be barred from charging variable prices for different kinds of traffic from content providers such as Google or Amazon — is curious as well as wrongheaded.

The financial crisis that has convulsed the global economy for the past two years 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, intended to counter a recession in 2001, helped create a dangerous housing bubble.

Like physicians and Fed governors, the first goal of regulators should be 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 thing, are on the decline. The average cost of consumer broadband has dropped from to less than $20 a month from $50 a month in 2001. And more people have access. As late of 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 by telecom firms 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 telecoms into highly-regulated utilities that would absorb the cost of future network buildouts — before passing it along to consumers, of course.

The Washington-based 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 and more consumers have access to ever-faster broadband, they have more choices. In addition to the telecoms, America has four nationwide 3G wireless providers and fifth,Clearwire, readying a nationwide launch of a 4G WiMax service.

But the FCC — with the full encouragement of the Obama administration — nonetheless intends to push forward with seeming little concern about the unintended consequences of intervening into 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.

COMMENT

Benny,
you keep saying we should make the companies bear (not bare) the cost of upgrading, and not the public. How does that not just come right back at the consumers? The ISP’s will of course raise their rates. I’m not sure where I stand on this issue yet, there are compelling arguments on both sides. I am principally against government regulation, but there are areas where it is necessary. This could be one, I don’t like the corporations to hold all the power, so just saying “no regulation is better for the public” is not a convincing argument either. But restraining those corporations who employ millions and advance technology is not a road to go down without a very good map.

Posted by Dave | Report as abusive
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