Thursday, April 06, 2006

Net Neutrality and Regulation

So here's a new post for you. Amazing, huh?

I just read this article regarding the defeat of a Democrat-backed amendment proposal to require telecommunication providers to offer "Net neutrality." The idea behind Net neutrality is that telcos must focus solely on passing all bits through at the highest speed possible without regard for what the nature of those bits are. The telcos, such as Verizon and AT&T, have lobbied very hard to defeat Net neutrality. And, for now at least, they have won.

First, let me note that the defeat of this proposal does not outlaw Net neutrality. It simply does not require it. As usual, conservatives are applying the "free market" ideal without acknowledging basic facts. The article quotes Grover Norquist as saying Net neutrality regulation "would begin down the dangerous path of Internet regulation." I.e., requiring Net neutrality could lead to an overzealous FCC stepping in and regulating content, censoring controversial ideas, etc., etc. As usual, the free market ideal is the answer to everything. The government should not interfere.

The flaw in this thinking is that we are simply trading in one kind of regulation for another. Now, it is not the government who will be regulating content, but monopolies. When I lived in Vermont, I had one choice for cable access: Adelphia. If I didn't like their service, well frankly, tough luck. My free market choice was to submit to monopolistic price gouging or go without cable service. I did have other alternatives, such as Verizon DSL (another monopoly) or dial-up. This is far from the ideal of free market competition. What makes this especially bad is the fact that you have monopolistic interests as an intermediary to information access. A free and democratic society requires open access to information. This open access is incompatible with absolute free market capitalism, when monopolies interfere. In this case, a government of the people, for the people, and by the people, has a duty to intervene and offer a compromise.

I've been speaking about general access, but what do all these vague generalities have to do with Net neutrality? In arguing against Net neutrality, the telcos are claiming that their motivations are to prioritize certain services, such as streaming video, to make them commercially viable (see this article). OK, sounds reasonable enough, but what is the problem? And if it is really about providing better service, why are so many tech companies (Google, Yahoo, Microsoft, eBay, Amazon, etc.) in favor of Net neutrality? The answer is money. In order to fund this prioritization, content providers would pay the telcos a premium access fee to use the high speed capabilities. Is anyone naive enough to think that SBC, Verizon, etc., will offer this premium access out of the goodness of their hearts?

What makes this especially laughable is that telcos are also service providers. Let's say Verizon decides to prioritize VoIP traffic. (I think they offer VoIP, but I'm not entirely certain. Assume they do for the purposes of this example.) Getting this premium access ensures that VoIP calls go through with more clarity. Obviously, charging a market-set premium access fee will benefit Verizon and hurt Skype. So if you live in Vermont with Adelphia cable access, and Skype is in California with Comcast internet access, you (and it will be you) now have to pay Verizon for your call to go through. Or Skype could choose to not pay the premium, and you would get worse service than if you had VoIP through Verizon. Obviously, this is a game that only benefits the telcos. It allows them to use monopolies in one market (control of the data transfer lines) to benefit their other services. This is exactly the reason that anti-trust legislation has long been on the books.

Allowing telcos to prioritize data transfer as they see fit will lead to increased costs borne by the consumer, increased barriers for small companies to compete, and further centralization of information control in the hands of large providers. Free markets are good when the economic theory aligns with the reality. In the case of internet access, that is not the case.


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