Man Without Qualities

Monday, June 12, 2006

Dead Again III: Steve Forbes Gets One Right

Steve Forbes, writing in the Wall Street Journal:

The Net Neutrality lobbyists want Congress to pass innovation-stifling restrictions on what companies like Verizon and AT&T can do with the new high-speed broadband networks that these companies haven't even finished building yet.

These networks are the superhighways for transporting Internet content and services. They will also permit Verizon and AT&T to offer Internet-based cable TV programming in competition with the cable companies, which are already competing in telecom services. Slapping these networks with premature, unnecessary regulations would be an inexcusable barrier to the tradition of innovation at the heart of the Internet.

Phone companies are investing billions of dollars in network innovation. They need to earn a return on their investment. One logical way is to use a tiered pricing system that charges a premium price for premium services -- which means super-high-speed services that gobble extra bandwidth on the network. ...

This is the same concept as mail service. If ... you want [a] letter delivered without fail by 10 a.m. the next morning, you upgrade to FedEx and pay for the extra service you need.

Applying this principle to the Internet sounds like the free market at work to me. But the Net Neutralizers have responded with manufactured indignation, claiming that it's discrimination and somehow tramples on the egalitarian spirit of the Internet.

Surprisingly Google, E-Bay and other high-tech companies have become big supporters of this flavor of Net Neutrality; they supposedly fear discrimination from Internet providers. But they have no real evidence to back-up such fears. If problems do arise, then these can be dealt with specifically.

Passing Network Neutrality legislation would be a re-run of the disastrous Telecom Act of 1996 which forced telecom companies to provide network access to competitors at below market prices. That certainly put a chill on network innovation. After years of wasteful lawsuits and regulatory infighting, the network access monster has gone away. But it was a big factor in letting America slip into the high-tech Stone Age, with consumer broadband services lagging far behind what's available in countries like Japan or South Korea. ...

After all, what network operator would be silly enough to keep investing billions in network innovations if the fruits of its innovation had to be given away at below cost?

What network operator indeed?

For his sake, lets hope that Mr. Forbes is only trying to persuade Congress and the general public - and not the "net neutrality" supporters on the Blogosphere! Many of those people supported intellectual property theft supermarkets like Grokster - despite the obviously analogous argument: "What content creator is going to create lots of high quality, expensive content if the profit is to stripped off by file sharing web sites?"

The economic model the Net Neutralizers seem to posit is one in which expensive content and hardware networks can be supplied by a profitless system - or efficiently provided by a system that suppresses efficient returns to the providers, and quite possibly denies them any returns at all. And all of this is apparently supposed to be justified, supported and ultimately financed by the great, new, ever-increasing-returns-to-scale Paul Romerian goodies created through net-enabled activities like people watching purloined movies delivered almost for free from those Grokster-like Bit Torrent supermarkets? Sure, fellas. And no doubt Santa Claus will make up any shortfall. I just can't wait.

Why do the the arguments of the Net Neutralizers sound so much like nostalgia for the fever swamps of the late 1990's internet boom? Could it be that so many of the people writing the copy for the Net Neutralizers today are the same people (and their intellectual legatees) who fronted for the profitless 1990's boomers? Lawrence Lessig's bloviating, of course. But Paul Romer's own website today includes the giddy boast that he "was named one of America's 25 most influential people by Time magazine in 1997." Does Professor Romer have no awareness of what was going on in his immediate intellectual and financial vicinity at that time? Perhaps he should do a back-of-the-envelope calculation of how much investment was misdirected within, say, 10 miles of his current Stanford office during those years.

Could it be that so many of these Net Neutrality supporters also supported those who told us in the 1990's that "stickiness" and "hits" and the rest of the palaver of that busted era had replaced (or, better, "transcended") prosaic considerations such as "net revenue" and "cost of capital" as the variables de jour. Or could it be echos of the 1990's profitless boomers telling the world such things, and that anyone who didn't agree with such things, that "you just don't get it," with a manufactured indignation uneasily similar to the tone Mr. Forbes correctly identifies in the Net Neutralizers today?

I think it's something like that.

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