net neutrality

Happy Veterans Day!!!

On Monday, President Obama made a strong statement in favor of net neutrality, maintaining that the provision of internet access should be a utility service like the provision of water and electricity.  Personally, I think this is common sensical and correct, and it’s the way we should do things if we were starting from scratch.

His statement comes a few days before the Federal Communications Commission will release its newest version of internet rules, one that will likely allow internet service providers to continue to charge extra to big services like Netflix.  Mr. Obama is now on record as opposing what the head of the FCC, Tom Wheeler, is about to do.

I can’t help thinking that the statement is more than a little disingenuous.  It comes just after the election, so voters don’t have a chance to weigh in on the issue.  It also comes less than a year after Mr. Obama appointed Mr. Wheeler, who spent his career working in and lobbying for the biggest ISPs, the cable companies, to head the FCC. (Wikipedia says Mr. Wheeler is in the cable industry Hall of Fame–wireless HOF, too.)  What did Obama expect Wheeler to do?

I don’t have a solution for the net neutrality issue, but I think know where the problem lies.

Government creates utilities when the public interest is best served by having only a small number of companies providing a capital-intensive service.  Certain firm are granted monopolies or near-monopolies in given service areas.  To prevent abuses, the firms’ business focus is restricted and profits are regulated.  Profit growth is (almost always) tied to the increases in new capacity the utility brings into service.

Consumers are charged by the amount of the service they use; utilities are chomping at the bit to provide more and better service.

Almost none of this applies to the cable companies, whose profits, in the short term anyway, can be maximized by doing the opposite–providing the worst service at the highest price (think:  Comcast or Time Warner Cable).  Yes, both the cable companies and their mobile brethren, ATT and Verizon, have the advantage of being able to build their internet presence using their monopoly cable/telephone infrastructure.  But that in itself doesn’t make their ISP services monopolies.

I don’t see any quick fix.  The orthodox economic solution in a case like this is to encourage competition–that is, prevent further consolidation among existing ISPs and provide incentives to new entrants.  Let’s see if Mr. Obama speaks out against the proposed Comcast-TWC merger, which would be his next logical step if he means what he said on Monday.

 

 

 

net neutrality: one more time

Last week the FCC issued its latest pronouncement on net neutrality, the question of who regulates the internet–and therefore, implicitly, who owns it.  You can find the FCC releases and member commentary here.

background

Two pieces of background information are necessary to understand the meaning of the FCC statement.

1.  A while ago Comcast deliberately slowed down its service to BitTorrent, a file-sharing service.  Comcast said a small number of BitTorrent users were gobbling up huge amounts of bandwidth and slowing down service on its network for everyone else.  The FCC ordered Comcast to stop doing so.

Comcast successfully sued, arguing in court that the FCC didn’t have this kind of jurisdiction over it.  The case hinged on the FCC’s classification of the internet, not as a communications service, but as an “information” service.

Reading between the lines of subsequent statements by the parties and press coverage, the FCC decided to respond by saying it now realizes the internet is indeed a communications services, like plain old telephone service.  That would remove the internal contradictions in the FCC’s behavior.  But it would also potentially open the door to taxing internet access in the same way that phone service is.

Talk about driving a stake through the heart.  However, after hearing personally from over half of the members of the House of Representatives and a third of the Senate, the FCC changed its mind.

2.  In August, in the midst of the post-Comcast court victory discussion, Google and Verizon issued an internet manifesto (see my post).

what the FCC said

Last week’s FCC statement addresses the GOOG/VZN manifesto point by point.  The highlights:

–wired internet has one set of rules.  An ISP can’t block any content or services.  It also can’t deliberately slow down, or speed up, any particular content or services.  It can, however, offer different speeds of internet access to customers at different prices.

–wireless has another.  Basically, anything is ok, because the greater number of mobile internet service providers means consumers can switch ISPs if they don’t like what their current one is doing.

So far, this is more or less what GOOG/VZN suggested.  But…

–possible new services.  As I mentioned in my August GOOG/VZN post, I think GOOG wants to use its own money to build an internet service that’s more like the information superhighway that the rest of the developed world has, rather than the rutted country lane that ISPs have created in the US.  But before it invests billions doing so, it wants assurance that its service won’t be regulated as a public utility–that is, as if the network had been created with public money.  What GGOG/VZN got in this statement was just the opposite.

As I read it, the FCC says that a GOOG service would be subject to punitive regulation if it posed any threat to existing wired internet services.  But if a new service can’t be any better than today’s services, what’s the point?

jurisdiction?

The FCC asserts in its statement that it’s in charge–a reprise of Al Haig’s famous declaration, perhaps?  But the courts have been saying something else.  Congress seems to have the agency on a very short leash, as well.  And the new Congress may well have something more definitive to say.

Stay tuned.