Monday, September 21, 2009

An Immodest Proposal for Internet Regulation

Despite the appealing modesty of FCC's Chairman Julius Genachowski's tone, the Internet regulation proposal unveiled in his speech today at the Brookings Institution is anything but modest. Indeed, the peril lies in its immodesty. It is immodest in the way that those imbued with a certain faith in their good intentions often, in their regulatory zeal, may fail to recognize.

I will be saying much more about the FCC’s proposal in the weeks and months ahead. But here I just want to explain briefly what I mean about the troubling immodesty of Chairman Genachowski's remarks. In order to appreciate what I am saying, please have in mind these two statements from his address: "We cannot know what tomorrow holds on the Internet, except that it will be unexpected." And: “I understand the Internet is a dynamic network and that technology continues to grow and evolve." There are others in a similar vein but these suffice.

Here is some of what makes Genachowski’s proposal so immodest from a regulatory perspective:

While asserting that he cannot know what tomorrow holds for the Internet and that the Internet is a dynamic network that continues to evolve, it is clear that Genachowski nevertheless presumes that all worthwhile innovation takes place at “the edge of the network,” and not within the various broadband networks. This presumption drives his view that that there must be a strict non-discrimination rule – the same type of rule that was at the heart of nineteenth and twentieth century common carrier regulation. Ultimately, this rule means enforcing a strict separation of content and applications from transmission media. This separation precludes any efficiencies and cost-savings and innovation that might result from integration of content, applications, and transmission. What's more, in the digital broadband world of integrated bit streams, such separation of content and applications from transmission necessarily will involve more metaphysical conjecture than sound regulatory policy. On this point, see my piece, "The Metaphysics of VoIP," written back in 2004. The principle is the same.

It may be that, as the Internet evolves in the dynamic way that Genachowski concedes it has without common carrier regulation, separation of content and applications from transmission will prove to be the best business model. Or, more likely, the 'best' business model will change continually over time. But Genachowski presumes to lock a business model in place based on all innovation "at the edge," even while admitting he cannot know what tomorrow holds for the Internet.

He says "this is not about government regulation of the Internet," it is about "fair rules of the road for companies that control access to the Internet." Of course, it is all about government regulation of the Internet, regardless whether he believes the rules or "fair" or not, or whether they are put in terms of "access to the Internet" or some other way. Genachowski surely knows this. But he asserts, soothingly, that "we will do as much as we need to do, and no more, to ensure that the Internet remains an unfettered platform for competition, creativity, and entrepreneurial activity." Nice thought, but not very comforting, despite the good intentions. The history of the FCC shows that the error costs from overregulation – especially in a dynamic environment in which Genachowski concedes we cannot know what tomorrow holds for the Internet – are likely to be exceedingly high. The presumption that the FCC will know the point at which it has regulation "just right" – as much as is needed, but no more -- demonstrates an immodest faith in the prescience of the FCC commissioners that likely would cause Goldilocks to blush.

Despite acknowledging the growth and many successes of the Internet in the past decade, Genachowski asserts at one point that "as American consumers make the shift from dial-up to broadband, their choice of providers has narrowed substantially." It is discouraging that he would make this claim, because it is true only if one does not appreciate the difference between the facilities-based competition that continues to grow in the broadband world and the artificial or "managed" competition that prevailed in analog dial-up world. While the FCC may have created more dial-up "competitors" under its regulated resale mandates, these so-called competitors weren't investing in network facilities and innovating. They were offering what generally were acknowledged to be plain vanilla services. It is true that we would like to see even more robust competition among providers than we have today, even as the competition between wireline, cable, satellite, and wireless providers continues to increase. But to say that consumers had more choices of providers in the dial-up world than now is like comparing a 56Kbs modem – remember? – to a DSL, FiOS or cable broadband connection, or even today's wireless or satellite broadband connections. Apples and oranges, as they say.

Finally, the notion of proposing new Internet regulation in the midst of the FCC's efforts to develop a national broadband plan is immodest as well. With all the emphasis the FCC has placed on gathering data in that proceeding, it would make sense for the agency to finish that job before proposing new rules. After all, if the agency thinks new common carrier-type Internet regulation should be adopted, wouldn't it be advisable to include such a proposal in the broadband report being prepared for Congress before forging ahead?