Thursday, August 17, 2006

Net Neutrality Unreality

There is an article in today's Wall Street Journal [subscription required] concerning a Cable Labs report that asserts cable operators may have to sharply boost capital spending in the future to keep up with their broadband rivals and to meet the increasing demand for high-speed Internet connections. Since the passage of the 1996 Telecom Act, cable operators already have spent upwards of $100 to upgrade their facilities to deliver digital broadband. In the WSJ article, officials from Time Warner and Comcast dispute the notion that they will need to sharply increase spending on their networks in order to compete effectively, even as Verizon is expected to spend $20 billion over the next 10 to 15 years laying fiber to homes across the U.S.

I don't know whether Verizon's major investment in fiber to the home or AT&T's sizeable capital investment on its own advanced broadband platform will pay off or not, or whether the cable operators will, in turn, have to spend additional billions on top of what they have already spent to keep up. I only know that, going forward, these are decisions that the marketplace can sort out far better than me. But what I do know is this: The WSJ article doesn't mention the skunk in the closet--net neutrality. Does anyone really believe that either the telephone companies or the cable operators are going to continue to invest the huge sums required to build and operate ever faster, higher capacity broadband networks if they are mandated to essentially operate as common carriers subject to anti-discrimination and "reasonable" rate regulation?

Google, Yahoo, Amazon and the other net neutrality proponents like to talk breezily about the "monopolistic" power of the telcos and cable to support their pro-regulation argument. But here are a couple of excerpts from the WSJ article: "Cable and telephone companies are battling fiercely to consumers they're the best provider of these and other services." And "Cable and phone companies have been in a technological arms race since the late 1990s when both began rolling out high-speed Internet connections. More recently, they have been getting into each other's primary businesses, with cable operators launching phone service, and phone companies offering TV."

The article points out that popular bandwidth-hogging sites such as Google and You-Tube are driving the need for ever more investment in broadband networks. I can understand why Google and its allies want to do whatever they can, through the imposition of regulatory shackles, to avoid paying for the increased costs they cause the broadband operators to incur. If the industry web giants like Google can enlist the government in putting in place a regime that requires others to subsidize the costs they cause to be incurred, it is a good gravy train. But, in the rivalrous environment described in today's WSJ article, I can't understand why Congress and other policymakers would seriously entertain the notion. I'd call doing so net neutrality unreality.