Deregulation

It looks like some national net neutrality proponents groups have suckered some well-intentioned, but unsuspecting Maryland delegates into sacraficing Maryland consumers as pawns in their national chess strategy over net neutrality. Maryland consumers deserve much better.

• Twenty three Maryland delegates have proposed bill HB 1069, a bill which would regulate the Internet access of DSL, cable modems, wireless broadband, and BPL; would impose net neutrality only in Maryland; and would require detailed quarterly reporting of broadband deployment in Maryland.  

I'll bet the national activists that sold this fraudulent bill of goods to the unsuspecting state delegates, only told their unsubstantiated side of the story -- ill serving Maryland consumers and lawmakers in the process.

The Wall Street Journal's lead editorial today: "Broadband Breakout" once again proves that they have a very knowlegable and sophisitcated understanding of the successes of broadband competition, deregulation, and competition and of the risks of "net neutrality" or Internet regulation 

The Journal also picked up the point I made here in a previous blog that you have to look at the trajectory of competition, is it increasing?

Tim Karr, the campaign director of Free Press that runs much of the SaveTheInternet effort, blogged a personal attack on me today, that I responded to on his blog.

• I include the full text of my response below in case Mr. Karr is not willing to post my comment on his blog.

Tim,

It's not the first time I've been called names by people who wanted to discredit me and my analysis. Among others, you share the august company of the now-imprisoned Bernie Ebbers, who routinely derided me as the "idiot analyst" because I had his number in calling WorldCom "dead model walking" before anyone else in the country figured it out. He too was mistaken that name calling and intimidation could muzzle my views.

Overall I think the FTC has done a pretty good job of presenting a balanced view of the net neutrality issue.  I commend them for calling the workshop "broadband connectivity competition policy." That is what the issue is all about-- in generic non-loaded terminology.

To be brief, I will highlight just what I thought was most noteworthy.

The distinguished practioner and academic, Fred Kahn, is always a joy to learn from. Besides making his main point that government should resist its propensity to meddle he was particularly critical of many people's use of the term "discrimination." As an economist, he was frustrated that people were using the term discriminatory just if it was differential. For those that don't know or understand economics or competition policy, Mr. Kahn stated simply -- if there is opportunity cost involved, its not discriminatory. What he reminded people of is that there are lots of legitimate economic, functional, and consumer welfare reasons why service and prices can and should be different.

Alan Davidson of Google clearly took a different tack than usual. He further retreated trying to respin Google's grandiose vision of net neutrality to be more "reasonable." He gave Google's blessing to the Internet continuing like it is -- charging differently for different speeds. He also gave America Google's permission to continuing caching and stopping denial of service attacks on the Internet. Thank you Google for your permission, it means so much.

Alan Davidson of Google then went on to say that Google only has a very "small" problem with just "one type" of router discrimination -- trying to appear reasonable. Unfortunately, to anyone that uderstands networks and competiton, his "reasonable" approach is about as "reasonable" as a doctor telling a patient that all the parts of their body are healthy but that he just needs to remove their "small" cerebellum.

My core problems with Professor Tim Wu's white paper for the FTC on wireless net neutrality are with his disguised core assumptions.

First, it is clear from  Mr. Wu's top two recommendations that Mr. Wu rejects U.S. competition policy and wireless competition policy as abject failures.

• He recommends caterfone for wireless!
• The simple translation of his oxymoronic recommendation is: foster a competitive market by regulating it like a monopoly. 
• He then doubles down on his Government-knows-best view and recommends monopoly non-discrimination regulations for competitive wireless carriers.
• What he is really saying is abandon competition policy and let he and his brethren decide what's best for everyone.

Mr. Wu should come clean and just say in a straightforward language what his White Paper strongly implies.

• Its obvious that Mr. Wu does not think that competition works in communications or in wireless.
• He does not think competition best serves consumers, and has the datatopian view  that "benevolent all knowing" regulators need to decide what technologies should succeed, who can innovate and who can't, who can make money and who can't.

Second, Professor Wu analysis suffers from what I call the "perfection fallacy."

I have attached the link to Esther Dyson's important interview on net neutrality.

• Her real life experience and leadership in dealing with ICANN and government regulators is worth paying attention to.
• Esther is very widely respected in the Internet community and always thoughtful in her approach to problems.
• She has even been dubbed the "Internet High Priestess".

I was pleasantly surprised and very pleased that FCC Chairman Martin proactively released a proposed order that would reclassify wireless broadband as a Title I information service, as reported in today's Comm Daily. This order, which looks to have the support of the Republican majority, would continue to harmonize the regulatory treatment of all the major modes of broadband.

• The FCC has already classified cable modems, DSL and BPL as unregulated info services.
• Given the robustness of wireless competition in the U.S., reclassifying wireless broadband as an info service should be a no-brainer.
• The FCC should also do another order to classify satellite broadband as an info service as well.

Why this is relevant to NN is that the expert agency overseeing competition in this market segment is concluding that there is sufficient competition to not require common carrier-like regulation.

• The U. S. has three times more WiFi hotspots than any other country and more facilities-based wireless broadband investment and deployment than any other nation in the world through Verizon, AT&T, Sprint and T-Mobile. Moreover,  Sprint and Clearwire are also beginning to build national WiMax networks.
• Wireless competition is robust, clearly warranting an info services classification.  

Evidence continues to mount that the broadband sector is increasingly competitive and that it is not the permanent cable/DSL "duopoly" that net neutrality supporters claim. The FCC just released its biannual report on high speed of broadband adoption and the new evidence showing more competition is powerful.

The most important takeaway from the FCC's report is that 58% or 7.9m of the 11.0m total broadband adds over the first six months of 2006 were wireless broadband -- NOT DSL or cable modem.  That's not how a "permanent DSL/Cable duopoly" behaves -- is it?

Now that the Democratic-controlled Congress is back in full swing, and now that a lot of cards have been put on the table, its helpful to take stock of where we are on the net neutrality issue. Below I provide: an overview, a Senate outlook and a House outlook. 

My bottom line analysis is that there is a very low liklihood of net neutrality legislation passing in this Congress, despite the hype.

• That said, I have seen nothing that would suggest that net neutrality won't remain a leading techcom issue in Washington for years to come.  

Overview:

Given that net net neutrality advocates really want a change in the law, they badly blew their golden opportunity last year to get net neutrality principles into law -- by wildly overplaying the moderately strong hand they had last year.

There's new evidence today that Yahoo continues to stumble as Google continues to gain market share. Yahoo just announced meager 13% revenue growth for 4Q06, while Google announced at the end of the year that Google's revenue grew 86% during the same period. (That's over SIX times faster for those who care about those things!)

This is powerful additional confirmation that Google is quickly on path to reach 50% market share and beyond, a significant antitrust threshold of being considered "dominant" and warranting "stricter scrutiny" of its business practices for potential anticompetitive behavior.  I explained the broader significance of this "dominant" threshold in my blog yesterday.