Regulation

"How did the commission come to acquire this power?" was the core question that Ronald H. Coase asked in a seminal paper he wrote about the FCC in 1959.

• Kudos to Jeff Eisenach and Adam Theirer for an outstanding must-read article in The American, "Coase vs. the Neo-Progressives" that celebrates Mr. Coase's brilliant, ahead-of-his-time insights, and his exceptional clarity-of-thought in asking that profound question fifty years ago -- that couldn't be more appropriate to ask the FCC today.

How did the FCC acquire the power to regulate the "open Internet?

The FCC did not "acquire this power," the FCC is proposing to simply assume and assert this power by tech elite  acclamation.

The term "net neutrality" slogan was first coined by Columbia Professor Tim Wu in 2002, and Google rebranded it as the "open Internet" in 2007 when Google bankrolled the creation of the Open Internet Coalition. Net neutrality was further sloganized as "the First Amendment of the Internet," as tech elites have self-deemed that an "open Internet" is an American's "right."

Obviously the FCC has not acquired "the  power" to mandate net neutrality and an Open Internet.

I admire clarity of thought, and Richard Epstein's Op-ed in the Financial Times, "Net Neutrality at the Crossroads," represents some of the clearest thinking I have found on net neutrality. Please read it.

Mr. Epstein does a great job of exposing the folly beneath the vacuous sloganeering of net neutrality proponents.

The FCC's proposed Open Internet regulations (NPRM) are sweeping and audacious.

First, the FCC proposed rules are audaciously attempting to implement the introduced-but-never-passed Markey bill (HR 3458) entitled:  the "Internet Freedom Preservation Act of 2009." The purpose, premises, language, and core positions are nearly identical for anyone willing to forensically compare the NPRM and HR 3458. 

Does anyone else see the irony of a staunchly anti-business and anti-property activist organization like FreePress -- which openly advocates for an information commons and a broadband public utility model -- attempting to be credible doing private investment analysis for the FCC? 

• Mr. Derek Turner of Free Press wrote  "Finding the Bottom Line: The truth about network neutrality & investment." 
• The last time FreePress attempted economics in a public forum, FreePress asked in a letter to Congress "whether above-cost... pricing for broadband constitutes an unfair business practice." 
  • Given that FreePress was not aware that "above cost... pricing" is called profit and has always been legal in America, despite FreePress' views to the contrary, call me skeptical about FreePress' competence and genuineness in attempting private investment analysis.

If FreePress does not believe in free enterprise or private property, and does not understand concepts like profit, I am doubtful they can accurately or objectively analyze the economics or the business case for private long-term capital investments. 

Mr. Turner tries desperately and unsuccessfully to assemble "evidence" to prove the ridiculous assertion that regulation does not deter private investment.

The litmus test of whether the FCC's proposed net neutrality rules are really endeavoring to prevent anti-competitive behavior on the Internet (and not about turning private broadband networks into a public utility), will be whether the rules apply to all Internet competitors, which could be anti-competitive, like the existing consensus FCC Broadband Policy Statement already does. 

• If reports prove correct, the FCC will propose to remove the existing FCC net neutrality principle #4 that "consumers are entitled to competition among network providers, application and service providers and content providers," and that new net neutrality regulations apply only to broadband ISPs.
  • Such a change would be new anti-competition policy and completely contrary to existing U.S. pro-competition law/policy, and FCC precedents.
  • Such a change would also not be neutral or fair, but arbitrary and capricious.

Why an FCC Googleopoly exemption from Net neutrality would be transparently capricious.

First, there is more evidence of violations against net neutrality by one company, Google, in one year, than there is evidence against the entire broadband sector over the last five years! 

72 House Democrats wrote the FCC pushing back on the direction the FCC apparently is headed in its proposed Open Internet/net neutrality regulations to be voted on October 22nd. From the letter:

• "... it is out strong belief that continued progress in expanding the reach and capabilities of broadband networks will require the Commission to reiterate, not repudiate its historic committment to competition, private investment, and a restrained regulatory approach."
• "We are confident that an objective review of the facts will reveal the critical role that competition and private investment have played -- and of necessity will continue to play -- in building robust broadband networks that are safe, secure and open."
• "In light of the growth and innovation in new applications that the current regime has enabled, as compared to the limited evidence demonstrating any tangible harm, we would urge you to avoid tentative conclusions which favor government regulation."
• "...we remain suspicious of conclusions based on slogans rather than substance and of policies that restrict and inhibit the very innovation and growth that we all seek to achieve." 

It was signed by the 72 House Democrats listed below:

72 Signers: 

The most basic smart network innovation and obviously reasonable network management is already being chilled by the FCC's expected absolute ban on any Internet traffic prioritization.

• Light Reading reports: "Cox shuts down Net Congestion Tests"
  • "Cox launched the trials in February, testing out a system developed internally that puts traffic into "time-sensitive" (e.g., Web pages, voice calls, streaming video), and "non-time-sensitive" (e.g., file uploads, peer-to-peer, and Usenet) buckets. As designed, the congestion management system temporarily delays upstream, non-time-sensitive traffic whenever network congestion is detected. Cox, which limited the test to residential high-speed Internet subs, insisted that any delays were on the order of seconds or subseconds -- not enough for customers to really notice."  
• Multichannel News reports: "Cox Wraps Internet Congestion Management Test -- Operator Plans to Submit findings to FCC as Part of Network Neutrality Rulemaking Process"
  • "...the operator is no longer managing traffic based on application type in Kansas/Arkansas and has no plans to deploy the congestion-management system right now."

Who thinks it is not "smart" or "reasonable" to prioritize time-sensitive traffic over non-time-sensitive traffic? 

Both the FCC and FTC Chairmen appear to be suggesting that the current fifteen-year competition policy experiment in law to promote competition and reduce regulation in communications will ultimately fail -- requiring new preemptive common-carrier-like nondiscrimination regulation of ISPs to preserve a free and open Internet.     

• In his September 21st speech, FCC Chairman Julius Genachowski's first reason justifying the need for preemptive new FCC net neutrality regulations was limited ISP competition:
  • "One reason has to do with limited competition among service providers. As American consumers make the shift from dial-up to broadband, their choice of providers has narrowed substantially. I don’t intend that remark as a policy conclusion or criticism -- it is simply a fact about today’s marketplace that we must acknowledge and incorporate into our policymaking." 
• FTC Chairman Jon Leibowitz, in a 10-4-09 letter to the editor of the Washington Post in response to the Post's editorial, "The FCC's Heavy Hand," said:
  

Bret Swanson of Entropy Economics penned another great op-ed on net neutrality today entitled: "Google and the problem with net neutrality: Broadband has been a rare bright spot in the economy. Why discourage investment?" 

My favorite point Bret made was pointing out all of the investment, innovation and competitive benefits that have occured since net neutrality supporters have said there was a problem requiring regulation circa 2004. 

• Not only have net neutrality supporters not been able to find credible evidence of an industry pattern of anti-competitive problems over the last five years, they also are ignoring all the competitive gains and benefits that have occurred over the last five years as well. 

Facts matter and facts are not the friends of net neutrality proponents.    

If you are interested in learning great "pearls of wisdom" based on expansive experience and clarity-of-thought on the question of wireless innovation, and proposed Internet regulation of wireless innovation, please read the Farber-Faulhaber white paper; at a minimum, please read the many wonderful highlights that I have pulled out of the paper for you below.

Professor Dave Farber, a widely respected Internet pioneer who has been called the "grandfather of the Internet" for his contributions to computer science, and a former Chief Technologist for the FCC, co-authored an important white paper with Professor Faulhaber for the FCC's Wireless innovation Notice of Inquiry.

Highlights from this outstanding paper: