FTC on Net Neutrality: Absence of Evidence Is Not Evidence of Absence

by Barry Payne

The Chair of the Federal Trade Commission, Deborah Platt Majoras, speaks in riddles about net neutrality the way Donald Rumsfeld spoke about the Iraq War. (See "The Communicators", C-SPAN, July 12; FTC Report on Net Neutrality, June 27)

Her message is to stay the course on regulation, which means no enforcement of net neutrality. Repeatedly citing "unintended consequences of regulation", Chairman Majoras claims in effect, that in regard to the intended regulation that brought us the internet, the absence of harm (then) is not evidence of absence of harm in the future.

As Rumsfeld, a world champion of unintended consequences might say, Chairman Majoras can't know what she doesn't know. So which is it: Did regulation come first or was it the internet? As the internet evolved, was it regulation or market forces that kept it going? Is net neutrality an essential condition of the internet or merely one of many possible and acceptable market outcomes?

In each case, regulation preceded and accompanied the internet as a necessary but not sufficient condition of its existence. Net neutrality is an offshoot of common carrier regulation of voice-grade telephone service that put all voice content on a level playing field - no discrimination allowed with regard to what was said by whom. There were hook-up fees, flat rates, per-minute rates and charges for enhanced services, but among similarly situated customers (with similar cost) there was no discrimination allowed in access and price for these services.

Since then, internet service has been reclassified by the courts and regulators from a "telecommunications" service to an "information" service and no longer qualifies for protection from discrimination by carriers as a "neutral" service. The only reason the carriers are holding back from setting up "toll booths and ... charging admission" (stated by CEO Whitacre of AT&T, June 5) is the possibility of a customer-driven legislative backlash that could reinstate or substantially alter the reclassified neutrality provisions.

However tenuous its status today, net neutrality remains in full force from its inception with the internet to serve as the essence of its being, to "let a thousand flowers bloom". For Marjoras to suggest that its continued enforcement constitutes "new" regulation with "unintended consequences" smacks of the tortured logic of a free-market lunatic claiming that the greatest invention of the twentieth century, the transistor, could not possibly have been created in the late '40s at AT&T's Bell Labs because there was no incentive - it was a regulated cost-plus monopoly. It must have been a conspiracy to conceal the real inventors - perhaps some anarchists working in their garage and reading Adam Smith in their spare time.

For someone with an antitrust background, Marjoras fails through the fog of industry talking points to demonstrate even a rudimentary difference between substantial market power and effective competition. Net neutrality is about thriving competition among the end users, not the carriers as confused by Marjoras. The broadband carriers are not effectively competitive despite some FTC economists and lawers at the FTC who would likely prefer a Facisto Mussolini Network over one by Communist Muni Wirelesso. Practically, there's a cable and DSL duopoly for most of the 91% of the US population that have access to broadband, and it's attempting to control wireless broadband as well.

When 83% of South Koreans can access 10 Megabits per Second for $20 a month - twice the capacity for half the price in the US, all of the claims by Marjoras about potential harm from enforcing net neutrality evaporate from the lobbyist pages on which they were written. It's not about the ad nauseam polarized talking points on regulation versus deregulation or government versus private provision bandied about by Majoras and her ilk. It's about the hundreds of billions of dollars in economic efficiency and welfare that will be lost if net neutrality is abandoned.

Net neutrality does not :

(1) deter investment sufficient to deter outages or delay service; (2) prevent congestion pricing and management; (3) reduce economic welfare by preventing price discrimination; (4) reduce variations in quality offerings; (5) prevent high or low-speed lanes or non-discriminatory charges assessed to end users for differences in connection capacity; (6) prevent or discourage carriers from owning and offering content on a level playing field; (7) prevent price discounts for any reason other than cross-subsidy of a carrier's content, or (8) prevent a variety of technical variations in providing service to customers.

Net neutrality does:

(1) add huge amounts of added value to economic output; (2) promote vibrant, effective competition among millions of end users (the kind Rumsfeld used to constantly complain about); (3) act, for example, as an enormous offset to the lack of access to medical care in the US by those who use it to learn about their medical problems and alternative solutions; (4) operate like the massive array of content that moves over transport networks - highways, rail, air and sea - managed with no discrimination of content beyond weight and size; (5) act increasingly as an essential public utility no less important than water, electric, phone and gas services, particularly in regard to the exercise of free speech.

Private, separate data networks of the past like AOL, Prodigy and others have already been rejected by internet users for the open, public interconnected platform we have today. That was some of the economic choices Marjoras and her kind claim to respect in the market. They were made. Those entities failed. Now Majoras et al are trying to revive them, but this time jammed down the throats of customers by sheer market power, not through economic competition.

The internet is the last bastion of free speech and civil liberties to kick and scream about all variety of thugs, but these particular thugs will prevent access to the rest of them. When it quacks like a quack, it's a quack. Call them on the absurd talking points fed to them by the lobbyists. They want to cut up the internet and sell it back to customers in pieces of restricted access. Then it starts to look like what's happening to other parts of the Constitution. If this happened to the transportation system, people would raise bloody hell. It's happening to free speech. Raise more hell accordingly.

Barry Payne is a free-lance Economist, Ph.D., with 20 years of experience in regulation at the FCC, five state regulatory agencies in Florida, Minnesota, Illinois, North Dakota and as Assistant Professor at Ohio University. He can be contacted at bbpayne@earthlink.net.