The Federal Communications Commission moved aggressively last week to open a new round in the debate about the extent of its regulatory sway over the Internet. Until this month, the Commission had never claimed a sweeping and specific statutory right to regulate the Internet, because Congress has never provided it. Yet, when a federal court recently rejected FCC arguments that it has limited, "ancillary" authority to govern certain practices of the companies that operate the web - the FCC position under both President Clinton and President Bush -- the current Commission doubled down.
Now, the FCC claims specific statutory power to regulate the transmission part of broadband services under its long-time, "Title II" authority to regulate telephone service. Lawyers and judges will settle the legal issues; and the outcome will not only help shape the future of the Internet, but also could influence the path of the rest of the economy.
The economic issue here is one encountered regularly in regulation of many other industries, from airlines and pharmaceuticals to transportation and energy. Regulation is clearly necessary in many aspects of economic life. But regulations always work in the favor of certain companies compared to others, and usually influence an industry's investment patterns and general path of development. The result is that much of regulation tends to insulate favored companies from normal competitive pressures, which in turn tends to dampen critical innovation. From airlines or electricity generation to long-distance service before deregulation, there is extensive economic evidence and reasoning behind the claim that regulation stifles innovation.
Since regulation is sometimes vital for the economy's stability and growth, the question becomes how to strike the proper regulatory balance between encouraging investment and innovation while protecting consumers from bad actors.
The short answer is to look to the results. Largely free from regulation, Wall Street created scores of new and "innovative" financial instruments and new ways to account for them - and the combination of those innovations and the absence of most regulation ultimately blew up many of the largest financial firms and nearly took down the American and global economies. The new regulatory regime which Congress is currently fashioning for big finance will carry real, economic costs. It will lessen some of the incentives to develop new products and new ways of doing finance, because the regulation will point Wall Street in certain directions, independent of markets, and constrain the sector's phenomenal profits.
However, those costs are reasonable and necessary, because it's now clear that Wall Street's unregulated ways of earning those profits risk a second Great Depression for the rest of us. And the taxpayers who picked up the tab when financial firms failed in the recent meltdown have the right to set new rules that will reduce the likelihood that they've have to pay again.
None of these matters applies to the Internet. First, the companies that provide Internet service (and content) deliver increasing value to most Americans. For example, Internet service providers have made extraordinary progress towards universal access to broadband, the President's top priority. In the last decade, the proportion of American households with broadband went from virtually zero to two-thirds of the country, the fastest rate of uptake of any new technology on record. This progress came under limited regulation reflecting a bipartisan agreement that the government should not try to micromanage something as technically complex and interdependent as the network of networks that comprise the Internet. This progress also was driven by innovation, especially the technological advances and new network management approaches that have gradually brought down the price of broadband service.
And economic simulations show that this trajectory should move the United States towards universal broadband within this decade -- unless new FCC regulations effectively bar broadband providers from adopting business models that would help finance the continued build-out of broadband infrastructure. For example, rules that would limit an Internet Service Provider's (ISP) ability to charge big content providers for the high-volume, high-capacity bandwidth consumed by their video applications would force ISPs to either raise monthly fees for all consumers or slow the expansion of the network because of revenue shortfalls. The first option would slow down broadband adoption, and so extend the current digital divides by income and race; while the second would slow down Internet transmissions for everyone.
In truth, the potential costs of a regulatory regime that would stifle stifling innovation on the Internet are potentially enormous, because the Internet has so successfully enabled valuable innovations in sectors across the economy. The steadily-growing power of broadband service and the applications developed for it have driven profoundly useful innovations, for example, in how hospitals and police departments operate, how consumers and businesses purchase many goods and the services, and in the nature and range of the goods and services that hospitals and police departments provide and that consumers and businesses purchase. Constraining Internet innovation could well wind up limiting advances across many parts of the economy.
The Internet's operations raise legitimate issues for regulators, who should work to ensure, for example, that consumers' rights are fully respected in the online environment. Yet, given the enormous stakes for all of us in the vast range of innovations being driven by broadband service and its applications, sweeping new rules for the Internet should not come by regulatory fiat, but only after careful and extended debate by both the Administration and the Congress.
Excuse me? How can anyone familiar with the ranked-17th-in-the-world status of the US of A's broadband access possibly believe that? I live less than ten miles from downtown Tulsa, Oklahoma, and cannot get true broadband. I pay $50 per month for well under 1Gbs...while people who live in the fancy part of town are paying half as much for twice the speed. Black neighborhoods, poor neighborhoods, and rural areas are so terribly, terribly under-served that it is a national travesty. We need government regulation and something like the old Rural Electrification program - because the big companies won't do a thing in the interest of the general public unless somebody holds a metaphorical gun to their head.
You have to define who the innovations are coming from when making this argument. Certainly the innovations haven't been coming from the ISPs, otherwise the target for broadband would be 100Mb, not 5Mb.
The primary innovations driving online commerce have come from, essentially, random users. Young, innovative entrepreneurs with an idea and maybe a chunk of VC have altered the way the world does business. Comcast isn't innovating, 21 year old comp sci majors are. The telcos/cable companies are now fighting for the right to deny those new, innovative companies from even getting started. They want the right to demand what are essentially bribes, which creates a huge barrier to entry for new companies.
In short, you are defending the wrong businesses. By the way, you said:
"In the last decade, the proportion of American households with broadband went from virtually zero to two-thirds of the country, the fastest rate of uptake of any new technology on record."
Actually, the fastest rate of uptake of any new technology was Napster, which in the space of 6 months grew to a base of 50mil users, at a time when most people were still on 28k dialup. A single person innovated and created something that changed the world, let's make sure that remains possible.
No, they have not. Performance in this industry has been lack-luster at best.
"This progress also was driven by innovation, especially the technological advances and new network management approaches that have gradually brought down the price of broadband service."
We pay double the price for half the speed, and this is success?
Please.
Sorry. I ain't buying the altruism you're selling. We've come a long way in a short time frame without selling shares to the internet. The appropriate saying here is...If it ain't broke, don't fix it. I have a feeling that we'll all get along just fine without selling what doesn't belong to anyone least of all big business whose track record has been less than satisfactory when it comes to the common good.
http://www.fcc.gov/Reports/1934new.pdf
The provisions of this act shall apply to all interstate and foreign communication by wire
or radio and all interstate and foreign transmission of energy by radio, which originates and/or is
received within the United States, and to all persons engaged within the United States in such
communication or such transmission of energy by radio, and to the licensing and regulating of all
radio stations as hereinafter provided;
It shall be unlawful for any common carrier to make any unjust or
unreasonable discrimination in charges, practices, classifications, regulations,
facilities, or services for or in connection with like communication service, directly
or indirectly, by any means or device, or to make or give any undue or
unreasonable preference or advantage to any particular person, class of persons, or
locality, or to subject any particular person, class of persons, or locality to any
undue or unreasonable prejudice or disadvantage.
Art Brodsky
Public Knowledge
Washington, D.C.
What of industry lead self policing and an industry association code of consumer ethics, a digital better business bureau? Any of these ideas could be crafted for needed self policing, industry supported sanctions and consumer awareness.
Is the better choice government regulation? Hopefully not!