The Era of Internet Regulation Begins

FCC Chairman Julius Genachowski can now strike “Get Net Neutrality Done” from his 2010 to-do list.

The rules enacted today represent something of a compromise with the industry and are better than the sweeping regulation the FCC proposed last year—if you consider a club to the knee better than a sharp stick in the eye.

The FCC gave the most ground on the so-called “fifth principle,” which, in original form, would have placed strict rules on the way service providers could manage their networks, even if the aim was to make certain applications, particularly video, work for users the way they were intended. The new rules appear to allow ISPs to takes steps that are not “unreasonable.” Wireless networks are pretty much exempt from this rule — good thing, too — as the engineering wireless carriers did to support smartphones such as the iPhone and those using the Droid operating system would likely be immediate neutrality violations under such rules.

And, as the owner of any of these devices can tell you, it’s pretty easy to see that wireless is where broadband access is going. This will present a quandary for the commission a few years down the line as they try to do backflips to rationalize separate sets of rules for data that travels by wires and data that travels by radio. For myself, I was following Cecilia Kang’s tweets from the FCC all morning, and have her Washington Post story open on my phone as I write this. So much for the paucity of access that the FCC seems to think requires neutrality regulations.

Most troublesome about these regulations, however, is that the FCC seemed to go out of its way to warn ISPs about creating tiers where application and content companies “pay for priority,” that is, charge more for content to be delivered at a guaranteed bit rate or with special handling. This is especially relevant now that Level 3 Communications, which services Netflix’s on-demand video rental service, has complained that Comcast has asked for higher fees to handle the increased volume of data traffic Netflix will generate. Strip away the Internet jargon and what you have is basic supply-and-demand issue covered in Economics 101. Level 3 wants more access to a limited resource, yet doesn’t want to pay. The FCC would be unwise to interfere here with what would likely be thinly-disguised price-controls. Yes, there is a lot of bandwidth out there. It’s also true that video consumes a great deal of it. In the end, the TANSTAAFL principle will play; and despite what the FCC says about “no pay for priority,” someone will have to bear the cost Level 3 will place on Internet capacity. Rightfully, it should be Netflix and Level3. Under network neutrality, it will default to you and me.

In the end, the new network neutrality rules stand to create a boatload of legal issues about what constitutes proper network management, adequate quality of service and fair pricing. Last week, I wrote about this as regulation for regulation’s sake—the need to “do something” even though there is no fault that needs to be corrected. The availability of Internet access is not shrinking and no web sites and services are routinely being blocked. Quite the opposite, the unregulated market environment has delivered competition and choice among access methods, along with innovation that makes use of the open nature of the Web, has ballooned in the six years this issue has been debated.

Yet even toned down, net neutrality regulation can’t help but get the FCC involved in quagmire after quagmire of technicalities, which as they add up will have toll on investment, service and development.