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SEIFFE:  Net Neutrality

Thursday July 13, 2006

By Ralf Seiffe

The debate raging in Congress over the concept of “Net Neutrality” pits those who own the Internet’s wired distribution system against those who make the Internet interesting.  In the simplest terms this complex question allows, the debate is about private property rights versus the public’s access to privately-owned assets.  In some ways the quarrel is similar to the conflict between farmers and ranchers who argued over barbed wiring more than a century ago. 

In one corner are the phone companies and cable operators who own the poles and wires that hook your house or office to the Internet.  Much like the yeomen of the nineteenth century who carved out family farms, these companies have made huge investment in the infrastructure that moves the bits and bytes to your computer.  They believe that users should pay for the privilege of using the bandwidth, just like their ancestors believed that ranchers shouldn’t be able to graze cattle on their farms without compensation.  So, like the old-time farmers, the telephone companies want to put up fences and charge users tariffs that reflect the value and utility of their capital assets.  

In the other corner, content creators such as Google and eBay want to use the telephone company assets and be treated in the same non-discriminatory way the Telco’s handle a telephone call.  Specifically, they want the telcos to provide the same Quality of Service (QoS) for all users.   QoS defines the likelihood that a packet of data traverses between two points in a network in an acceptable period of time and content providers worry that the telcos will tinker with QoS to create a reason to charge higher prices for access. 

Telephone companies who argue property rights make a good point.  Nevertheless, they must also realize they have the assets they do because state governments offered them monopoly franchises and then guaranteed returns for a century.  The poles and wires to which Telco managers proudly point are not the evidence of entrepreneurial prowess but the residue of government indulgence.  To the extent that the telephone companies will have to replace their copper wires with fiber, let them, and allow a return on investment, recognizing they have unfettered access to the capital markets as a consequence of their state protection.  

The content providers’ demand that they should be treated like customers of a common carrier is also appealing.   Beyond that, these vibrant, unregulated businesses contrast themselves with the telcos, pointing to the fact that the telcos showed us “picture phones” concepts at the 1964 World’s Fair but never delivered a real product.  It took the content providers to actually provide electronically delivered pictures, video and music.  Their argument that they improve life is convincing but that does not mean that the carriers should be prohibited from charging different rates based on the value, or more specifically, the size of the data shipment. 

Indeed, the reason “net neutrality” is so nettlesome is that both sides have good points.  I confess confusion about which side should score the win but a couple of extra data points are helpful.  The first is that no one has shown a bona-fide case where a broadband operator has discriminated against a content provider.  Until that happens, what’s the need for new regulations?  

Next, government only regulates that which is scarce or valuable.  In the case of regulated utilities, the animating concept is that the state grants a monopoly and excludes others.  In exchange the state requires the regulated utility to offer its services to all customers in a logical and non-discriminatory way. 

This premise may no longer be operative because new technologies are creating multiple pathways to the end-user.  As they develop, they will create new competition that will control prices and introduce new services much faster than in any regulated environment.  It clearly would obviate the need for conventional monopoly-utility regulation and eliminate the need for new federal “net neutrality” laws. 

The most significant of these new communications miracles is just over the horizon in the form of “broadband over power line”.  This new technology will allow the electric company to provide cable and phone service on the same wires and poles with which it delivers power.  In fact, early tests show power lines may be the biggest Internet pipes available and they represent a legitimate, effective competitor to the telephone and cable companies.  The best way to make this potential competition a reality would be to prohibit the states from excluding anyone who wants to offer broadband service under a proper interpretation of the Commerce Clause. 

A collateral benefit of a power line approach is that rural electrification has already hooked up every home in America with the possible exception of Ted Kaczynski’s shack.  This means the current “universal access tax” is about as necessary as the just repealed telephone tax imposed to finance the Spanish American War.   

One final data point that might help one decide which position makes the most sense is to look at proposed legislation.  The most aggressive proposal to impose net neutrality is HR 5273 which, in placid language, appears to be all sweetness and byte.  It requires any broadband service provider to be all things to all people even when providing such service essentially takes the service provider’s property.  What’s even more revealing is that the sponsors of HR5273 turn out to be the professional takers in Congress.  They include Ed “Lycanthrope” Markey, dance partners Tammy Baldwin and Barney Frank, Secretary of Defense-in waiting Jim McDermott, socialist Bernie Sanders, “Hollywood” Henry Waxman, Nancy “Botox “ Pelosi and her evil twin, Illinois’ own Jan Shakowsky. 

©2006 Ralf Seiffe

Ralf Seiffe advises business start-ups and product launches from Chicago, Illinois and is a political analyst and columnist for the Illinois Leader and Illinois Review.