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The Packets Must Get Through

steven.titch@reason.org (Steven Titch) — Thu, 19 Nov 2009 15:21:00 EST

The Consequences of Net Neutrality Regulations on Broadband Investment and Consumer Welfare

This essay originally appeared in "The Consequences of Net Neutrality Regulations on Broadband Investment and Consumer Welfare" published by the American Consumer Institute.

To the ears of the American consumer, a rule that would require phone, cable and wireless companies to treat all Internet and Web applications the same way—with no favoritism shown—might sound like a fair deal.

From its start, open access is what the Internet has been all about. Indeed, consumers should be able to access the Internet and Web applications they wish. Any individual, business or organization who wants to set up a web presence, from a personal blog to a major e-commerce site, should face no barrier to reaching users.

No one wants to take the Internet’s resources or utility away. Yet the proposal by the Federal Communications Commission (FCC) to create a “non-discrimination” rule, which would come under the general heading of network neutrality, although intended to preserve robust, open and quality access to all Internet applications, stands to have the opposite effect.

The non-discrimination rule, if enacted, would prohibit telephone companies, cable companies, wireless companies and other Internet service providers (ISPs)—the companies that built and own the local and long distance networks that carry Internet traffic—from applying any technology, technique or software that would prioritize, organize or otherwise structure Internet traffic so that it is delivered faster, has a guaranteed level of quality, or is partitioned in such a way that it does not slow or impede other traffic. While the FCC’s Notice of Proposed Rulemaking on network neutrality, released October 22, 2009, would allow vaguely defined “reasonable” network management, the NPRM also stated “that a bright-line rule against discrimination… may better fit the unique characteristics of the Internet.”^₅₆

To support his point, FCC Chairman Julius Genachowski says the non-discrimination rule was a founding principle of the Internet.57 To call it a “principle” is somewhat misleading. It is true that when network engineers developed the Internet Protocol (IP), it was designed to use the intelligence in the computers and routers at each end of the connection. That was because at the time, the late 1960s and 1970s, there was no intelligence in the telephone network to perform even the most basic of quality and prioritization functions. Non-discrimination was a necessary condition of the early Internet, not a prescribed rule as to how Internet transmission would always work.

The Internet: Then and Now

Today, 40 years since the first Internet connection was set up, network transmission technology is far different. The public communications network does hold the intelligence to improve, enhance and prioritize Internet traffic. In private networks, it already does. In wireless, the entire history of technology evolution is about finding ways to fit more data into a radio channel of fixed space. Some of these techniques, because they grant transmission priority to certain applications over others, allowing data applications on devices like iPhones and BlackBerrys to work, would likely be considered discrimination under the FCC’s new rule.

Second, and perhaps more important, today’s Internet applications are a far cry from the simple text characters transmitted at 300 bits-per-second (b/s) over those first connections.

Think of the ways you’ve used the Internet today. You’ve probably sent email, maybe with photos or lengthy documents attached. Perhaps you’ve made a clothing purchase, or paid your credit card bill. Maybe you’ve downloaded some music, or watched a video from YouTube, Netflix or Hulu.

Did you use your wireless phone to send a text message on your way to work? To update your picture on Facebook? To check up your fantasy football team? Your cell phone uses the Internet, too.

When you badged into your office, your building’s security system likely used the Internet to verify your employment status and let you in. In fact, your company’s entire security network, from video surveillance to fire alarms, probably uses the Internet, especially if it is spread over several buildings and locations.

Then there are all the unseen transactions that occur within the network itself. Search engines constantly crawl the Web collecting keyword data from Websites worldwide. When you perform a Web search, data from thousand of servers are instantly correlated, packaged and delivered to your desktop, with ad links that correspond to your search parameters. The Web-based financial transaction that occurs in seconds involve multiple links and data exchange between you, the retailer, your bank, the retailer’s bank, a credit verification database and any other party with a stake in the transaction.

As you might imagine, all this adds up to an enormous amount of data moving across the network. Indeed, Bart Swanson and George Gilder have been tracking the growth of Internet traffic since early this decade. In January 2008, using data from Cisco Systems, the world’s leading supplier of Internet switches and routers, Swenson and Gilder reported that monthly Internet traffic in 2007 had reached 2.5 exabytes, or 2.5 quintillion bytes (2.5 x 1019), up from approximately 1 exabyte in 2005. Cisco projected monthly Internet traffic would reach 5.5 exabytes by 2009 and 9 exabytes by 2011.58

While there is vast amount of bandwidth capacity in the public network, vast does not mean unlimited. And while investment in infrastructure continues, the costly deployment of more physical facilities—fiber optics and cell antennas—should not be legally locked in as the only solution growing bandwidth consumption.

Besides, construction of more physical facilities only addresses the congestion problem. You may indeed speed traffic by building more lanes, but the expanding diversity of Internet and Web applications creates quality requirements that can’t be solved by the addition physical facilities alone.

This is where the non-discrimination principle of network neutrality would create massive problems for users and applications providers. In order for some applications to function correctly, their data may require special treatment as it crosses the network. This is especially true with video, which is both data-intensive (a 10-minute, low-resolution YouTube video can be 100 megabytes) and error-sensitive. In fact, enterprises which put a lot of video on their networks, such as in the building security example above, use techniques such as bandwidth management, partitioning and packet prioritization to make sure video is transmitted effectively yet does not interfere with the flow of mission-critical enterprise data. It’s troublesome that the FCC would prohibit in the public sphere techniques that are indispensible to smooth operation of business networks.

Packets and Prioritization

Since it is key to understanding the unintended consequences network neutrality presents, let’s examine what we mean by data packets and packet prioritization.

The way the Internet Protocol is engineered, data—all those ones and zeros—travels the network in packets. The term is apropos. Think about the way you send a letter. You write your message on a piece of stationary and place it in an envelope, which you then address and mail. The post office uses the information on the envelope to route your letter to the intended recipient. If there is a problem, the letter is returned to sender, using the return address, also written on the envelope.

Data packets work the same way. A string of data is bundled into an electronic packet. The packet’s envelope, or header, contains the destination information, in the form of an IP address. The network routers read this information and send the packet to its destination. If something goes wrong and the packet can’t be delivered, the network signals the transmitting end, akin to a “return to sender.” The transmitting computer or router sends the packet again and continues to do so until the machine at the other end acknowledges receipt.

The only difference is that on the Internet, an application, be it an email, image or video, contains thousands, if not millions, of packets. When we mail a letter, we can send the whole message in one envelope. On the Internet, it is more akin to sending your letter one word at a time, leaving it up to your recipient to wait for all the envelopes to arrive, then to assemble the message. And, as with the post office, on the Internet packets may not arrive in the order they were sent. As a sender, you will have to rely on the intelligence of your recipient to reorder the packets and reconstruct your message. If one packet is lost or damaged on the way, your recipient may have to deduce the missing information. This, of course, adds time to the ultimately delivery and communication of your message. In Internet lingo, this delay is called latency.

This is why the Internet transmission is often referred to as “best effort.” It is practically the same principle as first-class mail. Computers send out data packets, they are transmitted across the network and arrive at their destination essentially when they get there.

Best effort is not as big a problem for email, documents and small files which can be assembled quickly. These applications can better tolerate latency and errors.

Other applications are far more sensitive to errors and latency. Take video streaming, for example. Video not only consists of much more data than most files, it also has to be delivered in the right order and needs to be assembled quickly.

Almost everyone has experienced freeze-ups while watching Internet video. These can be annoying with free services such as YouTube and Hulu. Imaging paying $10 to $20 for a streaming video only to have it fail partway through.

Latency is a major issue in gaming. If you’ve played Resident Evil online you know how frustrating it is to be killed by an oncoming zombie while you’re firing away with your mouse yet seeing no result on screen.

Fortunately, the post office does not employ the non-discrimination principle. In mail or shipping, senders can pay more for one- or two-day delivery. They can request a return receipt. They can insure valuable items against loss. All of these come at an extra cost, but they are not seen as unfair to individuals who use regular mail, nor do “fast lane” services interfere with standard delivery.

Under the FCC’s non-discriminatory rule, there would be no ability for providers of sophisticated applications to pay a premium to guarantee a higher level of performance. Nor could service providers charge the companies that use immense amounts of bandwidth—search engines, studios, media companies, peer-to-peer services—fees that would reflect the cost of the added management strain they place on the network. While the motivation is preservation of an open Internet, the outcome would be the opposite. The rules would demand ISPs follow 40-year-old data communications architectures that have already been surpassed. The result would be an expensive, slow, poorly performing Internet that would be unable to support bandwidth-rich applications.

On the other hand, there is every sign that foregoing Internet regulation would lead to the development of business models and market-based solutions that would create an environment where all types of applications could be supported and delivered; getting the network management support they need while avoiding interference with applications that work just fine with best effort.

The FCC argues that the market alone cannot manage competing interests when it comes to applications management on the Internet. Yet there has been no pattern of abuse. The non-discrimination rule comes in response to a single incident where a service provider used network technology to manage the way a third-party application worked. In October 2008, Comcast, the nation’s largest cable company, confirmed reports that it was intentionally slowing down the rate of voluminous video files that were being transferred via BitTorrent.com, one of many so-called peer-to-peer (P2P) sites that allow users to search for and exchange movies and TV shows between and among their own PCs. BitTorrent software is designed to set up as many simultaneous connections as possible between the user’s PC and BitTorrent’s file sharing site (the more connections, the faster the transmission). To keep BitTorrent users from flooding the network, especially at peak times, Comcast introduced software that limited the number of simultaneous connections the BitTorrent software could set up. BitTorrent users could still reach the site, but the rate of transfer was slowed. Comcast argued this network management decision was made to ensure service quality for the vast majority of Comcast Internet customers whose high-speed connections would be slowed by the amount of bandwidth P2P applications were gobbling up. Even cable industry critics such as George Ou, writing on ZDNet, conceded Comcast was within its rights to do so:

We can think of it as a freeway onramp that has lights on it to rate limit the number of cars that may enter a freeway… If you didn’t have the lights and everyone tries to pile on to the freeway at the same time, everyone ends up with worse traffic.^₅₉

What’s more, Comcast and BitTorrent negotiated an amicable solution that respected each other’s interest. Government handwringing over network neutrality has gone on for at least four years, yet the one instance of a dispute between a service provider and an applications provider over applications prioritization was resolved by market forces within weeks._⁶⁰

The necessity of the FCC’s network neutrality rules is questionable in general, but its Non-discrimination mandate is downright counterproductive. Consumers will be better off without it. In summary, here are some reasons why:

Regulation will increase consumer costs

The cost of the management required to support sophisticated applications should be borne by the companies that produce, market and profit from these applications. Network neutrality, especially the non-discrimination principle, will force service providers to shift those costs onto the public in the form of higher broadband fees. Even network neutrality proponents, such as Computerworld’s Mark Gibbs, admit this. “Now the downside: We’re going to have to pay more. There’s little doubt that regulated Internet service will probably be more expensive but that’s the consequence of doing what’s right for our society.”_⁶¹

Gibbs worries that if phone and cable companies can charge applications providers for prioritization and management, it will stifle innovation. That is not true. Fee-based network management services would, however, force entrepreneurs to develop business plans that account for the full cost of delivering service, a disciplined approach that is much more likely to yield long-run success all around. The network neutrality alternative sets up a dubious scheme that permits a business to privatize its gains from Internet commerce, while socializing its costs. It’s hard to see what’s “right for our society” about this.

There will be no cost check on commercial bandwidth consumption

When commercial bandwidth costs are socialized—that is transferred to consumers—businesses have no incentive to limit their exploitation of Internet capacity. The exaflood will only get worse as the largest users, immune from paying the cost of their consumption, grab as much bandwidth as they can. So in addition to paying more, as net neutrality enthusiast Gibbs states, consumers will find the Internet a slow, frustrating experience. Wealthier consumers may have the option of purchasing higher bandwidth options, such as fiber to the home, but with no check on the supply side, even that capacity stands to be consumed.

Smaller players will be hurt, not helped

The final irony is that non-discrimination is supposed to protect the proverbial “little guy.” Yet, with no partitioning or prioritization available for deep-pocketed companies, the smaller operations will be run off the road first. It would make sense for Fox or Universal to purchase a “fast lane” for its video feeds that are routinely downloaded by millions of users. The quality of this video might be better than what a local blogger can afford, but then again Fox and Universal can afford many things the lone blogger can’t. The point of the open Internet isn’t what the small Web site can afford; it’s whether the small Web site can be heard. When heavy traffic can be prioritized and partitioned, the small site gets through.

Many innovative applications will never be developed

Policymakers argue that non-discrimination on network management is needed to ensure the Internet remains an incubator for innovation. To counter this, let’s return to the post office analogy. Those who have visited Seattle may have come across the Pikes Place Fish Market, where each morning you can buy Alaskan king salmon that had been swimming the icy Pacific waters just hours before. At one time, if you wanted the best fish in the Northwest, you had to live in the Emerald City. Today, because of overnight shipping, Pikes Place Fish Market can deliver anywhere in the U.S.

For Pikes Place Fish Market, normal shipping (i.e., “best effort”), which can take three to seven days, was never an option, for obvious reasons. Its access to the national market, and the chance for consumers in Texas to buy superior seafood fresh from the catch would not have been possible without a premium choice for delivery.

The Internet works the same way. We already can name many existing services, like video and gaming, which would benefit from a fast lane. What we don’t yet know are the applications and services that will be created because there is a fast lane. Regulation closes these opportunities off.

For all the talk about preserving a free and open Internet, network neutrality’s non-discrimination rule would do neither. As bandwidth consumption increases almost geometrically, today’s Internet needs commercial options that include prioritization, bandwidth optimization, applications partitioning and packet prioritization. If the Internet’s going to work, the packets must get through.

Notes:
_⁵⁶ Federal Communications Commission, “Notice of Proposed Rulemaking: In the Matter of Preserving the Open Internet Broadband Industry Practices,” GN Docket No. 09-191, WC Docket No. 07-52, Oct. 22, 2009.
_⁵⁷ Julius Genachowski, “Preserving a Free and Open Internet: A Platform for Innovation, Opportunity, and Prosperity,” speech to Brookings Institution, Sept. 21, 2009.
^₅₈George Gilder and Bret Swanson, Estimating the Exaflood, Discovery Institute, January 2008. Available at http://www.discovery.org/scripts/viewDB/filesDB-download.php?command=download&id=1475.
_⁵⁹ George Ou, “A Rational Debate on Comcast Network Management,” ZDNet, Nov. 6, 2007, available at http://blogs.zdnet.com/Ou/?p=852.
_⁶⁰The Comcast-BitTorrent example, along with the two other cases on which the FCC is building its case for Internet regulation, as discussed in depth in my policy study “The Internet is Not Neutral (and No Law Can Make It So),” Reason Foundation, May 2009.
_⁶¹Mark Gibbs, “Network Neutrality: Doing the Right Things” Computerworld, Oct. 1, 2009. Available at http://www.computerworld.com/s/article/9138792/Network_neutrality_Doing_the_right_things?taxono myId=16&pageNumber=2.

Steven Titch is a policy analyst at Reason Foundation.This essay originally appeared in "The Consequences of Net Neutrality Regulations on Broadband Investment and Consumer Welfare" published by the American Consumer Institute.

Trouble in 'Net Regulation Paradise

steven.titch@reason.org (Steven Titch) — Mon, 02 Nov 2009 14:28:00 EST

One of the White House's most vocal supporters of Internet regulation has quietly resigned, creating speculation as to whether there is mounting West Wing concern about the scope of President Barack Obama's plans to tighten federal oversight of Internet business.

Susan Crawford, Obama's advisor on telecom and Internet policy, resigned last week amid "little fanfare," reports The American Spectator.

White House sources say that she ran afoul of senior White House economics adviser Larry Summers, who claimed he and other senior Obama officials were unaware of how radical the draft Net Neutrality regulations were when they were initially internally circulated to Obama administration officials several weeks ago. "All of sudden Larry is getting calls from CEOs, Wall Street folks he talks to, Republicans and Democrats, asking him what the Administration is doing with the policies, and he isn't sure what they're talking about," says one White House aide. "He felt blind-sided, and Susan was one of those people who heard about it." In the end, the proposed regulations were slightly moderated from the original language FCC chairman Julius Genachowski, a Crawford ally, circulated.

Read the full text here (second item).

Hat tips to Jerry Ellig at George Mason University and Jeffrey Eisenach at Empiris LLC for the spreading the word.

The Free Market, Not Government Net Neutrality Mandates, Will Best Serve Consumers

adam.summers@reason.org (Adam Summers) — Thu, 01 Oct 2009 19:29:00 EDT

In an editorial from earlier this week entitled "Net neutrality not so neutral," the Orange County Register quoted me from an article I wrote on the subject for The Freeman: Ideas on Liberty last year ("Net Neutrality or Government Brutality?" July/August 2008 issue).

On the issue of government regulation of the Internet versus private-sector incentives, I wrote: "In the free market, competition ensures that customers receive the services they demand. Government control, by contrast, ensures that they receive whatever services the politicians and bureaucrats in power at the time deem appropriate."

Below are some additional excerpts from the Freeman article. Read the full article here.

Net-neutrality proponents contend that they want to use regulation to increase competition and innovation, but their remedies would have the opposite effect. The growth in demand for bandwidth-intensive applications, such as streaming video, multi-player online gaming, and telemedicine, will require vast capital investments. Broadband providers will not invest in such projects, however, if there is not a good chance they will be able to recoup their costs and turn a profit. This is not unlike how cable companies currently rely on richer customers paying for premium services so that they can invest in less-profitable ventures, such as providing infrastructure for services to rural areas.

[. . .]

The costs of stifling competition and innovation through net-neutrality regulations would be significant. A May 2007 American Consumer Institute study estimated that regulation would cost consumers $69 billion over ten years. According to study author Stephen Pociask, “Despite proponents’ best intentions, net neutrality proposals would be a twofold problem for consumers. Innovations that require a guaranteed level of service won’t come to market, and consumers would have to pay more for the services they receive.”

Price discrimination is another concern of neutrality advocates. Despite the negative connotation associated with the word “discrimination,” price discrimination is a common and efficient way of allocating scarce resources and satisfying consumer demand. Children and seniors get discounted ticket prices at movie theaters; people pay different prices for different seats at concerts and sporting events; and some toll roads charge different prices depending on the time of day and the resulting levels of traffic congestion. In response to an FCC Notice of Inquiry regarding broadband practices, the Department of Justice’s Antitrust Division (of all things!) heralded the value of price discrimination in a September 2007 statement, noting the example of the U.S. Postal Service: “The U.S. Postal Service, for example, allows consumers to send packages with a variety of different delivery guarantees and speeds, from bulk mail to overnight delivery. These differentiated services respond to market demand and expand consumer choice.” The Department concluded, “Whether or not the same type of differentiated products and services will develop on the Internet should be determined by market forces, not regulatory intervention.”

In other words, the government should simply get out of the way and allow the market to work. Government should not try to pick winners and losers.

When neutrality proponents say that people have a right to “neutral” provision of information over the Internet, they are really saying that the public has some sort of right over the private property of the companies that provide the access to that information. Some have tried to justify this argument by claiming that the Internet was designed to be neutral, but it is the freedom from government restrictions that has encouraged innovation and allowed the Internet to flourish.

[. . .]

The concept of the “tiered” Internet is not something to be feared. On the contrary, it could be a means of enhancing services to broadband customers, providing revenue for ISPs to invest in accommodating increasing demand for bandwidth-intensive and delay-sensitive applications and making further improvements to data delivery, and of increasing fairness by ensuring that content providers responsible for the most Internet congestion pay the higher costs of assuring a high quality of service for Internet users. Choking off this potential revenue stream through net-neutrality mandates will only ensure that instead of an Internet with regular lanes and “fast lanes,” all consumers will be stuck in the slow lane.

Other Resources:

My colleague and Reason's telecom/IT analyst, Steven Titch, has done some great work on this issue. See his blog from Tuesday on Net neutrality and the FCC's recent proposal to mandate it, as well as policy study from earlier this year, The Internet Is Not Neutral (and No Law Can Make It So). The rest of his work can be found here.

Net Neutrality and Basic Freedoms

steven.titch@reason.org (Steven Titch) — Tue, 29 Sep 2009 16:42:00 EDT

In an opinion piece on NPR.org, Scott Cleland, chairman of NetCompetition.org, gioves some succinct reasons why network neutrality, aside from inviting a cascade of unintended consequences, runs afoul of basic constitutional rights.

Here’s how he enumerates them. Full version is available here.

First, they offend due process. The FCC proposes to take away the freedom of enterprise from about 2,000 companies, because of only two problematic incidents over several years. Imposing an extremely restrictive industry-wide "solution" in the absence of a proven industry problem is like being found guilty until proven innocent.

Second, they offend equal protection under the law. While the FCC previously urged all Internet-related companies to voluntarily comply with its policy statement, the FCC now proposes to selectively and unfairly apply the rules to only some Internet distributors and not to all. This selective regulation approach would have the perverse effect of punishing competitive broadband companies that the FCC admits have done nothing wrong yet, to advantage application "netopolies," like Google and eBay, because the FCC believes they can innovate better in the future.

Third, the regulations offend the Constitution's protection of property. The FCC's position that users have an absolute freedom to access the content and applications of their choice, with no regard to the rights of others, is extreme given that net neutrality freedoms are found nowhere in the Constitution or law. Surely, a newly proposed FCC net neutrality freedom does not trump two-century-old property-right protections that allow property owners to require permission and payment for the use of their property. Surely the FCC does not have the authority to effectively transform the current Internet free market into an information com mons where competitive property owners would have no rights to set the terms of use of their property or get fairly compensated for their products and services.

Fourth, they offend freedom of speech. Like it or not, the Supreme Court has affirmed that corporations have constitutionally protected free speech. The FCC-proposed ban would perversely conclude that to protect the free speech of Internet users, who have many outlets of free speech, the FCC must ban the free speech rights of corporations.

At the core, the FCC's proposed pre-emptive "net neutrality" regulations to preserve an "open Internet" are not at all about promoting freedom but exactly the opposite. Freedom is not a zero sum game, where taking it away from some gives more to others. Taking away freedoms of some takes away freedom from all.

How Net Neutrality Regulation Will Hurt Consumers, Degrade the Internet, Stifle Voices and Kill Innovation

steven.titch@reason.org (Steven Titch) — Fri, 25 Sep 2009 13:48:00 EDT

So, I go out of town for a few days and the government decides to regulate the Internet?

Monday, FCC Chairman Julius Genachowski said the FCC plans to strengthen enforcement of it current four network neutrality guidelines and press to add the controversial “fifth” guideline that would prohibit Internet service providers from applying any network or bandwidth management techniques to improve the quality of Internet services and applications as they cross the network.

Genachowski denies this is regulation, but what else could it be? The FCC proposes to place arbitrary limits on how Internet service providers can use their own property and partner with other companies in the information supply chain. Genachowski will also seek to apply the new rules to the wireless industry, a sector that, beyond spectrum allocation and use, has never been regulated.

While Genachowski says network neutrality is in consumers’ best interest, it’s hard to understand how. With the exception of one instance involving a small ISP four years ago, no phone, cable or Internet company has attempted to systematically block, censor or impede access to a Web site or application. The Comcast-BitTorrent dust-up was largely misreported. Comcast did not block the site or the application; it simply took steps to prevent the small percentage of BitTorrent users from consuming nearly all available bandwidth by slowing the speed of their massive video uploads. Such bandwidth management preserved quality connections for the other 99 percent of Comcast’s customers. BitTorrent even acknowledged Comcast’s right to do so and the two companies worked out an arrangement within weeks.

Net neutrality would prevent agreements like this. And since AT&T, Verizon and Comcast also would be prohibited from charging their biggest corporate bandwidth users for the costs they impose on the network, those costs can only be extracted from consumers in the form of higher rates or slower service. I have no objection to any company using the Web in pursuit of profit, but it’s wrong for the government to set up a regulatory mechanism that allows companies to collect billions of dollars in Web-based revenues while passing the costs of doing so onto me.

Of further irony is idea that network neutrality will preserve Internet diversity and give the lesser capitalized voices equality with corporate behemoths. It’s hard to see this happening when the corporate behemoths are jamming the lines with massive and unstructured media files because the FCC has prohibited any partitioning, compression or grooming so less bandwidth-intensive content can get through without degradation. An unmanaged Internet, consumed by an exaflood, endangers the ease of which smaller Web publishers, bloggers and merchants can reach users.

Finally, the network neutrality is supposed to preserve innovation. That’s highly questionable, especially as more appliances seek to use data applications in complex ways. An underreported story is the amount of infrastructure upgrades and network management functions AT&T has had to implement to accommodate the iPhone’s data-intensive applications. If Genachowski’s proposed Internet regulations were in force two years ago, the iPhone would not have been possible.

Given what the Internet has become, if starting from scratch, no engineer in his right mind would design the network as neutral, or “best effort,” as it is known in programming circles. Although world-spanning corporate networks use the same transmission protocol as the public Internet, these networks are not neutral. They are designed to manage and partition bandwidth to make sure mission-critical data gets priority. That’s because business depends on it.

I just spent three days at a major security technology conference where hundreds of extremely bright people are trying to deal with the network bandwidth and management problems the growing amount of surveillance video places on enterprise networks. Suggest these companies adopt network neutrality as a solution would get you laughed out of the room. Yet that’s exactly what the FCC commissioner wants to impose on us.

Until now, Genachowski has kept his opinions on network neutrality close to the vest. Frankly, since he is an Internet entrepreneur, I would have thought he would have taken a less aggressive regulatory approach, especially to an idea that risks so many unintended consequences. Plus, many of the companies that a few years ago had been pressing for net neutrality have backed off. These include Microsoft, eBay, Amazon.com, and even Google (which on a certain level realizes that its growth depends on broadband investment that net neutrality would disincent). The network neutrality issue has dwindled to a political agenda supported by a handful of vocal advocates at Moveon.org and Freepress.org. And while these groups may have good intentions behind their support for Internet regulation, the neutrality rules they favor will not result in what they hope for. Quite the contrary, they will lead to higher broadband prices, mediocre service and cede a lot of market power to one segment of the market. In this network neutrality is no different from many of the radical new regulatory programs the Obama administration is introducing to the American economy, be it banking, insurance, auto manufacturing, health care or alternative energy—they allow a select group of favored companies to privatize the gains and socialize the costs. Such programs don’t encourage competition, job growth and entrepreneurship, they impede it.

To sum things up, think of your community pool on a hot summer weekend. It’s crowded with kids and families swimming, playing and splashing every which way, all having a good time. Yet even as all this is allowed, most pools keeps a lane open for men and women who simply want to enjoy a nice swim, something they couldn’t do without a simple partition of rope and floats. Nobody minds, yet those who come for fun, and those who come for exercise, all get to enjoy the water.

The Internet is a fun place to play, and no one wants to interfere with that. But it’s also a place where minority voices can be heard, diversity can be encouraged and business can be done. The Internet needs an adult swim lane. Don’t let the FCC close it.

FCC After Network Neutrality Again

adrian.moore@reason.org (Adrian Moore) — Tue, 22 Sep 2009 16:56:00 EDT

Federal Communications Commission (FCC) Chairman Julius Genachowski in a speech yesterday proposed adding two "open Internet principles" to the FCC's guidelines.

“The Internet is an extraordinary platform for innovation, job creation, investment, and
opportunity. It has unleashed the potential of entrepreneurs and enabled the launch and growth of small businesses across America,” said Chairman Genachowski. “It is vital that we safeguard
the free and open Internet.”

So the game is back on. Genashowski statements reflect the oft-expressed fears of various groups that internet service providers will slow down access to rival's services, of black access to some content. Internet service companies have already weighed in with a lot of objections.

I'd point out:

a) it only has ever happened once, and it was quickly exposed and ended.

b) why on earth would customers put up with harmful slowdowns or content blocking when they have so many choices of internet service providers?

c) this would prevent all kinds of special internet services, like guaranteed speeds, or a service that offers only family-friendly content and blocks objectionable content, etc.

I could go on. It is a complex issue, explored in great detail by Reason's Steve Titch in this report. As he points out, the real solution to any possible problems with internet service providers hurting customers by monkeying with their access is competition and choice for consumers, not more micromanaging regulations.

In this column Steve explains why network neutrality is really network mediocrity and that:

Any corporation or individual on the Internet (or anywhere for that matter) has a right to choose what components to make available to whom and on what terms. In commercial language, it translates to the freedom to place a market value on one's proprietary assets to create viable business plans. That has been the case since the first Internet service provider purchased a rack of servers and started seeking customers for hosted email.

Rather than preserving basic Internet principles, network neutrality subverts them. It replaces cooperation with coercion. It would make government bureaucrats the arbiters of the way two or more companies could agree to use their own network resources to deliver consumers the best experience when it comes to content and applications.

And Reason's Nick Gilespie has pointed out the obvious way people would react to the problem network neutrality purports to solve.

Let's assume that the worst fear of a fast-loading foxnews.com page comes true, even for those of us who prefer other, even more fair-and-balanced, less-comical news sources such as, say, The Onion. What are you likely to do in such a situation? At the very least, you'll bitch and moan to your provider, which is known to have some beneficial effects, even with near-monopolists. Remember what happened to the biggest ISP of them all, AOL, during its rise to dominance a decade or more ago? Originally a closed system, it had to allow its users to e-mail with non-AOL customers, then it had to allow its customers full access to the Internet, then it had to go to flat-rate pricing, then it had to woo subscribers with ever-increasing free hours, giveaways, and the like. AOL still regularly upgrades its system and its services not because it wants to, but because it has to.

Such capitulations to customers are the rule and not the exception among market leaders, whether you're talking about cyberspace or fast food.

and

In any case, it's worth remembering that the Net — most obviously in the form of the World Wide Web — has in large part become a mass phenomenon not in spite of but because of the profit motive. That's easy to forget in a world in which faster and cheaper broadband, user-friendly interfaces, and e-commerce are no longer considered exotic or risky.

You don't have to believe that the cable companies and telecoms are kind-hearted altruists to realize they are desperate to get an edge on their competitors. That very desperation is likely to drive innovation that will benefit end users especially. Allowing builders of Internet infrastructure to recoup their investment by charging the Googles and Amazons for use of their network would balance the incentives for innovation more closely. Ironically, a non-neutral net would accelerate the spread of zippy broadband that can deliver movies, allowing hobbyists with camcorders to take on Hollywood studios. The neutrality advocates who criticize corporatized cable TV should welcome that.

Steve has summed it up well:

"Net Neutrality would open the door to unprecedented government intervention in all aspects of the Internet. Placing regulations and legal limits on the Internet won’t bring neutrality, it will stagnate the Web’s remarkable growth. The Internet has been doing splendidly without government, why on earth would we want them involved now?”

Web Journalism Turns a Corner

steven.titch@reason.org (Steven Titch) — Sun, 20 Sep 2009 20:05:00 EDT

Last Monday, ACORN threatened them with prosecution. On Wednesday, ACORN called them purveyors of racist propaganda. By Friday, after Congress cut off its funding and President Obama criticized the organization, ACORN’s national chairman declared she was “outraged” and promised an internal investigation into behavior that two twentysomething free-lance reporters had exposed with only the help of a start-up Website, a video camera and their own initiative.

No matter where you stand politically, the journalistic coup James O’Keefe and Hannah Giles scored last week marks a watershed moment in the shift of enterprised, investigative reporting from Big Media to the Internet. While O’Keefe and Giles ultimately did get support from Andrew Breitbart and Fox News, much of it came after they had collected and posted their explosive footage on YouTube showing ACORN employees in at least four cities enthusiastically advising them on how to conceal human trafficking and child prostitution.

When you report news on which the President feels compelled to comment, and launches Congress into action, it becomes much more difficult to be categorized as amateur, illegitimate or second-tier, a viewpoint some legislators and courts take toward Websites, blogs and the individuals who write for them. ACORN was no small player. It enjoyed significant ties with Washington lawmakers was in-line to receive $8.5 billion in stimulus money. Now it's reeling from a body blow that came from a completely unexpected source. They say one job of a free press is to afflict the comfortable. That’s certainly what happened here.

So, off the bat, the case for extending the shield laws and other legal safeguards that protect conventional print reporters and their sources to Web-based journalists just got stronger by several magnitudes. It’s going to get a lot harder for judges to jail bloggers who refuse to reveal sources and corporations to bring charges of “trade secret theft” against sue Web sites who break product news in advance of the PR handout. This, in itself, will be a welcome result.

But there is far more significance, too. The year began with debate in Congress on whether to extend bailout money to the major media companies, especially the large newspaper publishers who have over the past ten years have been steadily losing revenues and readers to the Web. The argument in favor of such bailouts was that a democracy needs a functioning free press to survive (although exactly how free a media industry could be when beholden to government is questionable).

But the argument assumes that only large publishers and networks have the resources to initiate and conduct aggressive investigative reporting. While that’s never been true (witness the number of Pulitzer Prizes that have gone to small newspapers over the years), the way the ACORN story broke drives it home.

While progressives may be dismayed that ACORN was the target, my hope is that they can see past the politics and acknowledge that what O’Keefe and Giles accomplished was a sterling example of the how the Internet decentralizes power. The Right has no monopoly on this. There’s nothing stopping anyone with the initiative and the passion to do something similar. You don’t need the infrastructure of a network or newspaper chain behind you.

In fact, these days with shrinking budgets and newsroom staffs, size may be a detriment to action. The unstated fact is this: for years there were enough questions surrounding ACORN’s practices and processes that any sustained inquiry was bound to uncover a big story, let alone the scandal that emerged. The New York Times, when it got around to catching up with the story last Wednesday, angled it a right wing hit job, but I’ll bet that there are plenty of reporters and editors there and at the other major dailies kicking themselves because they know they got scooped so badly.

And furthermore, this was accomplished without special regulations like network neutrality. Proponents fear that without neutrality rules, independent, non-mainstream voices would be drowned out by Big Media. Who's got the loud voice now?

My hope is that policymakers see this for what it is: a major step in the maturation of new media. While the Right might be driving the maturation for now, I urge principled liberals to step back before joining a likely call for a government regulatory role in the Internet. ACORN was a major takedown, but it still has friends in high places. And I am concerned when I see current Democrat leaders such as Nancy Pelosi and Harry Reid blaming conservative bloggers and Web sites for the growing popular opposition to their agenda. If the Democrat leadership falls short of its key goals—single-payer health care, cap-and-trade and greater wealth redistribution—they could decide punish opponents through a new fairness doctrine both for broadcast and Web sites, net neutrality (which actually would favor the big companies that consume most of the bandwidth) and newspaper bailouts, especially those who whose editorial slant matches their own.

That would be unfortunate for everyone who values free expression. Ruling political parties have a way of changing. I no more want left-wing liberals nor right-wing conservatives adjudicating the media business in this country. The mainstream media may have left a vacuum for investigative reporting, but it looks like the Web is stepping up to fill it. We all knew the Web was going to be transformative. Let’s all remember that, step back and allow it to work.

Rethinking Universal-Service Policy in a Broadband Internet Era

steven.titch@reason.org (Steven Titch) — Wed, 02 Sep 2009 00:00:00 EDT

Historically, government initiative was behind the great water and power infrastructure projects undertaken during the Progressive Era. Many see parallels between the need for electricity and running water in the past and the need for broadband today, and are calling for even more federal and state government involvement in the construction and deployment of broadband. The general belief is that broadband, like water, power and one-time narrowband phone service, is a utility.

Broadband, in truth, has little in common with classic utilities. The only real similarity is that the underlying infrastructure is expensive to build. Utilities require high investment up front, which can be amortized over several decades. Broadband requires not only high investment up front but continued high investment thereafter. Technology cycles are short. Entire network platforms change every five to ten years. Broadband is also competitive across multiple facilities platforms—telephone, cable and wireless—each with relative advantages and disadvantages. Competition in broadband is a critical dimension and is why government funding and subsidy programs carry a much greater risk of failure, or mere ineffectiveness, wasting public capital and resources.

While the goal remains to bring inexpensive broadband connectivity to as many people as possible, a more enlightened approach shifts away from large infrastructure projects to making the benefits of broadband relevant to all classes of potential users. The best way to accomplish this is to promote universal-service policies that:

• Engage all segments of the broadband industry,
• Create climates conducive to investment,
• Reduce or eliminate central infrastructure planning at the federal level, and
• Energize leadership and expertise at the state and local levels.

FTC's Blogger Disclosure and Ethics Rules Are Terrible Idea

steven.titch@reason.org (Steven Titch) — Mon, 20 Jul 2009 00:00:00 EDT

Bloggers who test and review products, get freebies from companies, or make money from clients have been warned: the government is watching you.

In a move that would mark a major step into regulating online speech, the Federal Trade Commission (FTC) is planning to issue guidelines for individuals who write, review or comment about commercial products and services on their own blogs or in the comments sections of websites.

The FTC rules would require bloggers and commenters to back up any claims they make and disclose whether they received any pay or benefits from the companies they cover. Some of the things bloggers might have to disclose to the feds include any gifts or direct payments, companies who buy advertising on the blog or site, and commissions on “clickthroughs” they receive from website ads. Failure to disclose such arrangements could mean substantial fines and potentially staggering legal costs.

The new guidelines, which are expected to be voted on later this summer or fall, are spurred by anecdotal reports that some bloggers have accepted perks such as free laptops, trips to Europe, gift cards or even thousands of dollars in exchange for a 200-word blog post.

“Online, if you think that somebody is providing you with independent advice and ... they have an economic motive for what they’re saying, that’s information a consumer should know,” Rich Cleland, assistant director in the FTC’s division of advertising practices, told the Associated Press.

The FTC regulates what advertisers can claim and how they say it. In the proposed blogging guidelines, the government is poised to apply a sledgehammer to a non-problem. The guidelines will do more harm than good, constraining vigorous online discussion and endangering developing business models that could support greater expansion of the Internet.

In looking at the rules, constitutional questions immediately come to the forefront. Can the government mandate editorial policies for online writers, particularly if the consequence is a choice between self-censorship or a government inquiry? Can the FTC fairly and reliably act as after-the-fact arbiter, determining what constitutes editorial content and what constitutes advertising? These are rules that would be difficult to impose on tradition print publications. In broadcasting, attempts to regulate product placement (that strategically placed can of Coca-Cola) on TV shows have proved troublesome. And the regulating the Internet will be a lot more difficult than that.

In a story about the looming FTC plan, the Associated Press featured Rebecca Empey, a New Hartford, N.Y., housewife who makes $800 a month from five blogs. Empey has received a bird feeder, toys, books and other free goods from advertisers—gifts she disclosed to her readers. Now she worries that even a casual mention of an all-natural cold remedy she bought herself could trigger an FTC probe. “Will I be sued because I didn't hire a scientist to do research?” Empey asked.

The ethical thing for bloggers is to disclose what compensation or sponsorship agreements they have—and many already do. Even if they don’t, it’s not the government’s job to make ethical decisions for bloggers. Remember that blogs, like their print counterparts, succeed or fail based on the quality of their content. A blogger who gets the reputation as a shill will see a falloff in credibility and visits. An honest writer, on the contrary, will draw more readers and offer advertisers a better value proposition. The audience can determine the trustworthiness of sources without the government’s help.

Ostensibly, the rationale behind the FTC’s advertising regulation is consumer protection. The idea is that big corporations can control the marketing message, which traditionally has been tailored toward a mass audience and one-way (think TV and print). Blogs subvert this model, however.

When advertisers approach the Internet, they look to leverage characteristics intrinsic to connectivity. The medium is interactive, and feedback can be immediate. Commercial messages can be viral. At the same time, successful promulgation of a message is not guaranteed, as the very viral nature of the web also reduces advertisers’ power to control the medium. Blogs are vital to getting the message out.

Bloggers, commenters, and reviewers, the vast majority of which are unpaid, can quickly endorse or refute marketing claims. In some cases, shills are easily identified. Movie studio publicity departments regularly try to mimic “fanboy” postings, complete with misspellings and grammatical errors, in order to slip favorable movie reviews onto Harry Knowles’ influential Ain’t It Cool News site. But legions of legitimate commenters will immediately point out that the comments are clearly planted by those attached to the film. The FTC needs to give readers some credit for being able to separate the hype from the real.

Finally, given the massive size of the blogosphere, the FTC cannot fairly regulate it. As of April 2008, there were 112 million blogs worldwide, with 175,000 more being added every day, according to Technorati, a blog search engine. There is simply no way to police every blog. On top of that, the FTC also plans to police the countless comments readers post on blogs about products and services.

Unless the FTC is planning on launching the biggest federal bureaucracy ever (and I’m not putting it past them), the government’s enforcement of these proposed blogger rules will be completely arbitrary. The likely victims of the policy will be bloggers who are lucky enough to build an audience, gain some influence with readers and thus appeal to advertisers. In a nutshell, the FTC will punish bloggers for their success.

The Internet is thriving without regulation and the last thing it needs are a bunch of federal nannies policing blog posts and the comments sections on websites.

Steven Titch is a policy analyst at Reason Foundation.

Broadband: The Next Stimulus Disaster

steven.titch@reason.org (Steven Titch) — Fri, 03 Jul 2009 13:21:00 EDT

In its announcement of the broadband stimulus rules Wednesday, the U.S. government has defined broadband as 768 kilobits per second (kb/s) downstream, 200 kb/s upstream, signaling that any company applying for federal stimulus funds only has to meet the broadband standards of 1995.

By comparison, most cable modems connect at 6 Mb/s (almost 8 times as fast), with service reaching 10 Mb/s in some areas. Fiber-to-the-home connections transmit between 50 and 100 Mb/s.

That said, 768 kb/s is an improvement over the 200 Kb/s definition the FCC had been using until now, but there’s no question advocates of government broadband, who envisioned taxpayer-funded fiber to every home, are disappointed. The government says the low speed was set to encourage wireless development. But even now, wireless broadband is pushing speeds twice that.

But given the network neutrality rules the National Telecommunications and Information Administration (NTIA) and the Department of Agriculture will require, perhaps the low bar was intended to get someone—anyone—to apply for the grants. The major phone, cable and wireless carriers have already said the rules will keep them from applying. The network neutrality rules would prevent any grant winner from optimizing its network for specific Web applications, especially video. It also could bar a wireless winner from entering an exclusive deal with a handset manufacturer, such as what AT&T and Sprint have done with Apple and Palm, respectively. In laymen’s terms, it means stimulus winners will have problems streaming YouTube and won’t be able to sell any BlackBerry model that’s less than one year old.

These stipulations automatically place any stimulus recipient at a competitive disadvantage. With the stimulus timetable calling for the first round of grants to be issued Nov. 7, and all stimulus money to awarded by September 2010, the pressure on to get cash out the door. That means, on top of everything else, a rushed application process. Under the current terms, it’s all but guaranteed that the broadband stimulus will end up funding a lot of money-losing projects that will struggle to survive once the subsidy stops. In the scheme of things, the broadband portion represents barely one percent of the total stimulus. But $7.2 billion wasted is still $7.2 billion wasted.

The Internet Is Not Neutral (and No Law Can Make It So)

steven.titch@reason.org (Steven Titch) — Thu, 28 May 2009 18:14:00 EDT

The Internet is a complete success story by almost all accounts. More people have more access to more information and connections with other people than ever before. And all of this happened without government regulation or control. Yet, net neutrality proponents claim the Internet is in danger. They say Congress needs to pass legislation regulating the way Web content flows through networks and government must require cable companies and Internet service providers to treat all customers and content alike. A new Reason Foundation study, however, finds net neutrality would stifle the very innovation that has allowed the Web to grow so quickly and become such a powerful, integral part of our lives.

The Reason study says to get the most out of the Internet we should promote competition, not neutrality. Network neutrality proponents fear that companies will risk alienating their customers by blocking websites, directing traffic only to powerful corporate Websites, and charge prices that drive bloggers and casual Internet users out of the market. But, according to the study, this speculation is unfounded and doesn’t reflect market realities that companies must fight to keep their customers by delivering the services (and Websites) that they want at prices they can afford.

Net neutrality would actually punish companies that seek to improve or optimize their networks or Internet offerings, creating red tape and strangling future advancements.

“Net Neutrality would open the door to unprecedented government intervention in all aspects of the Internet,” said Steven Titch, a policy analyst at Reason Foundation and author of the study. “Placing regulations and legal limits on the Internet won’t bring neutrality, it will stagnate the Web’s remarkable growth. The Internet has been doing splendidly without government, why on earth would we want them involved now?”

Net Neutrality Really Means Internet Mediocrity

steven.titch@reason.org (Steven Titch) — Thu, 19 Apr 2007 16:17:00 EDT

Over the past year, legislators in Congress and, more recently, in states such as Maryland, Maine and California, have been calling for laws guaranteeing "network neutrality." Net neutrality laws would prevent service providers from using their own network resources to improve the quality or reliability of increasingly popular Internet applications such as movie downloads and multiplayer games.

As the neutrality bills in Congress and the states stand now, no service provider could offer a third party any sort of network-based prioritization or quality assurance, whether or not a fee is offered. All content must be treated the same way as it crosses the network. Any quality improvement offered to one, must be offered to all.

This legislated mandate for neutrality – which really means Internet mediocrity - is based on the supposition that neutrality was a founding doctrine of the Internet. That couldn't be more wrong. The Internet and its commercial component, the World Wide Web, are what they are today due to the simple principle of free exchange through voluntary agreement. Engineering concepts such as "network neutrality" or meaningless slogans like "information should be free," had nothing to do with it.

The idea of the Internet goes back to the moment when one university professor said to a colleague from a distant institution, "Gee, wouldn't it be great if we could access research stored on each other's computers with the same ease as we can from our own?"

And then some very bright engineers and programmers devised a transmission language called the Internet Protocol (IP) that allowed computers to exchange information over conventional phone networks. Over time, IP spread to phones, PDAs, iPods and set-top cable boxes, creating the amazing, versatile world wide Internet we know today.

The growth of the Internet is one of the best examples of libertarian principles in action. As it expanded into the commercial realm, mechanisms of trust and validation grew out the marketplace's desire to have an open, honest forum for enterprise. Without any government regulation or oversight, people grew comfortable enough to use the Internet to email loved ones, transfer money, purchase cars and airline tickets, even make wagers.

The Internet indeed is an open network. But this is different from asserting, as the network neutrality idea does, that all of the attributes of the physical network infrastructure should either be freely available to any connected party, or else not at all.

Network neutrality in effect would declare the infrastructure in the network—the cables, routers, switches and software—a public resource, even though it is, in reality, private property bought and paid for by investor dollars. Just as in the case with your own PC, these property rights are not waived at the moment of Internet connectivity. Any corporation or individual on the Internet (or anywhere for that matter) has a right to choose what components to make available to whom and on what terms. In commercial language, it translates to the freedom to place a market value on one's proprietary assets to create viable business plans. That has been the case since the first Internet service provider purchased a rack of servers and started seeking customers for hosted email.

The intrusiveness of this level of supply chain regulation is unprecedented. Imagine if the government were able to tell farmers they could not price organic produce higher than crops grown using cheaper large-yield methods; or that TV makers could not charge more for high-definition sets, even though they are more expensive to manufacture. To be sure, such price-control measures might find support in some circles, but the net result is that would-be suppliers of organic produce and hi-def TVs, seeing no profit in the venture, would not put their resources into bringing the items to market, however desired they may be. The same will hold true for Internet quality if lawmakers adopt network neutrality.

But above all, the Internet has never been about regulation. It has been about free exchange. Exchange, however, implies ownership, because at heart, it is the choice to provide something you own for something in return, be it material or goodwill. The government's net neutrality is all about taking resources without compensation.

From both an economic and legal perspective, network neutrality is a non-starter. It doesn't fly legally or ethically. Theft is not a legitimate business model. No enterprise cannot simply claim another enterprise's resources to make money for itself. This has been true as much on the Internet as it has been in the brick-and-mortar world. It's disappointing that so many in Congress are blind to it.

The Market, Not Regulators, Should Decide the Internet's Future

gillespie@reason.com (Nick Gillespie) — Mon, 10 Jul 2006 00:00:00 EDT

Los Angeles Business Journal

Is there any debate that gets things more fundamentally backwards than the current battle over "net neutrality?" The sort of pre-emptive regulation at the heart of proposed legislation rarely works out well, especially in fields where technological change is the rule and not the exception.

Proponents of net neutrality argue that the telecom and cable companies who effectively control access to the Internet should be forced to make sure that all traffic be delivered at the same rate of speed. Due to Federal Communications Commission rule changes made last year, these companies are in a position to charge for "tiered service" — to charge content and application providers money if those providers want to make sure their Web pages and info streams get to surfers first and faster than content from providers who don't pony up.

"The future of the Internet is at stake," avers no less a cyber-celebrity than Vint Cerf, one of "the fathers of the Internet" and an advocate for net neutrality. If ISPs are allowed to charge some bandwidth users more than others, goes this line of thinking, the virtual marketplace of ideas will eventually devolve into ... well, something like broadcast TV, a medium that has never suffered from too little regulation. Yet that most disturbing outcome imagined by net neutrality advocates isn't particularly scarifying or convincing.

Forget for the moment that ISPs haven't kicked in tiered service yet, so there's no real telling what form it might take.

Such capitulations to customers are the rule and not the exception among market leaders, whether you're talking about cyberspace or fast food. As Ohio State University political science professor John Mueller notes, even monopolists have reasons to court a captive market. If they do so, he explains, they're "more likely to be able to slide price boosts past a wary public—that is, such moves are less likely to inspire angered customers to use less of the product and/or to engender embittered protest to governmental agencies."

The argument that ISPs will degrade a good chunk of their service is speculative beyond belief and a short peg on which to hang overarching regulation. But there's also a strong dose of self-serving dudgeon in the attacks on the telecoms and cable companies that's annoying. It's self-evident why firms that are mostly in the content business — Google, Amazon, eBay, Microsoft — don't want to have pay anything extra.

Isn't there every reason to believe that cable companies and telecoms would similarly use whatever revenues they generate via tiered services to develop the next big thing in terms of networked communications? And isn't there also reason to believe that some of the cable companies and telecoms might not go the tiered-service route, just as some political commentary magazines�including this one—offer free online access to their material?

In any case, if you do nothing it will be a lot easier to revisit the problem later than it will be if you implement an expansive regulation such as net neutrality.

Nick Gillespie is the editor-in-chief of Reason magazine. Reason's telecom research and commentary is here.

Stevens-Inouye Telecom "Reform" Falls Way Short

steven.titch@reason.org (Steven Titch) — Fri, 05 May 2006 00:00:00 EDT

Much of the digital economy—the Internet, PCs, e-commerce, wireless networking and new media�has thrived in the absence of regulation and legislation. That's why the latest effort in the Senate to reform U.S. telecom regulation, the so-called "Communications, Consumer's Choice, and Broadband Deployment Act of 2006," is so disappointing.

The sweeping draft bill includes all the right telecom policy buzzwords—"net neutrality," "video franchising," "universal service," "municipal broadband"—along with the "war on terrorism" and "protecting children" thrown in for good measure. But the bill, co-sponsored by Senate Commerce Ted Stevens (R-Alaska) and Daniel Inouye (D-Hawaii) does little more than extend the current costly, unproductive and largely unworkable telecommunications regulatory regime into the rapidly evolving field of broadband services.

For example, when it could have authorized a process for nationwide video franchising, ending the necessity for would-be cable competitors to spend years negotiating agreements in every city and town in order to provide service--the bill instead leaves franchising with local governments, but awkwardly requires them to use an FCC-created standard franchise application form. Local agencies must approve franchises within 30 days, but the bill leaves a few loopholes they can use to create delay. If the bill had given outright video franchise authority to the FCC, it would stand to be more successful in getting competitive broadband services to more people.

Rather than calling for a complete overhaul of the way we fund rural service, the bill merely lists past suggestions for reforming the Universal Service Fund (USF), a legacy of the monopoly era where revenues collected from urban users offset the higher cost of telephone service in rural areas. Today, in a competitive market, the USF subsidies only encourage rural phone companies to maintain their costly investments in older infrastructure and allow them to hold prices artificially low enough to keep competitors with cheaper, yet better, broadband technologies, out. Now, in the post-monopoly era, so many new service providers are trying to game this "rob-Peter-to-pay-Paul" subsidy scheme that it has been overcome with administrative problems and a lack of transparency. The Stevens-Inouye bill does little to address these inherent problems.

Instead, the bill expands the USF to include revenues from cable modems and Voice over Internet Protocol (VoIP) services in its contribution formula. This means higher rates for users of both services. Although a vast number of new companies would be required to pay in, the largest share of payouts would be reserved for rural telephone companies. Worse, USF recipients would be allowed to collect new broadband subsidies for as long as five years—an eternity in Internet time—before they would have to actually invest in network upgrades.

In the past year, state bills have placed restrictions on municipal broadband, allowing cities and towns to operate systems only when they can demonstrate there is no commercial service provider. The Stevens-Inouye bill takes the opposite tack, encouraging municipalities to spend themselves silly competing with private sector broadband services that invariably turn out cheaper and better. (Marietta, Ga., and Ashland, Ore., are just two examples of cities that invested millions in municipal broadband that in the end failed to attract enough customers to be sustainable.)

Rather than put the burden on the local government to demonstrate a lack of commercial market development before embarking on a municipal broadband initiative, the proposed bill shifts the burden to service providers to prove unfair competition from the municipality—a more difficult prospect given a local government's ability to discreetly shift costs, transfer funds, and exempt itself from taxes and right of way payments.

The bill's one bright spot is its handling of network neutrality. Network neutrality is the misguided idea that Internet content carriers should not be permitted to charge providers of applications or content that consume large amounts of bandwidth, such as high definition movies, for the cost of optimizing the delivery of those services. The bill would allow service provider to use market mechanisms, such as pricing tiers, to manage and partition bandwidth-intensive services, which would create a better Internet experience for all users because it would keep enough bandwidth open for low-volume applications, such as email. In order to address concerns that service providers would block access to legitimate web sites, the bill calls for the FCC to issue annual reports on how carriers are transmitting information over the Internet.

Finally, the bill establishes programs to fund studies on how to improve interoperable communications between public safety agencies. The average tech school grad can answer that in four words — Use the Internet protocol. It is simple, robust, mature and there is a host of video, radio and portable computing equipment designed to plug and play on existing IP networks.

Besides, cities face no scarcity of resources here. The high-flying security industry is already performing network integration studies for local police, fire, and rapid response teams in pursuit of a coveted city contract. Let corporate marketing budgets fund this work, not taxpayer dollars.

As it is drafted, the Stevens-Inouye bill, expansive as it is, falls far short of the true reform that's needed to unleash the power of the broadband economy. Instead of freeing the industry from the burdensome regulations that have hindered broadband penetration growth, it piles on more. It would open the door to greater economic, market and content regulation. It would impose a massive new regulatory structure on services that have, to date, thrived without them. It would harm consumers by slowing the introduction of competition, tacking on fees and surcharges to broadband services, and placing limits on the ways carriers and content providers can work together to deliver a better broadband experience. It is a huge step backward.

Steven Titch is telcom policy analyst at Reason Foundation. An archive of his work is available here and Reason's telecom policy research and commentary is here.

Network Neutrality Is a Terrible Idea

steven.titch@reason.org (Steven Titch) — Mon, 13 Feb 2006 00:00:00 EST

In a backhanded way, we free-marketers should tip our hat to Google. By coming out against demands from telephone and cable companies that content and applications providers pay a fee for a guarantee of greater quality and expedited delivery of proprietary applications that hog bandwidth, Google clarified the network neutrality issue as one of pure economics.

At first, net neutrality proponents fretted that such arrangements would hurt the proverbial little guy. But with Google and Vonage involved, the "David vs. Goliath" spin will fast give way to a more accurate "Goliath vs. Goliath" picture that reflects how much of a commercial beast the Internet has become.

Network neutrality proponents love platitudes like "information wants to be free," the headline of a Jan. 15, 2006 article in the The New York Times. Such notions sound quaint, but aren't true. Microsoft, Vonage, Google and their ilk are all part of the broadband value chain and openly seek to profit from the Internet. Yet, as seen in recent Congressional hearings on network neutrality, they are asking the government to deny the same right to another group of corporations, AT&T, Verizon, Comcast and other common carriers, who are as much a part of the same value chain.

The debate hinges entirely on perception and emotion. Google and Vonage are just more charismatic than the Baby Bells and cable companies. Indeed, they move faster, spot trends quicker and are more innovative. Yet, they also benefit from being on the cheap side of the Internet. The bandwidth and storage these companies use is much cheaper than the physical fiber, switches and routers the carriers must deploy. Capital costs are lower, product cycles are faster and barriers to entry are lower. Therefore players are more numerous and the segment appears more competitive.

Phone and cable companies, however, are capital- and labor-intensive businesses. Their assets have longer payback periods. Although small in number, and concentrated, they are not, despite what network neutrality proponents say, a cartel of comfortable monopolies. For the phone companies, core single-line businesses have eroded to the point to where they need broadband to be revenue-rich and profitable. They don't want to deprive consumers of broadband. They want to wrestle away as much market share from the cable companies as they can (as the cable companies tenaciously fight back). But unlike plain old telephone service of old, in broadband one size does not fit all, and therein lies the dilemma.

Although activists use it as benchmark, Internet access at $20 a month will not pay for ubiquitous fiber to the home. The premium high-end TV and Web-based entertainment sold to a small percentage of wealthy consumers will fund the expansion of broadband to all segments of the market. Even if legislators don't like the phone and cable companies, they must appreciate that depriving carriers of the ability to monetize their networks for what are essentially high-end, bandwidth-rich applications, aside from being inherently unfair, will impede broadband build out because it chokes off the revenues needed to fund it.

Monetization, of course, is a dirty word for the "information-is-free" set, but it's only the carriers who are vilified for doing it. The last time I looked, Americans prefer to let the market allocate resources according to the law of supply and demand. Even at 100 megabits-per-second, broadband becomes a limited resource if you try to cram enough information into it.

The only way to deal with this is to allow for a "two-tier" Internet. Without it, applications providers who want to send multiple streams of King Kong in HDTV down a local bandwidth pipe will simply degrade the quality of everyone's online experience, including their own. Given what Google and Microsoft, not to mention Disney and Electronic Arts, want to do with on-line entertainment, software and interactive gaming, today's "best effort" Internet is not good enough.

All bits are not created equal. We are willing to pay for music, movies and games, and just as willing to pay for software that stops spam and spyware. Even as Congress was hearing about the necessity for network neutrality, Yahoo and AOL announced they were going to charge � to 1 cent "e-postage" per email for guaranteed delivery to their customers.

Enforced network neutrality will lock us into a mediocre Internet, and is more likely to slow broadband adoption than speed it. On the other hand, allowing carriers the right to create quality tiers will make the Internet better for everyone. If some applications providers have the choice to pay a little more to give customers a better experience, broadband services as a whole will have that much more of a lure.

Steven Titch is a policy analyst at Reason Foundation.

Network Neutrality and Other Regulatory Mistakes

steven.titch@reason.org (Steven Titch) — Mon, 09 Jan 2006 00:00:00 EST

Given the media outcry over mergers, cable rates, service contracts, heavy-handed lobbying industry tactics, it's almost counterintuitive to argue that consumers—and the U.S. broadband economy as a whole—would benefit if the nation's telecommunications regulations were largely discarded.

We certainly need drastic rethinking. The philosophical premises behind today's regulatory policy are plain wrong. Artificial, subsidized competition is defined by marginalized categories of applications, like voice, Internet and cable TV. Regulators and consumer advocates are so bent on maintaining these separations that, whether they intend to or not, they have begun to hold back the natural evolution of broadband services.

The broadband market is pressing for application and platform integration. Yet just about every piece of policy—from mergers to taxation to franchising to the new buzzword of "network neutrality"—treats application and platform integration—despite the customization and control it promises consumers—as an undesirable outcome.

If you need a reason why the U.S. is 13th in the world in terms of broadband penetration, look no further. If consumers are hungry for broadband, they are hungrier for a simple method of managing their individual preferences when it comes to the services they want and the way they want them delivered. Study after study shows consumers want a one-stop shop. They don't want to fiddle with multiple devices and multiple protocols. They want an easy, intuitive way to get to their favorite broadband service applications — wherever they are.

All of our broadband policy goals — universal, affordable access, high-quality service, consumer choice and high value, are achievable if the competitive market were allowed to function as it is, rather than be treated as a group of potential monopolies in compartmentalized subsectors.

Yet regulators insist on regulatory compartmentalizing. One-time phone companies, one-time cable TV companies and one-time wireless companies are taxed, regulated and franchised in different, often conflicting ways, even though they now aggregate many of the same services. The fact that regulators often pursue reform while attempting to cling to these legacy categories is one reason for all the lobbying and political gamesmanship Americans increasingly have found increasingly wearisome about legacy service providers.

Second, regulators mistakenly value commoditization over customization. Hence the current push for network neutrality, which would require every service provider to offer the same conditions of service, interconnection and packaging to all hosting, applications and content providers.

The misplaced fear is that a facilities-based provider would cut off access to some parts of the Internet and limit users to a menu of favored applications and services. No provider has ever attempted this, and it is doubtful that any customer would stick with a provider that so egregiously limited so baseline an expectation as the freedom to surf.

However, network neutrality would come at the cost of service innovation and integration. The quality and diversity of a "walled garden," when offered as part of a broadband package, stands to be a major competitive differentiator. Wireless companies already practice this as part of their own mobile Internet offerings.

Again, if the broadband market is to function well, service providers will need this freedom to collaborate and partner � and yes -- give some content and applications priority over others for the simple reason that it makes broadband service that much more attractive.

It's counterproductive to demand that broadband infrastructure exist as a common denominator. If conditions were as monopolistic as net neutrality proponents claim, you would not see Google, EarthLink, Yahoo, eBay and a host other new companies positioning themselves as future broadband providers. Significantly, all of them see opportunities in integration and customization, and they all think they can do it better than the current crop of players. These new, yet deep-pocketed entrants bring infrastructure, experience and business relationships to leverage. They know that in a healthy broadband market, users will gravitate toward the company that can best customize the applications they want.

Diverse services, and the ease with which they can be assembled and managed, will drive the deployment of broadband infrastructure, not the other way around. Governments—and consumer activists—needs stop obsessing over the pipeline. We stand a better chance of getting 100 Mb/s to every home—faster and for far less—if we get out of the way and let the growing pool of broadband companies create a service environment where customization and deliver integrated applications deliver real value.

Steven Titch is a policy analyst at Reason Foundation.

Broadband Users Have Plenty of Choices

adrian.moore@reason.org (Adrian Moore) — Mon, 15 Aug 2005 00:00:00 EDT

Los Angeles Daily News

When broadband Internet connections were first getting rolling, cable technology was one of the easiest ways to provide them. And since cable companies were essentially monopolies, the idea of open access — allowing competing firms to reach customers over the same cable lines — had a certain appeal.

That appeal has withered away with time, technological changes and a new Supreme Court decision that says cable companies don't have to allow competitors to use their high-speed Internet lines. Many expect the court's decision to spur the Federal Communications Commission to deregulate phone companies who are also required to share their lines for Internet connections.

Claims that the Supreme Court's ruling and the fallout will somehow work to limit consumer choices on the World Wide Web are way off-base. And I should know. I live on a farm in the Sierra Nevada, well outside of the nearest small town of 7,800 people and more than 120 miles outside of Los Angeles.

My property is not served by a cable company or by DSL broadband over the phone lines. Yet I have three companies competing to provide me with broadband Internet access — two satellite companies and a wireless company. My father lives even farther from town and yet has five options for broadband access.

In a world where rural mountain valleys two hours outside of L.A. have five options for high-speed Internet access, the idea that we have to artificially create competition though regulations and policies like open access is absurd.

We may not have the extent of broadband access in the U.S. that we want, but open-access policies are partly to blame for that. The regulations actually created a huge disincentive for companies to invest in more broadband infrastructure and slowed down its expansion.

When any product is as competitively provided as broadband access now is, the need to regulate market access is dead and gone. But of course those who don't like, or trust, competition and our free-market system are unhappy.

Hence, even as the idea of open access is dying, the battle is shifting to a new front and a new buzz term — network neutrality — meaning rules against broadband firms influencing the way content flows to you.

In the wake of the Supreme Court's ruling, some consumer groups fear we'll see fewer broadband providers, higher fees, and that cable companies will rig the system so that Internet sites they own load fast and ones they don't own load slowly or are even blocked.

Consumers wouldn't stand for that. When you have a choice among several service providers, why would you choose or stay with one that is deliberately hindering your Internet use?

"Network neutrality" is just the latest desperate attempt to cling to a regime of regulations based on the way our technology was more than 20 years ago and regulatory theories at least 40 years past their prime.

Los Angeles is likely to be the test ground for network neutrality as the city negotiates its franchise-renewal deal with the cable companies. For the last few years, the city has chosen to extend a contract that brings in $20 million in franchise fees each year from the cable companies. The city controller wants the 18-year-old pacts renegotiated. Consumer groups and others are pressuring city leaders to make network neutrality rules a requirement of any new agreement.

But consumers don't need protection from this phantom threat. Consumers can cast the ultimate vote with their pocketbooks by switching companies.

Broadband Internet access is a very competitive market and no consumer is held captive. We don't need network neutrality. Instead of producing benefits, these policies are much more likely to hinder innovation and slow down the expansion of high-speed Internet access.

Adrian Moore is Vice President of Reason Foundation.

Neutral Networks Are the Devil's Allies

adrian.moore@reason.org (Adrian Moore) — Mon, 01 Aug 2005 00:00:00 EDT

Reason.com

"Today the Court struck a blow against freedom online," claims Jeff Chester, executive director of the Center for Digital Democracy. "The Internet they have bestowed promotes the interest of a few big media companies against the best interests of the public..."

Sound bad? Then consider this dire prediction From Jonathan Rintels, executive director of the Center for Creative Voices in Media: "The Supreme Court's decision...to permit cable companies to discriminate in providing Internet access is a potentially devastating blow to the wide diversity of viewpoints and voices upon with our democracy and culture depend."

What's got these good citizens in a pickle? The Supreme Court's recent decision in the the case National Cable & Telecommunications Assn., et al. v. Brand X Internet Services, which ruled that cable companies do not have to lease their networks to rivals who have no other means of competing. In the wake of the Brand X ruling, consumer advocates fear that we'll all be stuck with broadband monopolies. Many expect the Court's decision will spur the Federal Communications Commission to deregulate phone companies, who are required to share their lines for Internet connections.

Nobody is more dismayed than Brand X owner Jim Pickrell, who says, "It's an end to competition in broadband and telephone."

But before you throw your cable modem through your TV screen, consider what's happening in the actual consumer broadband market: Consumers now enjoy an expanding array of choices, and all indications are that those choices will grow rapidly.

I should know: I live on a farm in the Sierra Nevada mountains, well outside of the nearest small town of 7,800 people and over 120 miles outside of Los Angeles. My property is not served by a cable company or by DSL broadband over the phone lines. Yet I have three companies competing to provide me with broadband Internet access—two satellite companies and a wireless company. My father lives even further from town and yet has five options for broadband access.

In a world where rural mountain valleys two hours outside of L.A. have five options for high-speed Internet access, the idea that we have to create artificial competition though regulatory policies like open access is absurd. Time and technological changes have passed by the situation that once made open access seem like an attractive option.

In fact, to the extent that we don't have as much broadband access in the U.S. as we want, open access policies are partly to blame. Open access regulations created a huge disincentive for companies to invest in more broadband infrastructure and slowed down the expansion of the technology.

That hasn't made regulation zealots trust the market any better. Hence, even as the idea of open access is dying, the battle is shifting to a new front and a new buzz term: network neutrality. This refers to rules and regulations preventing broadband firms from influencing the way content flows to you. Without such rules, some consumer groups fear we'll see fewer broadband providers, higher fees, and cable companies rigging the system so that Internet sites that they own load fast and ones they don't own are slowed down, or even blocked.

Advocates of enforced neutrality ignore one important fact: Consumers wouldn't stand for that. When you have a choice of several service providers, why would you choose—or stay with—one that is deliberately hindering your Internet use? "Network neutrality" is the just the latest attempt to fix technology from 20 years ago with regulatory theories from 40 years ago.

Los Angeles may be the test ground for network neutrality as the city negotiates its franchise-renewal deal with the cable companies. In the last few years, the city has chosen to extend a contract that brings in $20 million in franchise fees each year from the cable companies. The City Controller wants the 18-year-old pacts renegotiated. Consumer groups and others are pressuring city leaders to make network neutrality rules a requirement of any new agreement. But consumers don't need protection from this phantom threat. Consumers can cast the ultimate vote with their pocketbooks by switching companies.

Broadband Internet access is a very competitive market, and no consumer is held captive. We don't need enforced "network neutrality" policies that are much more likely to hinder innovation and slow down the expansion of high-speed Internet access than provide any added benefit to consumers.