Net Neutrality Plan Looks Like Internet Regulation for Regulation

Genuine fears of derailing the technology sector have reduced the FCC to hedging on regulations for their own sake

It’s difficult to make much sense from Federal Communications Commission Chairman Julius Genachowski’s “modified” network neutrality regulations. In his remarks on his new proposal, issued December 1 and expected to come to FCC vote December 21, Genachowski praises the way the technology coupled with market-based incentives have created the rich and diverse Internet experience consumers enjoy today. Yet for all his confidence that the Internet isn’t broken, he can’t refrain from offering a fix.

The network neutrality principle calls for Internet Service Providers (ISPs) like AT&T, Comcast and Verizon to keep their hands off data traffic as it crosses their networks, treating all those bits and bytes the same no matter what applications they carry.

The FCC has had certain network neutrality guidelines in place since 2005, generally to prevent ISPs from blocking access to web sites. Last year, however, Genachowski proposed adding a controversial “non-discrimination” corollary to the existing rules: meaning ISPs could not prioritize any form or data, including their own, on their networks.

While Genachowski at the time said allowances would be made for “reasonable network management,” his proposal was vague as to exactly what quality improvement measures would be permitted to relieve network congestion and make sure certain bandwidth-hungry applications, particularly video, work like they should. Such management ensures that when consumers click on a movie download, they don’t get a jerky series of freeze-frames.

On a certain level, Genachowski understands that the Internet has evolved to a point where ISPs must have a legitimate management role, a point made repeatedly during the numerous rounds of public comments on the sweeping neutrality rules he proposed last year. The “modified” rules would essentially permit ISPs greater leeway in managing their networks to ensure quality, even allowing them to charge to do so. For example, under Genachowski’s original proposal, Comcast’s demand that Level 3, as Netflix’s service provider, pay more for network connections to cover the cost of managing the volume of video streaming from Netflix’s on-demand movie rental service, would have been considered a neutrality violation. Under the revised proposal, Comcast would likely be permitted to create a tiered fee structure. Operators of wireless networks, which have even more acute data capacity issues, stand to have even more freedom.

For consumers, this means that there is less of a chance there will be a regulatory hold-up every time an ISP tries to improve the speed at which a video or game downloads over on the Web. ISPs won’t have to ask the FCC, “Mother, may I?” every time they want to implement a new quality tool. And barriers will remain low for broadband investment and synergistic partnerships, such as those between AT&T and Apple for the iPhone and Verizon and Google for Droid devices.

Yet Genachowski’s latest proposal also begs the question as to why we need a new neutrality framework at all. Why create a non-discrimination rule only to declaw it through exceptions and qualifiers?

The answer starts with the inability of supporters of the non-discrimination rule to adequately identify any pattern of existing abuses that such a regulation would stop. In the six years of debate over net neutrality, the two documented violations were resolved within the current regulatory or market environment: one via FCC fine and the other by bilateral agreement. Meanwhile, amid the threat of greater regulation in 2009, AT&T’s capital expenditures dropped to $17 billion that year from $20 billion in 2008 as investors tightened their purse strings. Comcast’s capital expenditures dropped to $5 billion from $5.5 billion over the same period. Verizon’s stayed flat at $17.5 billion. In the past two quarters, with the FCC signaling it may pursue a less draconian regulatory route, these numbers have begun to pick up. Yet they validate the argument that broader regulations will do real economic harm to address a phantom problem.

Still, technocrat that he is, Genachowski wants it both ways. In the first half of his remarks on the proposal, Genachowski speaks to the importance of allowing the marketplace to guide evolution of the Internet and its diverse applications, free of a central controlling authority. Yet in the second half, he makes a rather convoluted case that the FCC’s own central authority is necessary to preserve this decentralized landscape.

Genuine fears of derailing the U.S. technology sector have reduced the FCC to hedging on regulations for their own sake. Are new rules that change nothing new rules at all? Logically speaking, no. The trouble is any government regulatory framework invites problems in terms of unintended consequences for consumers, corporate rent-seeking and misdirected investment. Down the line, these apparently toothless rules may grow incisors sharp enough to bite. This could take the form of protracted regulatory proceedings and lawsuits, which would hurt consumers because they would hold up needed investment and improvements. The FCC has all but admitted network neutrality rules will be harmful to all if not diluted to the point of ineffectiveness. It should stop its handwringing and just let the issue go.

Steven Titch is a policy analyst at Reason Foundation.