This week, I submitted a report to the Federal Communications Commission in its highly-charged net neutrality proceeding, which proposes to reverse the "reclassification" of broadband Internet access as a public utility.
My comments addressed a specific question in the FCC’s May notice, which asked about the cost utility treatment for ISPs was having on innovation, both inside the network and in products and services—search, video, and emerging applications including the Internet of Things, autonomous vehicles, and virtual reality--offered on top of it.
The costs, it turns out, are high, and growing higher, while the benefits, if any, are fading fast.
Not that you’d know that from the massive public disinformation campaign being waged by proxies for leading Internet content providers funded by two well-known foundations.
Before a transition team had even been formed after last year’s election, coordinated advocacy groups have been insisting that unless consumers took immediate action the agency would destroy “the Internet as we know it” by “killing” net neutrality rules passed in 2015.
Regular readers will already know that the reality is something very different.
For one thing, as fellow Forbes contributor Roslyn Layton explains in her filing, the motive for pro-utility activists was never preserving net neutrality—a squishy non-engineering concept that referred initially to how Internet traffic should be managed but has since morphed into media-friendly shorthand for everything from democracy and free speech to “fairness” and basic human rights.
But all that Chairman Pai proposed to do back in May was to undo the transmutation of broadband ISPs into public utilities, subjecting them to common carrier regulations developed piecemeal in the last century to regulate the former Bell Telephone voice monopoly.
The undo is certain to happen, perhaps as early as later this fall. Whether or in what form the net neutrality rules themselves will continue, or whether they will continue to be enforced by the FCC or revert to the Federal Trade Commission, remains to be seen in the coming months.
My report addressed the damage already done through public utility treatment. Beyond serious legal, technical and economic drawbacks, detailed in dozens of other filings the agency will now review, reclassification violated what I coined in 1998 as “The Law of Disruption,” which states that while technology improves exponentially, social, business and political systems improve (if at all) incrementally.
Seen through that lens, attaching 19th century public utility treatment to broadband access constituted a dangerous violation by the FCC of legal and engineering priorities that had been, for the twenty years during which broadband was lightly regulated, generating profound value to consumers around the world.
Among the many unintended side-effects of that violation:
1. Skewed the competitive dynamics of the Internet ecosystem - Innovation in the development of broadband networks, which continue to get faster, more reliable and cheaper, was artificially decelerated to the speed of regulatory change.
Though the FCC referred to the “Internet ecosystem” thirty times in its 2015 Open Internet order, it never dawned on the Commission that in a tightly interconnected set of industries, attaching so heavy an anchor to one part of the Internet ecosystem had the effect of distorting competitive dynamics for everyone.
As Netflix’s own on-again off-again interest in the proceeding has demonstrated, public utility regulation for ISPs, with the potential to expand to price controls and service limits still on the books, invited buyers, suppliers, new entrants and substitute products to lobby for competitive advantages through the FCC rather than achieve them in the market with better and cheaper innovations.
The same “rent-seeking” behavior, as economists refer to it, was likewise explicit in efforts by Internet advertising giants, notably Google and Facebook, to lobby the FCC through their trade associations for new, restrictive data collection and use rules that would have applied only to ISPs, who currently have almost no share of the market.
(The FCC passed the rules in 2016, but Congress nullified them before they took effect.)
2. Killed incentives for ISPs to compete or innovate – By design, public utilities are regulated monopolies; they do not compete. Demand for even more extensive public utility oversight by federal and state regulators further dampened what had been increased competition--and, in response, accelerated innovation--between wired and mobile broadband networks.
Investor appetite to support innovative new entrants including satellite-based and fixed wireless broadband, as well as advanced Wi-Fi networks being built by cable providers and others, was thrown into uncertainty.
As with all public utilities, both the ability and incentive for ISPs to continue developing disruptive innovations was severely impacted. Today, for example, power utilities have neither the mentality nor permission to disrupt themselves with an alternative, sustainable forms of energy generation. Instead, the industry is largely waiting to be decimated by unregulated new entrants.
Likewise, broadband innovations that have dramatically increased speed, reliability and price—including fiber optics, LTE mobile networks, DOCSIS 3.1 for cable and VDSL for copper/fiber hybrid networks—no longer make economic sense in an environment where price controls could be instituted at the whim of a future FCC Chairman or an interventionist White House.
3. Dangerously and needlessly discouraged emerging technologies – Public utility reclassification, along with a vague General Conduct “standard” added at the last minute to the 2015 order, discouraged broadband network operators from continued investment in two critical areas of network development: network management technology for today’s infrastructure and development of next-generation networks, in particular 5G mobile.
Why? The inconvenient truth in the non-debate over net neutrality all along has been that Internet data packets never have and never should all be treated equally. (The term was created not by engineers but a legal academic, in 2003.) Voice and video must be given priority, for example, and the most-frequently requested content has long been replicated at key points throughout the network, giving them a “fast lane” to consumers.
Other network management technologies, including content delivery networks, colocated servers, virtual private networks and anti-malware software may not be “neutral,” but they have become essential for the smooth operation of the Internet.
Likewise, the evolving architecture of next-generation 5G mobile networks is inherently non-neutral and blurs the line between what the FCC describes as “core” and “edge” providers to the point of being meaningless.
In the 5G architecture, the Internet will be re-architected to allow high-availability, low-latency applications, including autonomous vehicles and other real-time applications, to have a prioritized “slice” of the network. Content will no longer be accessed at a single host location but will migrate to multiple locations, perhaps down to the level of individual routers, based on demand and use.
The addition of an undefined General Conduct standard threw into perpetual doubt the legality of any future network management technology and the ability of mobile providers to deploy 5G networks—estimated to require over a trillion dollars in new private investment over the next decade.
That became clear almost immediately when the Commission launched a meandering, open-ended inquiry into special programs that allowed consumers to access some content without counting toward data caps—known as “zero rating.”
The zero rating investigation, which limped along until Chairman Pai shut it down earlier this year, made clear that the FCC, under its previous Chairman, was committed to policing technical and business innovations, and doing so at its own pace.
(For what it's worth, a preliminary report, leaked after a year of investigation that hadn't yet gotten around to asking about pricing, nonetheless concluded that two of four programs under review did not violate the General Conduct standard.)
Even if future FCC general conduct investigations ultimately allowed some innovations and architectural changes, the new process slowed new developments to the pace of Washington decision-making.
In an ecosystem where a few weeks can make the difference between a Big Bang Disruption and total failure, the FCC’s public utility clock speed has already proven determinative.
4, Replaced “permissionless” innovation with nonbinding “advisory opinions”– Recognizing the “risk” to innovation that the General Conduct standard posed, the 2015 order half-heartedly offered ISPs a way to safely develop and improve their networks under a public utility regime: If a provider had a “prospective” business or technical innovation that it thought might run afoul of the General Conduct standard, it could apply to the FCC’s Enforcement Bureau for an “advisory opinion.”
As the name suggested, advisory opinions were not binding on future agency action, which could come at any time a complaint—perhaps from a non-regulated ecosystem competitor—arrived.
And while the Commission acknowledged that Internet time continues to accelerate, the 2015 order refused to commit to a timetable for reviewing requests for advisory opinions, or even whether the agency would ever issue one.
Applicants, moreover, were required to submit proprietary details of their proposed new service or technology, which would become part of a public record conveniently available to competitors.
Taken together, the General Conduct standard and the advisory opinion process ended what Mercatus Center scholar Adam Thierer has described as the “permissionless innovation” standard that has governed the Internet ecosystem since at least 1996, when Congress passed a law declaring the policy of the U.S. to leave the Internet “unfettered by Federal or State regulation.”
The FCC’s wide-ranging, 400-page order instead opted for precisely the opposite, demanding that ISPs and their immediate business partners apply for permission for any improvement to the network—permission that wasn’t permission at all, and which might never actually arrive.
These needless and dangerous innovation-killers, in addition to the other legal and economic problems caused by the hastily-crafted 2015 Open Internet order, justify Chairman Pai’s proposal to reverse course and return ISPs to full participation in the Internet ecosystem, where they operated without violating even a strict definition of “net neutrality” for twenty years.
Neutrality was never seriously at risk, nor is it now. But if it is, legislation proposed by Republicans before the FCC swallowed the bitter public utility pill remains the only viable solution, if only to avoid another decade of see-sawing decisions.
Chairman Pai is right to be undoing the damage done as quickly as possible.
