Not Neutrality

Nothing demonstrates the relative youth of the Internet like a move from one residence to another.  The gas, electricity, and water are all hooked up before you step in the door, but it can take weeks for the last few feet of wiring to make its way into a new home.  Of course the aforementioned utilities are necessary at a very minimum for the physical sustainability of life, and in no way do I mean to assert that the Internet is more important than the others.  But what about the telephone line that was wired before I moved in, unlike any form of high-(read: today’s normal-, if not minimum-)speed internet?  Why was that wire laid if I can move in with a cell phone in hand?  Or if I can place phone calls with an internet connection?  Probably because they’re required to be there by law.

One might think that internet access has at least taken priority over the lesser–and subsumed/included–form of communication.  One might even expect that more companies might try to capture the Internet market since the first company to provide the high-speed internet can eat the lunch of each other media service, given that each and every service can be delivered via internet (i.e., the cross-elasticity of demand suggests that monopolists would seek the more all-encompassing market).  Or at least, one might expect all those monthly payments to be valuable enough to get more than one competitive service to invest in a given geographic area.  However, I am the proof in the proverbial pudding that such is not the case.  While I have near-obsolete telephony already wired and ready to go, the same wire that is already laid will not be partitioned for DSL, and Comcast cable internet remains inscrutably absent from the premises.  One might be led to believe that the costs of those investments are just too steep, which is why it’s a natural monopoly.

But then again, these providers are wiling to provide universal and comprehensive service when the FCC requires them to in order to operate in that market.  For example, the FCC’s Title II regulations require that telephone services provide truly universal service if the company is going to provide phone service to anyone.  Similarly, localities can negotiate the licenses for cable providers in such a way that cable providers are required to lay the cable comprehensively in that locality or choose not to enter that market.  That is the privilege of the state-sanctioned monopoly; governments minimize the extraction of consumer surplus by monopolists by negotiating rates and services provided.  Because once a telecommunications provider has invested the fixed costs, the long term variable returns will more than compensate.  The problem is that telecommunications providers prefer monopoly to oligopolies, regardless of consumer benefit.  It’s not easy being a monopolist when you have shareholders demanding continued and predictable growth quarter after quarter.  So these wire-layers are always looking for new ways to get more money out of that initial investment; they start providing internet over the same wires; they start charging more for HD channels; they start getting into the other telecommunications businesses once they realize that one wire delivers all form of information; they start consolidating with internet and media conglomerates; they buy out long-venerated network television companies; and they start making pumping internet companies for preferred access over those tubes.

Up against the profit-maximizing tendencies of telecoms trying to choke the most out of their tubes are consumers who otherwise benefit from a network that works as smoothly as possible.  One bedrock principle of the TCP/IP internet is that tubes in a network work best when they have zero friction and only do things that users or operators tell them to do (i.e., the end-to-end principle).  Recognizing those tendencies, the FCC has proposed new net neutrality “lite” rules trying to rein in the potential malignancy of the telecoms (and not for the first time).  These new rules, however, are not the firm commandment requiring universal access (though that option remains open) or the preservation of an end-to-end principle or any form of empowerment for the end-consumer.  Instead, the new order is a small list of vague and facile prohibitions that will get lawyered to death (literally) for lack of a significant guiding rule.  For example, telecoms can’t block services outright, but they are allowed “reasonable network management” (which creates an exception that might swallow the “no-blocking” rule if it means that cable providers can make competitors like Netflix move too slow to have clear video streaming or if it’s not “unreasonable”).  And the FCC’s rules are only explicitly protective of “legal” content, so telecoms can still do anything they want with content that might be illegal (I leave it to you to guess what Time Warner Cable or Comcast [post-NBC merger] might think is “illegal”).

The real failure of this form of unprincipled regulation is that it just encourages the telecoms to get creative.  Telecoms will figure out how to push the limits of “reasonable” network management to the extreme because they have the resources to test those waters and know that the long run profits are worth that initial investment.  What’s more, telecoms have the money to grease the hands at the helm and in charge of determining just what is or isn’t “reasonable” whenever an election is at hand (see, e.g., last election where every single supporter of net neutrality lost reelection — just a coincidence, right?).

Instead, the FCC should have been thinking about how to make the tubes more open and competitive markets, which would have forced telecoms to race to the top of consumer services, rather than the bottom.  For example, because I couldn’t get access to any of these providers (even before all these fancy new rules), I’ve signed up for Clear Wireless’s 4G wireless internet services.  Interestingly enough, the telecommunications services seem to have come full circle for me because the FCC’s original mandate was to regulate the broadcast spectrum that Clear Wireless operates on, and the FCC can auction off plenty of spectrum space (that is currently being used by AM stations and digital antennae) for all kinds of information transport.  Of course, my decision might prove short-sighted since the FCC’s new rules have a big gaping coverage hole that exempts wireless services from the same net neutrality rules.  Oops.