Net Neutrality’s Threat to Innovation: Far from ‘Ridiculous’

There’s been some considerable comment over my February 11 post that, had the the FCC’s proposed Network Neutrality regulation been in force a few years ago, products like the Apple iPhone and Amazon Kindle would not have been possible.

In fact, the otherwise levelheaded Mike Masnick at TechDirt called my assertion “ridiculous.”

I beg to differ.

The premise behind mandated network neutrality is the concern that ISPs like AT&T, Verizon and Comcast are in a position to exploit their control of the “last mile” broadband connections to unfairly influence the market success or failure of a third-party Internet-related product or application.

Former vice-president Al Gore summed up the position best in a Reason TV video posted on the other day: “I just think that’s it’s unacceptable to have the folks that control the pipes get into anything that smacks of controlling the content or favoring their content over other content. Whoa!”

OK. So let’s look at the iPhone. To market the iPhone, AT&T and Apple established a value-added partnership in which AT&T made modifications in its wireless network–its “pipes” as Gore says–to ensure they are optimized for iPhone and its applications. Many of these applications–news, maps, games, video, social networking or various mash-ups of all of them–are exclusive to the iPhone and not available to users of other devices. Even when they are, they are not as user-friendly. Compare, if you will, Google Maps on an iPhone to Google Maps on a BlackBerry. The iPhone version is faster, presents more information, and its interface is more intuitive.

Walk into an AT&T store and ask for a smartphone and the sales rep will likely steer you to an iPhone. AT&T benefits financially from iPhone sales, as does Apple as its exclusive partner. And yes, Apple has been known to refuse to make certain apps available through its apps store channel, sometimes for the most arbitrary of reasons. So it is discriminatory. This entire arrangement is precisely the scenario Gore finds “unacceptable.”

But let me address the matter Masnik raises in his blog, using this quote from my February 11 post:

The non-discrimination principle that [FCC Chairman Julius] Genachowski seeks to mandate would prohibit service providers such as AT&T, Verizon Wireless, T-Mobile and Sprint from using their network resources to prioritize or partition data as it crosses their networks so as to improve the performance of specific applications, such as a movie or massive multiplayer game. Yet quality wireless service is predicated on such steps. The iPhone, for example, would not have been possible if AT&T and Apple did not work together to ensure AT&T’s wireless network could handle the increase in data traffic the iPhone would create.

Masnick says I conflate the issue. “What’s described in the first sentence as what would be banned,” he writes, “is not the same thing that’s described in the second sentence as what AT&T and Apple did.”

Masnick may have a point, but it doesn’t matter because the FCC, in its Notice of Proposed Rulemaking on net neutrality, makes no such distinction. On the contrary, the FCC is seeking the right to review and regulate any service provider arrangement that seeks to leverage its ownership of network facilities to gain an upper hand in the delivery of specific content and applications, with or without a partner.

As proposed, the FCC, as set out in paragraph 109 on page 43 of its NPRM, would set “a bright-line rule against discrimination,” which, it believes “may better fit the unique characteristics of the Internet.”

Masnick argues that net neutrality rules would not apply because iPhone applications discrimination is not direct nor is it done at the network level. Yet nowhere does the FCC make any qualification that it will limit the scope of the non-discrimination rule to modifications an ISP makes in its physical network. All the NPRM says is this: “We propose draft language to codify a fifth principle that would require a broadband Internet access service provider to treat lawful content, applications, and services in a nondiscriminatory manner.”

That’s the test the FCC will apply. Well, AT&T and Apple collaborated on a device that discriminates both on content and content delivery. There are applications and interfaces on the iPhone that you can’t get on a BlackBerry or Glide, or from other service providers. And when the same apps are available on more than one smartphone, AT&T optimized its network to ensure the quality of iPhone apps. There is no reason to think that under the proposed regulation, the FCC won’t see a future collaboration like this as a neutrality violation.

The NPRM sets up a regime to question, investigate, regulate or ban “anything that smacks of” content favoritism, to repeat erstwhile Internet inventor Al Gore’s words. Want more evidence? Back in 2007, when the iPhone was introduced, Rep. Ed Markey (D-MA), author of network neutrality legislation in the House, used it as an example as to why the FCC should devise and enforce neutrality regulations. Masnick says my linking of network neutrality to the iPhone is “ludicrous.” But here Markey holds an iPhone in their hand and makes it clear that it’s precisely the problem that neutrality regulation is needed to fix.

Masnick may have jumped on the “No More iPhones” headline, but after a few sentences it’s easy to tell that my point is not that the iPhone will be banned retroactively, but that the sweeping neutrality and non-discrimination rules being proposed will chill any innovation that requires close work between service providers, hardware providers and content providers. As the Web 2.0 environment drives more processing in the network, and concepts such as cloud computing put a premium on speed, authentication and user interface, it’s becoming apparent that ISP collaboration at the device, network and applications levels will be a necessity to ensuring efficient Web functionality. That accounts for the new wariness on the part of companies like Google and Amazon toward the neutrality regulations they originally supported. In the five years the debate has raged, the value that ISPs bring to applications quality and value has become much more concrete.

Overall, Masnick is right to have his doubts about network neutrality. But he and others who believe that the FCC will regard the iPhone and future devices like it as exempt from non-discrimination rules are making a huge assumption about the FCC’s regulatory mindset. All we know is what’s in the NPRM. And under these proposed rules, there’s nothing to stop the FCC from taking dead-aim at future iPhone-like agreements. And frankly, in this climate, I’m not betting on government self-restraint.