The FCC’s dramatic 2015 pivot on Internet regulation sought to envelope advanced broadband networks in the shroud of telephone company rules rolled out in the Mann Elkins Act of 1910. These historic common carriage “Title II” regulations – originally the province of the Interstate Commerce Commission, long ago antiquated and finally abolished in 1995 — were cited as exemplars by the Commission in last year’s Open Internet Order. Continue reading
Wheeler: Net May Be at Regulatory Inflection Point
Asks Whether ‘Terminating Monopolies’ Hold Key To Letting Startups Scale Up
By John Eggerton
FCC chairman Tom Wheeler has at least raised the possibility that the Internet economy is at an “inflection point” at which the government needs to step in to insure the continuing ability of innovative startups to scale up at the pace of high-speed broadband. Continue reading
Joshua Wright, IEP Scholar on leave and current FTC Commissioner, joined Thomas Hazlett to write an Op-Ed in the Wall Street Journal titled “Micromanaging the Web Would Be a Macro Mistake.” The Op-Ed warns of the issues that arise when the FCC attempts to over manage internet regulations, such as net neutrality. In an attempt to prevent anti-competitive behavior by ISPs, net neutrality regulations have actually had an anti-consumer effect. A much more efficient means to control anti-competitive behavior already exists in the form of anti-trust law.
The full article follows:
Micromanaging the Web Would Be a Macro Mistake
The FCC doesn’t seem to realize that antitrust law is enough to ensure fairness.
Thomas W. Hazlett And
Joshua D. Wright
July 13, 2014
The cry for Internet regulation is familiar. “Net neutrality” rules are the most recent episode in a recurring story in which proponents seek to limit competition while claiming that nothing less than the future of the Internet is at stake.
More than a decade ago there was Open Access, a proposal for the Federal Communications Commission to let third parties use cable TV lines at regulated wholesale rates so they could offer competing broadband service. Proud corporate supporters included GTE, a large phone company competing with cable operators, and AOL, then the largest Internet service provider. Their argument mirrored that of net-neutrality proponents today: Without it, the major Internet service providers would create their own fast lanes and stifle competition. The Clinton administration’s FCC rejected the idea, and the fears proved groundless. The Internet continued to grow rapidly with innovations from Google to Facebook.
That history makes the current debate over network-neutrality rules seem surreal. Columbia Law professor Timothy Wu, for instance, declared during a June congressional hearing that the modern Internet was nurtured on principles of neutrality that the FCC is only trying to enshrine, protecting against “new rules that reportedly would put a price tag on climbing aboard the Internet.”
Not so. The modern, open Internet evolved in the marketplace, with customers and firms making unregulated deals. The government’s primary contribution has been to clear out the “public utility” regulations that would have stifled it. As FCC Commissioner Ajit Pai explained in February when the FCC announced its latest attempt to salvage net-neutrality rules: “The Internet was free and open before the FCC adopted net-neutrality rules. It remains free and open today. Net neutrality has always been a solution in search of a problem.”
Moreover, Internet access has always required parties to ante up, and those who have paid more have received superior terms. Consider backbone providers, which are data transport networks that form the core of the Internet. They connect with other large networks called “peers” free of charge. Smaller networks and Internet service providers, on the other hand, pay for the same service. Content suppliers such as Apple, MTV and Major League Baseball use private, high-capacity pipes to avoid jams and improve customer experience. They pay content delivery networks like Akamai to access these pipes; giant data pushers such as Google run their own. These fast lanes improve the web, wired and wireless. Fast lanes are features, not bugs.
The fear among net-neutrality supporters is that major Internet service providers such as Verizon or Comcast will engage in anticompetitive behavior known as vertical foreclosure. Comcast, for instance, might prevent customers from viewing Disney -owned programs like ESPN, so as to favor its own network, NBC Sports. This fear overlooks the fact that not only is ESPN’s content widely available via Comcast and competing services, but such behavior is already unlawful, if harmful to consumers, without net-neutrality rules, thanks to antitrust law.
Nevertheless, the FCC imposed neutrality regulations in 2007 and 2010. The D.C. Circuit vacated both sets of rules. FCC Chairman Tom Wheeler, who seems to believe the third time is the charm, is now advancing a proposal that would give the agency power to review individual agreements between Internet companies on a case-by-case basis. Such micromanagement is sure to be inimical to the Internet’s development.
Critics challenged the agency in 2010 to produce empirical evidence of vertical foreclosure by Internet service providers, and the FCC came up with what it claimed was a supportive econometric study. The study looked at cable video, not broadband markets. The FCC’s report, which relied entirely on anecdotes, was remarkable in one sense: It found but a handful of allegations. As FCC Chief Economist Gerald Faulhaber put it in a 2011 paper, “By any standard, four complaints about an entire industry in over a decade would seem to be cause for a commendation, not for restrictive regulations.”
There is evidence, however, that net-neutrality regulation harms Internet users. In 2011, the FCC filed a complaint against Metro PCS, a small company less than 1/10th the size of Verizon Wireless, for violating net neutrality. The provider offered “all you can eat” mobile service—voice, text and data—for just $40 a month. There was a twist: Though most video streaming was blocked to avoid network congestion, users could watch unlimited YouTube videos because Google (YouTube’s parent) had engineered a compression technique that prevented traffic jams.
MetroPCS had a neutrality “problem.” It favored Google’s content over other streaming sites. Yet Metro PCS had no financial stake in Google, customers got extra content and lost nothing, and no competitive harm occurred. The D.C. Circuit eventually struck down the FCC’s rules, mooting the complaint, but not before the agency revealed its suspicion of new technological fixes undertaken by upstart rivals offering consumers superior services.
The FCC claims that a neutrality mandate serves consumers, but overwhelming historical and economic evidence suggests otherwise. While antitrust law is not without its own history of abuse, it has developed a consumer-centric framework based on economic analysis and evidence. Antitrust law gives consumers a chance to reap the benefits from business arrangements like those between MetroPCS and Google while protecting them from those that truly harm competition.
If you think the Internet is broken today, wait until the FCC administers case-by-case approvals of traffic agreements to fix it.
Mr. Hazlett is a professor of economics at Clemson University and previously served as Chief Economist of the FCC. Mr. Wright, a lawyer and economist, is a member of the Federal Trade Commission.
Thomas Hazlett was interviewed by Virginia Business Magazine in an article by Richard Foster analyzing the Netflix/Comcast deal and the ramifications for the so called “open internet.” Critics have said the the deal will lead to an end to the era of open internet and will lead to higher costs for consumers as well as discrimination between websites. Dr. Hazlett argues that the change will be much less dramatic because the notion of an open internet is a mischaracterization of how the internet has always operated. In fact, this discrimination between different types of network traffic is beneficial to consumers, who value speed in services such as voice-over-internet more highly than in email.
The full article can be read here.
The Daily Beast’s Nick Gillespie wrote an article entitled “The FCC Must Ignore the Silly ‘Net Neutrality’ Advocates.” In it, Gillespie explains why the dire consequences predicted by net neutrality proponents are exaggerations. The article contains several quotes from Dr. Hazlett’s papers and interviews, both about the FCC’s ability to regulate generally and the fallacy of net neutrality regulation in specific.
The article can be read here.
IEP Scholar Brent Skorup penned an op-ed on the net neutrality debate. In it, he examines the origins of net neutrality, specifically the first violator of the FCC’s net neutrality rules. The FCC forced a small wireless carrier to abandon their two tier pricing scheme that was offered to their customers as a means to offer a more basic service for those who couldn’t pay the high price required for a 4G LTE plan. Skorup examines how the FCC’s rigid net neutrality plan penalized a small wireless carrier for its efforts to meet the demands of all their customers.
The full op-ed can be read at Real Clear Markets.
In this week’s Wall Street Journal, IEP Director Thomas Hazlett argues that “network neutrality” regulation not only distorts markets but undermines the demonstrated success of business model competition between Internet service providers. Gigi Sohn, of Public Knowledge, takes the opposite view, arguing — with the Federal Communications Commission — that new regulation is needed to preserve the “open Internet.”
This debate was featured in the Wall Street Journal on May 13, 2013 and can be found here.
Days ago the U.S. Senate unanimously confirmed Professor Joshua Wright, an Information Economy Project Senior Fellow, as commissioner at the Federal Trade Commission. As reported at The Hill’s Hillicon Valley and other news sources, Professor Wright’s confirmation took place after the holidays on January 1 after a months-long vetting by the Senate. FTC Commissioners serve seven-year terms. Because of this appointment and the obligations it entails, Prof. Wright will take a leave of absence as Senior Fellow at IEP.
Congratulations to Commissioner Wright!