Posted 11:04 PM by Robert

Dead Again II: Tecer Camino Extraño

Here is a paper purporting to describe a "third way" in the net neutrality debate. I don't agree with the approach of this paper, or even that the approach it sketches is actually a "third way" at all. But the approach of this paper is vastly more sophisticated than the Lessig approach - and the paper points that out as politely as possible. And at least the incentive and market power economics set out in this paper are not cartoons. The "Third Way" is sketched this way:

In short, we propose a three-part, "third-way" solution:

• Congress should require broadband providers to state their broadband access and usage policies in clear terms. ... The FCC should monitor such behavior and take action against those firms that fail to comply with them. In addition, any firm selling "broadband Internet access" must make available a basic and growing level of open, unmanaged Internet access. Firms that do not meet this FCC-defined requirement would be prohibited from calling any of their services "broadband."

• In order to ensure that broadband providers do not abuse their market power, Congress should charge the FCC with the responsibility of overseeing the use of discriminatory access arrangements to make sure that any such arrangements do not harm competition (and consumers). ...

• Congress should provide financial incentives to companies investing in broadband networks (allowing first-year expensing of broadband investments and exempting broadband services from federal, state, and local taxation), but only if broadband providers provide a best-efforts, open Internet data pipe to their customers with average speeds at least as fast as the evolving FCC definition.

The "full disclosure" requirements are fairly innocuous, but also seem fairly irrelevant. The actual rates and access policies of internet providers are easily determined. So the extra FCC involvement seems to add little. The focus on "broadband" as a kind of magic word borders on the childish.

That some internet providers hold market power does create its own issues. Those issues are the exact same issues raised all the time in antitrust law. There is no clear reason why supplemental antitrust laws need to be created here, especially since the economic dynamics of the internet are at the moment so protean and ill-understood.

Finally, the whole "special incentive" aspect of this proposal seems downright perverse. Congress and the FCC are not better able to determine the needs of the internet, and the economy's needs for internet services (broadband or otherwise), than is the market. This is a huge step backwards - and anything but a "Third Way."

But perhaps the most disturbing aspect of this "Third Way" is the complete absence of any considerations pertaining to the regulatory capture issues that would be raised by the scheme itself. It's all very nice to say that the FCC (or any agency) will do this or that nice thing to the people and firms it regulates. But history shows that's not how things often work out in practice. Just what are the likely regulatory (and lobbying!) incentives that might be created by a scheme that couples big federal financial give-aways with lots of authority by a (captured) FCC to exclude competitors in the market it was supposed to facilitate? One shudders to imagine. But one shutters more to realize that the authors of this "Third Way" haven't even bothered to try to imagine - or at least to write about it here. Has the history of FCC protected competition been better than the competitive history of the unregulated internet? I don't think so.

UPDATE: IP Central points out Tom Hazlett's article The Wireless Craze, the Unlimited Bandwidth Myth, the Spectrum Auction Faux Pas, and the Punchline to Ronald Coase's "Bigt Joke" (2001), which details the dreary history of the FCC's success in supressing new technologies (pp. 405-451).