Deregulation

A great editorial in the European WSJ, "Net Loss" by analyst Alec Van Gelder, alerts us to the potential for regulatory creep to occur in the European Union (EU) and how it relates to the U.S. net neutrality movement.

• The EU has never met an economic regulation they did not like; that's because the very nature of the EU systematically subordinates individual country's economics to the EU's over-arching imperative of the socialization politics of unity.
• The EU is a political union that forces economic standardization through regulation.

This fine WSJ piece alerts us to some potentially troublesome developments in the EU: draft laws are due this July on the EU's "standardization policy for the information and technology sector."

• The EU mantra of standardization, socialization, and politicization of economics is exactly why the EU is routinely hostile to U.S.-style capitalism and competition that has made our economy the envy of the world for decades.
• In the EU, socialization politics are supreme not economics, freedom, competition or innovation.
• This Government-solution orientation gives the EU a natural and scary bias toward net neutrality.

Now it will become more clear why I wrote the commentary "America's Unique Internet Success" in the Washington Times last month.

SaveTheInternet's Free Press arm and other liberal advocacy groups are going to ask the FCC to impose net neutrality on the winners of the upcoming 700 MHz wireless auction, according to Tech Daily on 3-30-07.

• While I guess I have to give these groups credit for their persistence, they are basically spitting into the wind on this one.

Less than two weeks ago, the FCC unanimously voted to classify wireless broadband as an unregulated information service which pratically means that net neutrality does not apply to wireless broadband.

The Fiber to the Home Council has produced a great new flash video highlighting the "Exaflood" of data that is literally flooding the Internet requiring it to be upgraded.

• Don't miss this four-minute, very-informative flash video.
• It helps the average person to make sense of all the changes on the Internet and how they all add up to one big thing:
• that Internet capacity needs to increase BIG TIME and fast!

Its a great problem to have.

• The need to constantly upgrade, build-up and build-out the Internet is a great testament to the Internet's ever-increasing value and dynamism in everyone's lives; and it is also a testament to the competitiveness of everything Internet.
• Anything good deserves investment to protect it and improve it.

Why I like the flash video so much is that it persuasively spotlights how vibrant and healthy the Internet is today.

• Net neutrality proponents are really missing the boat here.
• They are hysterical that the only big Internet issue is net neutrality -- preemptively solving a non-existent problem.

If net neutrality proponents were more responsible they would also be focused on solving real (not hypotheical)  ongoing problems that are critical to every user every day, which is how to increase the Internet's capacity so that it can continue to operate as it has or better.

The Bottom line: Net neutrality proponents are missing the proverbial forest for the trees.

As a fervent and principled advocate of free markets and competition, I have also been a long-time proponent of principle/precedent-driven anti-trust enforcement under the law. I truly believe that real competition is good and that real, legally-determined monopolization is bad.

• The Washington Post article today: "XM-Sirius Debate Comes down to Competition" goaded me to write.
• When Gigi Sohn, of Public Knowledge, one of the biggest supporters of net neutrality, becomes a strong advocate for this merger, as in the public interest if they price and content regulate it to the hilt, we are in la la land and not in the land of competition ad antitrust.

Any principled antitrust analysis of the XM-Sirius merger will find this merger quite quickly to be a "no-brainer" decision -- that it is anti-competitive and illegal under long time anti-trust precedent and competition policy.

I sincerely hope that everyone who cares substantively about the net neutrality issue, on either side of the debate, reads the new 2-1/2 page "Economists' Statement on Network Neutrality Policy" by the AEI-Brookings oint Center for Regulatory Studies.

• This joint statement is a brief and easy read,  and is among the clearest, most reasonable, and value-added statements I have seen on the subject.
• It should not be surprising then that it is written jointly by some of the best and most respected regulatory economists in the country.

We are still waiting to read a cogent, well-reasoned and supported piece of work that supports the policy of Net neutrality. All we have gotten is assertions, hypotheticals --virtually no facts or analysis from the other side.

The NYT lead business article on Google entering radio advertising, "The Ad Search, Offline" is a shining example of the theme in my recent blog "Google-YouTube: What's really going on."

• Google is not negotiating with content networks as a "friendly partner" but is a clever competitor sneaking in to disintermediate content-networks from their customers.
• Broadcasters need to realize Google is their competitor, not their ally.  

I got the "fox in the henhouse" title for this blog from the last quote in the NYT article:

Hal Singer of Criterion Economics has a very good commentary today in Canada's Financial Post called "Not Neutrality."

Hal is a very clear thinker and anyone who quotes Milton Friedman in a supportive way is alright by me.

One passage of Hal's commentary really hits the nail on the head about how insidious net neutrality is:

• "Although the idea has taken on many meanings, net neutrality is fundamentally about denying a voluntary exchange between two consenting parties for the sake of equal outcomes. The argument goes something like this: If my Web site cannot afford certain bells and whistles to make real-time applications run better, then my rivals should be prevented by law from purchasing those enhancements from any broadband service provider."

The latest research data from CTIA has some eyepopping big numbers on how much U.S. wireless providers are investing in wireless and broadband wireless competitive facilities.

• According to the CTIA latest numbers, the wireless industry invested $24.4 billion in facilities in 2006.
• That makes a cumulative investment by the industry of $224 billion in competitive wireless facilities.
• This is way more investment in competitive wireless facilities than any other nation in the world.
• This is additional evidence to bolster my thesis that America is unique in developing robust competitive broadband facility competition, which I made in my Washington Times commentary: "America's Unique Internet Success."  

Those NN proponents who dismiss that broadband is a competitive market and only getting more so, continually ignore the overwhelming facts available.

Google-YouTube like to spin that the billion-dollar copyright law suit from Viacom and the new online venture by NBC-Newscorp is just about "negotiating."

• Don't believe it.
• This is not simply a negotiation over "price;" it's all about video competition and the viability of video business models going forward. 
• Google-YouTube are the video networks biggest competitive long term threat, not their natural "business partner."

What's really going on is Google-YouTube is trying to disintermediate all video content and network companies.

• Google believes it has a more efficient monetization mechanism for advertising than any of the current or traditional models.
• So Google is making a play to effectively insert itself in between content players and their existing customers so that Google controls the monetization of the customer relationship -- not the content company.
• In other words, Google believes its Youtube "distribution network" as Google CEO Schmidt calls it, is superior to the content networks of NBC, CBS, Viacom, ABC-Disney, Fox-NewsCorp among others.
• What this really is about -- is competition, not negotiation.
•  Google wants to steal the video content players audience from them and in the online space they have largely succeeded to date.
• According to Nielsen/NetRatings for February, YouTube had 42m audience, Google Video had 21m audience and the next three largest, AOL video, MySpace video, and MSN video, each only  have 12-13m audience a piece.

Make no mistake. Google already has built the largest "audience" of any "network" in the world -- ever.

The most relevant part of the FCC launching a Notice of Inquiry (NOI) into the net neutality issue was FCC Bureau Chief Tom Navin testifying that no one has formally complained about blocking and no one has formally petitioned the FCC on the matter. 

• In other words, there is no there there.

The FCC is launching an NOI to cut through the hysteria and misdirection and finally get the facts on the record.

• The NOI is basically the FCC saying its "put up or shut up" time.
• Make your case or go away.

While I don't think this bogus and completely unsubstantiated issue is even worthy of an NOI, I can understand why the FCC would want to launch an NOI to ensure that no one can say the FCC is not taking this issue seriously.