Network Neutrality and Other Regulatory Mistakes

U.S. is 13th in broadband penetration

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.