The Net Neutered, by Robert Gore

It is a paradox in an age of paradox: while never in history has so much information been so readily available, the average intelligence level appears to be declining. If the loss in percentage terms is uniform across the population, in absolute terms that means it is greatest among those with the most to lose, the most intelligent. This hypothesis is admittedly controversial, but it’s the only plausible explanation for why so many supposedly bright people support the concept of government-enforced “net neutrality.” They display a stunning ignorance of history and willful blindness about how the government operates.

Last week, Chairman of the Federal Communications Commission (FCC) Tom Wheeler announced proposed rules under which the commission would begin treating broadband providers under Title II of the 1934 Communications Act, essentially treating them as public utilities. The change to regulation under Title II was necessary to give the FCC a more legally defensible means of enforcing “net neutrality;” previous rules had been struck down by a US Court of Appeals. Net neutrality embodies the common carrier doctrine, updated to electronic traffic on broadband: data on the Internet should be treated equally and Internet service providers should not be able to discriminate on terms of service or price by user, content, site, platform, application, type of equipment, or mode of communication.

The common carrier doctrine was applied to railroads by the Interstate Commerce Act of 1887. Net neutrality advocates would embrace the rhetoric used to justify that act. Railroads were giving often secret rebates to large shippers and charging more for—”discriminating against”—short passenger and freight trips versus longer ones on a per-mile basis. The law prohibited those practices and gave regulatory jurisdiction to the Interstate Commerce Commission (ICC). The Hepburn Act of 1906 authorized the ICC to set maximum rates.

The reformers moved on to the next cause, leaving the railroads and the ICC to deal with each other. The reformers weren’t going to follow day-to-day developments; for the railroads they were matters of utmost economic importance. Unsurprising to anyone who follows contemporary bank regulation, the railroads and their regulator cozied up to each other. Regulation proved a godsend for the weaker lines. With a small investment in lawyers and lobbyists, they could hamstring their stronger competitors.

The railroad industry almost died. Capital investment dried up. Who knew if rates would be set high enough to recapture an investment, or if an arbitrary bureaucratic decree might impair or destroy profitability? Talent fled. Who wanted to work for a virtual arm of the government, an industry in which politics were more important than economics? (See The Golden Pinnacle for a dramatization of railroad regulation’s impact on a talented executive.) The trucking industry became the American economy’s jerry-rigged workaround for its increasingly moribund rail system. Congress belatedly recognized what regulation had wrought (it was too obvious to ignore) and passed various deregulatory measures in the 1970s and 1980s that resuscitated the industry.

The common carrier doctrine gave the government its wedge into the railroad industry, and from there regulation became strangulation. Title II of the Communications Act of 1934, modeled on the Interstate Commerce Act and covering telegraph, telephone, and radio, established the Federal Communication Commission and applied the common carrier doctrine to those industries, and later to television and cell phones. The doctrine and the scarcity of broadcast frequencies were the justifications for the Fairness Doctrine, introduced in 1949, which mandated that holders of radio and television broadcast licenses carry equitable and balanced public interest programming.

It was no coincidence that “equitable and balanced” conformed to the preferred view of the government that was granting the broadcast licenses. The advent of cable television undercut the scarcity of frequencies argument for content regulation. Republican lawmakers, not without cause, had long argued that the Fairness Doctrine enshrined a Democratic media bias, and it was abolished by the FCC in 1987. President Reagan vetoed the Democratic Congress’s effort to override the abolition, and a similar effort was stopped in 1991 when President George H.W. Bush threatened a veto.

Net neutrality rests on a shaky foundation of historical ignorance, wishful thinking, and outright hostility towards a certain segment of the Internet. Advocates in all likelihood would agree with the following assertions: the FDA is a tool of the drug companies; the Department of Agriculture is an agent of mammoth agribusinesses; the Federal Reserves is a banking cartel; the military does the bidding of defense and intelligence contractors; and the Federal Election Commission and the whole electoral process are subverted by big-money political interests. In a few years, they will agree with another assertion: the FCC has been captured by the Internet Service Providers (ISPs). The cause of the moment though, is to deliver the heretofore lightly regulated ISPs up to the FCC and common carrier regulation, because the ISPs have the capability, rarely exercised, to provide different levels of broadband service at different prices. The ISPs are too powerful and face insufficient competition, so the most powerful and most immune-from-competition institution on the planet—the federal government—must protect us from them.

FCC Chairman Tom Wheeler, in a Wired magazine article announcing the new policy, basically told both sides they could have their cake and eat it too. He recalled his tenure in the 1980s as president of a startup that was going to use cable television lines to deliver home internet service and wipe out Steve Case’s much slower AOL, which had to use dial-up modems and telephone lines. The dream never materialized because nasty cable operators would not grant access to their networks.

Two questions emerge from this sad tale. Why would Mr. Wheeler go into an internet delivery business if he had no assurance that the parties he was counting on to provide the network would do so? It’s probably to the best that someone who did not line up that critical detail before he sunk his time and money into the endeavor ended up working in the government, where lack of common sense is a career advantage. The second question: why did he think the cable companies would allow him access? Mr. Wheeler says that Mr. Case’s AOL was a success because the government forced the phone monopoly, AT&T, to open up the phone lines as a common carrier. Was he expecting that he and his lobbyists would be able to win a similar diktat from the government against the cable companies?

One could argue that common carrier regulation was the price railroads had to pay for land grants and subsidies from the government, or the television and radio networks had to pay for government-granted scarce broadcasting frequencies, or what AT&T had to pay for its telephone monopoly. However, that rationale holds no water for either the cable companies or the ISPs. They secured right of ways from the government, (and often paid dearly for them; one reason US broadband is so much slower than much of Europe’s is local control of right-of-ways and the attendant political extortion, see “Forget Net Neutrality, Focus on Fiber,” The Wall Street Journal, 2/13/15), but they assumed the economic risks and sunk their own money into their networks. In a free country they would be able to charge whatever the market will bear to whomever they want to provide service. This, however, is not a free country, and Mr. Wheeler reveals his fundamental premise: the government and coercion, not private individuals and companies, markets, choice, and voluntary contract, should dictate economic outcomes. He probably still has a chip on his shoulder because nobody forced the cable companies to give his company access to its cables. His story supposedly “highlights the fundamental problem with allowing networks to act as gatekeepers.”

So, instead of allowing companies to act as gatekeepers, the government will. In real life different Internet users present different costs and service demands on ISPs. A small, individual user entails almost no marginal cost for an ISP, but a large, bandwidth hog like Netflix can. What does net neutrality mean if an ISP reaches capacity constraints during heavy Internet usage? Does it mean the ISP must drop or degrade some individuals’ service? Or Netflix’s? Is it required to build more capacity? Who decides who will bear the cost of the buildout and what will be the rate of return on that investment?

Advocates of net neutrality will move on to albino transgenderism acceptance, protecting endangered paramecium species, and putting Barack Obama on Mt. Rushmore, so they won’t be around for the answers to these mundane questions. The ISPs and big Internet users will be in Washington fighting it out, and eventually “capturing” the FCC for their own ends. Mr. Wheeler promises that there will be no micromanagement, “no rate regulation, no tariffs, no last-mile unbundling.” (Last mile unbundling would require ISPs to lease out their infrastructure to competitors.) This promise is made pursuant to the FCC’s regulatory “forbearance,” which its enabling laws allow it to exercise.

However, that forbearance is discretionary, and nothing holds either Mr. Wheeler or his successors to his promise. Instead of allowing differential pricing to solve the bandwidth hog problem, for instance, it most likely will become a regulatory food fight that will involve questions of rates and prospective returns on capital investment. Sound like the railroads? If the regulatory regime leads to “shortages” of broadband, the political impetus for last mile unbundling will be overwhelming, to make best use of “scarce” broadband infrastructure. And how can Mr. Wheeler promise that our insolvent government won’t slap tariffs and taxes on the ISPs? Last check, Congress and the president, not the regulatory agencies, decide who and what gets taxed.

Most ominously, the new policy gets the camel’s nose, head, neck, and a hump under the tent of Internet content regulation. If the FCC’s common carrier rules creates artificial scarcity of broadband (the odds-on-favorite bet), then how long will it be before some president, senator, representative, bureaucrat, MSM personage, or academic proposes a “public interest” test for Internet sites? Sound like the Fairness Doctrine? If the market and economics are not allowed to determine who gets Internet service and on what terms, we know what will: politics. Bye-bye all those pesky, inconvenient, politically incorrect blogs and sites. Tellingly, the FCC has embargoed the new 332-page administrative policy from public distribution, but according to Ajit Pai, one of two Republican commissioners on the FCC, it involves proposed new taxes and content fairness.

Net neutrality has been sold as a way to protect the little guy from giant ISPs. As a certified “little guy” with a pesky, inconvenient, politically incorrect blog and site, aspiring to a readership large enough to make the government want to stamp it out, Straight Line Logic says: take your protection and regulation and shove it! SLL and the rest of the non-mainstream Internet are better off with the status quo, taking our chances with the ISPs, who, large and powerful though they may be, are much smaller and less powerful than the federal government and its minions with whom they’ll be forced to bed down.


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7 responses to “The Net Neutered, by Robert Gore

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