The Net Neutrality Walk of Shame

at&t logoIt’s the morning after Chairman Genachowski’s impassioned call for new FCC regulations to impose “net neutality” rules on Internet access providers.  No surprise, everyone is reaching for the aspirin.  Communications users have been partying like it’s 1974, when U.S. regulators finally began the painful process of breaking up the long-sanctioned AT&T monopolies on long-distance and equipment.

In the interim, the FCC, in the name of de-regulation, has constructed a remarkably complex machinery of new regulation for existing (telephone) and emerging (data) services.  They’re always a good ten years behind the march of new technology–including new infrastructure technologies such as cable, satellite, wireless, and fiber, as well as new applications such as the Web, voice-over-IP telephone, and the convergence of voice, data, television and everything else.  And they always will be, no matter how many smart people are working on the problem.  (There are many smart people working at the FCC.)

In a deja vu of the passage of the landmark 1996 Communication Act, within days of Genachowski’s speech, everyone was crying foul.  Wireless operators can’t understand why they would be included in neutrality regulations, given the relative competitiveness of the wireless industry (new regulations are presumed to be needed when market mechanisms fail to correct anti-consumer behavior).  AT&T reminded us that the wireless spectrum they bought last year (part of what was given up by broadcast television in the switch to digital broadcast) came with no requirement to be open to any device or application.  Verizon bought a block that did come with that requirement, and AT&T paid “many billions more”  to avoid the open rules.  Oops.

Then AT&T complained that Google, a leading proponent of neutrality rules, was itself violating some of the basic principles with its own Google Voice application, which blocks certain services (900 numbers, free conference call services, etc.) that charge high fees to the customer’s provider that cannot be passed along.   “Traditional” phone companies can’t block those services.  The fees, as the New York Times’ Saul Hansell points out, were originally authorized to help subsidize rural telephone service, but everyone understands that the system has now been thoroughly gamed, part of the post-1996 de-regulation of telephony and the end of Judge Greene’s oversight of the 1982 breakup of the old AT&T.  (Hate them all you want, but as recently as six months ago, AT&T was losing money on every iPhone customer it signed up under its exclusive deal with Apple.)

Google got into similar trouble in late 2008, when it became known that the company had offered to “co-locate” its own servers at key exchange locations of broadband providers in order to speed up delivery of Google content such as YouTube videos. This “fast lane” service seemed to be precisely what the net neutrality advocates feared most, yet it was coming from one of their chief allies and instigators. Google’s defense was that its offer was non-exclusive, meaning any other application provider could make a similar (non-neutral) arrangement.

Reading through some of the comments posted by readers of The New York Times and The Wall Street Journal articles reporting on these developments, one can’t avoid the sense that no one really knows what anyone else really means by neutrality.  “Net neutrality is about the Internet, not the telephone network,” says one reader.  “Neutrality in general does not apply to telephone companies, nor would it benefit them,” says another.

Harold Feld at Public Knowledge, acknowledging that “I do not know how other VOIP providers behave,” nonetheless is confident that neutrality is separable from telecommunications regulation.  “[I]t is easy to make [Google Voice] look like a network neutrality question and try to undermine network neutrality than focus on the merits of either the Google Voice question or the network neutrality question.”  It is, unfortunately, anything but easy.

All of these stories are conflated for a reason beyond simply trying to muddy the waters as much as possible.  Unfortunately, they really are all hopelessly intertwined. Much as the FCC wishes there was still a clear distinction between “the Internet” and “the telephone network,” technology has obliterated that difference.  Internet companies (Vonage, Skype) provide phone service using TCP/IP, “phone companies” offer Internet access over their equipment, while “cable companies” offer the same service over cable–along with phone services and television, which the phone companies also offer.

Under the law, “telecommunications” services are still treated (badly) as common carriers, a significant competitive disadvantage that may or may not still be justifiable.  “Information” services are not.  When AT&T offers Internet, it’s a telecommunications service.  When Vonage offers telephony, it’s an information service.  The current rules don’t distinguish between the two kinds of uses based on the protocol used, the network technology used, or the equipment used.  The current rules distinguish based solely on the historical (that is, pre-1982) business of the provider.  Providers that didn’t exist in 1982 (Vonage, Skype, Google) or who weren’t in the voice business at the time (Comcast, TimeWarner) are presumed to be offering information services, regardless of what services they are offering.

AT&T’s point, hopelessly lost in 25 years of FCC rulemaking, is that regardless of whether it still makes sense to regulate the hell out of their copper-wire phone network, they ought to be held to the same rules as everyone else when offering new services on new infrastructure and new equipment.  Which is to say, far fewer rules than when they are offering POTS (Plain Old Telephone Service).

Pull one strand of this spider web, and every other strand responds.  Unfortunately, net neutrality is bigger than just net neutrality, and not just because Internet providers say it is.  It really is.

There’s a simple solution to all this, one that might make a rational conversation about net neutrality possible.  And that is to eliminate the distinction between common carriers and everyone else.  Hold everyone to the same rules regardless of what information they are transporting–whether voice, video, television, data.   Because regardless of who’s doing what, these days it’s all bits.  There is no rational reason to regulate the bits based on who is transporting them.  The FCC doesn’t even try to justify the distinction anymore.  Let’s just get rid of it.

We need, as I say in Chapter 6 of The Laws of Disruption, a cure for the common carrier.  We need to eliminate most if not all of the FCC’s byzantine sets of taxes, rules, funds, rate-setting, and (for broadcast but not cable TV) content oversight.  When the 1996 Communications Act was signed into law, Congress predicted it would signal the end of the FCC, much as the deregulation of the airline industry ended the reign of terror of the Civil Aviation Board.

Today, the FCC’s budget is bigger than ever.  And in the thirteen years since deregulation, American consumers have fallen behind in every conceivable metric their counterparts in much of Europe and Asia.  We pay more and get less, even as Moore’s Law makes everything faster, cheaper, smaller and Metcalfe’s Law converges all the networks and protocols and applications into a single glorious buffet of information.

True consumer interests are absent from the picture here.  So even when they win, they often lose.  And what constitutes a win is anyone’s guess.

Consumer activists and consumers themselves would do well to channel their anger and energy away from individual providers and individual problems and focus on the real devil.  Let’s really deregulate the communications industry.  Let’s put the squeeze on the only group that actually makes a profit here–industry lobbyists and lawyers.

By the way, understanding the impact of federal regulation on the infrastructure industry (which no one does, or can) is only part of the puzzle.  Phone, cable, and wireless providers are also subject to local regulations, many of which add to and subtract from the perverse incentives that  dictate  industry behavior.  We need to get the almost entirely corrupt local agencies out of the regulatory business altogether.

Ready for that hangover helper now?