Enjoy the April 2015 edition of the Libertarian Party of Dallas County newsletter!
As always, thanks to all authors who contributed!
Enjoy the April 2015 edition of the Libertarian Party of Dallas County newsletter!
As always, thanks to all authors who contributed!
by S. Yvette Shaw, PhD Part 1 of a two part series
The internet has now entered stage 2.
On February 26, the Federal Communications Commission (FCC) voted 3-2 along partisan lines to regulate the internet as a public utility under the same powers as telephony in the 1930s. FCC Chairman and former lobbyist for the cable industry, Tom Wheeler, commented that the internet is “too important to allow broadband providers to make the rules.” So five people, or six if you count the President’s bully pulpit, decided to enforce government control of the last bastion of true freedom.
Few can deny the social impact of the worldwide web that went mainstream during the 1990s. Its very nature as a decentralized global system of interconnected networks and lack of centralized governance has been key to its organic growth. Even political systems have not been immune to the democratization of information exchange among the most oppressive regimes as evidenced by the Arab Spring, 2011 political revolution in Egypt, and China.
WHAT does this mean?
The principle of “net neutrality” is that governments and Internet Service Providers (ISPs) must treat all data on the internet equally. Differentiation on speed, tiered pricing, or ANY variations ranging from content and data size to platform or application is prohibited.
The FCC decision also provides broad powers for the agency:
The FCC claims that it will regulate with a light touch, exercising forbearance, in which all powers available will not be enforced.
WHY did this happen?
The FCC decision is a culmination of shrewd branding, an aggressive campaign by progressive groups, and court battles. However, its origin is more basic.
Follow the money….
Net Neutrality stems from market disagreements between public corporations with disparate interests: content vs. hardware providers. Content providers include Apple, Amazon, Google, Facebook, Netflix, etc. The hardware providers comprise telecommunication companies (telecoms): Internet Service Providers (ISP) like Comcast, AT&T, Time Warner Cable, Verizon and their hardware suppliers such as IBM, Cisco Systems, etc. In a truly free market, these disagreements are handled privately.
But technology has moved so rapidly that demand for bandwidth has outstripped capacity: Roku, internet ready TVs, online video, and explosion of mobile. Online streaming (Netflix, Amazon Prime, etc.) is quickly replacing Cable TV. Currently, YouTube (owned by Google) and Netflix consume 50% of capacity, 35% for Netflix alone. Telecoms have invested substantial capital in broadband infrastructure as the cable TV business erodes.
As with any supply vs. demand situation, tiered pricing called “fast lanes” was proposed by the telecoms. However Google, Netflix, and other content providers disagreed and sought assistance from the FCC to retain their current business models. Led by Google and Netflix, they pushed “equal treatment” for all content providers regardless of capacity or the costs to the ISPs for adding capacity. And progressives went along for the ride. Soros’ Open Society Foundation and Ford Foundation spent $196M funding groups that support Net Neutrality.
HOW did we get here?
Prior to the FCC decision, broadband was classified as an information service under Title I of the Communications Act of 1934. This continued after deregulation of the cable industry with the Telecommunications Act of 1996, a response to the technological advances of the prior decades. With approval of cross-media ownership, the telecom industry exploded, growing from 394M users in 2000 to 1.9B users in 2009. By 2014, the number of users exceeded 3 billion, 44% of the world population.
During this huge growth period, the term “Net Neutrality” was introduced in 2003 by Columbia law professor, Tom Wu. This is an extension of the common carrier concept or Title II which classifies a carrier as a regulated utility. As competitive forces advanced, the FCC was contacted to mediate private disputes. In 2005, AT&T proposed prioritizing traffic for a fee to strong objections by Google and Amazon. In exchange for FCC approval of their acquisition of BellSouth, AT&T agreed to not implement plans for 2 ½ years. In 2007, the Associated Press claimed through its nationwide tests that Comcast interfered in the traffic of file sharing networks such as BitTorrent, eDonkey, and Gnutella. Comcast maintained that any slowing was due to its traffic algorithm to manage periods of high use. However, progressive groups successfully filed a complaint to the FCC which issued an order to cease. The order was overturned by the D.C. Circuit Court of Appeals for lack of FCC authority within Title I.
In 2010, the FCC published rules, the Open Internet Order, in the Federal Register to take effect in 2011. After Verizon appealed, the order was overturned by the D.C circuit in 2014 for lack of FCC authority. In 2012, the enthusiasm of progressives for net neutrality accelerated when AT&T changed plan requirements for access to FaceTime, Apple’s video chat app. After pressure from customers and threats of FCC complaint from progressive groups, AT&T changed its policy within months; the market worked. With noise of legislative opposition in Congress in 2014, the FCC then proposed rules that endorsed fast and slow lanes if “commercially reasonable” with commentary on Title II classification. The FCC website crashed on several occasions due to comments, estimated 4 million, from advocacy groups for net neutrality which influenced Chairman Wheeler.
The tipping point occurred after the elections on November 20, 2014 when President Obama called for Title II authority for the internet. In February 2015, the FCC reclassified broadband from an information service (Title I) to a telecommunications service (Title II). The FCC refused to make the rules public until after the vote. The rules were posted online two weeks later.
See Part 2 for discussion of the impact on liberty and future steps.
How does this affect LIBERTY?
Economist Peter Klein explains that consumers perceive bandwidth as a free, unlimited resource unaffected by traffic congestion like highways. Since online streaming has consumed bandwidth faster than available capacity, the best allocation is price, the same process used for other scarce resources. For example, suppliers pay a premium for shelf location and space in grocery stores, but there is no outcry for “grocery store neutrality.” The same logic applies to events (premium boxes at arenas), property, and services. Should high bandwidth users like Netflix be subsidized by the low bandwidth users? Net Neutrality ensures that no one gets what they want since perfect competition does not exist in any market, nor does neutrality. Without price pressure, the incentive for growth is hampered.
It is a downward spiral…..
Increased cost to consumers
Regulation adds legal and compliance costs and creates a higher barrier to entry for entrepreneurs and small companies. Large corporations can afford these additional costs as well as the lobbying machine to eliminate competitors. In this static model, there is no incentive to lower the cost of existing services or products as enjoyed by consumers in past decades. Government controls pricing and access: the winners and losers are chosen. Additional cost and taxes are passed to the consumer.
Regulation freezes existing structures and business models. With government protection, existing companies have no incentive to change or innovate. R&D capital is absorbed by regulatory and lobbying costs. Quality of existing products and services declines as new entrants are discouraged.
AT&T as Ma Bell fought innovation for decades, even prohibiting consumer ownership of the phone. The breakup of the Bell System in 1982 sparked a surge of competition in telecommunications. Today, European telecoms complain that heavy regulation of the internet has hobbled infrastructure upgrade and seek flexibility on rules: higher prices for faster connections. In December 2014, the large US content providers (Google, Facebook) proposed working with the European telecommunications companies to pursue deregulation in the EU. Their position on deregulation in the EU contrasts with that in the US, regulation, since the EU currently regulates all content providers. Google faces an anti-trust inquiry while Facebook is being investigated for its privacy practices. Both are targeted for new regulatory proposals from France and Germany.
Crony capitalism rises
As government assumes control of the internet, services and products available to consumers will be determined by the relationships between corporations and government, not the free market. US regulatory history is filled with examples across industries from the Federal Reserve Bank of New York to EPA, FAA, and FCC, the entire alphabet soup of government agencies. Remember the Wright Amendment to protect Fort Worth and DFW Airport?
The FCC can control content just like radio and network TV decades ago which supported the government view. Note comedian George Carlin’s 7 Words You Can’t Say On TV. The mechanism now exists for progressives to resuscitate the Fairness Doctrine, opposed by Libertarians and conservatives as violation of first amendment and property rights. Politicization of the internet can induce fear of government retaliation for disagreement, like the Internal Revenue Service, an allegedly “independent agency.” The IRS has pursued groundless charges with citizens or businesses that contribute to pro-liberty candidates and non-profit groups that advocate smaller government. With control of the internet, the FCC is an important political tool.
Been there, done that……don’t we ever learn?
In the 19th century, the railroads reached this same point as the internet today. The industrial revolution of 1790-1830 transitioned the US from an agricultural to an industrial economy. With increasing dependence on corporations, especially railroads, for transportation and goods, the public grew concerned with the power of the corporations and perceived lack of competition. In response, the government passed the Interstate Commerce Act of 1887, which created the Interstate Commerce Commission (ICC), the first “independent” regulatory agency.
Initial regulations: 1) rates are “reasonable and just”; 2) shipping rates are published; and 3) discrimination in fares between short and long hauls are prohibited.
Sound familiar? Here is the next step….
Shortly thereafter, the ICC claimed it did not have enough power so the act was amended. The Hepburn Act of 1906 allowed the ICC to set maximum fares and expanded regulatory control to ferries, bridges, trucking, express companies, and oil pipelines. By 1915, the ICC controlled ALL aspects of railroads: passenger accounting, boilers, safety, speed limits, etc. Jurisdiction later extended to telegraph, telephony, and cable companies. Milton Friedman has eloquently described how the creation of the ICC had well-intentioned advocates, but these advocates were used by the railroads to achieve regulatory capture. In this form of political corruption, regulators do not act in the public interest but align with the dominate players in an industry to advance their business agenda.
By WWI, with the advent of new transportation technology (gasoline engine, gear drives, improvement in transmission) and later the interstate highway system, trucking emerged as a competitor to the railroads. The railroads initially used the ICC to break strikes and limit the market share of trucking. As market forces continued pressuring railroads along with overregulation, the ICC even required railroads to maintain operations that lost money. The ICC continued this pattern in other industries with destructive results. Eventually, Congress passed deregulation measures for railroads (1976) and then trucking (1980) that diminished ICC powers.
The ICC has served as the regulatory model for other industries: state medical boards, Federal Trade Commission (1914), Federal Communications Commission (1934), U.S. Securities and Exchange Commission (1934), National Labor Relations Board (1935), Civil Aeronautics Board (1940), Postal Regulatory Commission (1970), Federal Energy Regulatory Commission (1977), U.S. Consumer Product Safety Commission (1977).
WHAT happens now?
It’s not over.
Sides are chosen and the battle returns to the courts. A miasma of uncertainty.
Within hours of the decision, Marsha Blackburn (R-TN) and Senator Thom Tillis (R-NC) introduced legislation to block the decision in their respective states. Verizon published its disagreement with the FCC decision in Morse code datelined February 26, 1934: FCC’s ‘Throwback Thursday’ Move Imposes 1930s Rules on the Internet. Fearing price controls, AT&T has threatened to pause investment in its infrastructure and Comcast has already warned of a bitter legal fight and cancelling investment plans. Current discussions on 5G are conflicted since 5G requires a faster network than general purpose infrastructure. The U.S. Telecom Association and other trade groups have announced intentions to appeal the rules once they are made public. Conservative and Libertarian groups have voiced opposition. After Ron Paul’s post on Facebook received 2 million views, he issued a more detailed statement on the impact.
The most interesting responses are those of the large content providers who led the charge: Google, Facebook, and Netflix. Just prior to the FCC vote, Google’s CEO Eric Schmidt contacted the Whitehouse to oppose Title II but was rebuffed. In its recent report to shareholders, Netflix CFO admitted to lobbyists’ remorse one week after the FCC decision: “Were we pleased it pushed to Title II? Probably not. We were hoping there might be a non-regulated solution.”
Facebook – silence – crickets chirping.
As expected, the majority of progressive groups did a victory dance. However, as details of the rules leaked, some liberal groups have joined the opposition. The Progressive Policy Institute stated that “There is nothing ‘progressive’ about the FCC’s backsliding to common carrier rules dating back to the 1930s. Also troubling is its lack of transparency — the 317-page rule it approved has not yet been made public.”
On March 12, the FCC published the new rules titled, Open Internet FCC-15-24A1. The Whitehouse Office of Management and Budget must first approve certain aspects before the rules appear in the Federal Register. They are implemented 60 days after being published. There are eight pages of actual rules with the remainder as background and explanatory. In the interim, lawyers for both sides scour the FCC language for their challenges. Most legal observers expect that the FCC decision will endure lengthy appeals in the courts which have ruled against the FCC so far.
Some of the arguments against Title II:
Telecoms do not trust forbearance: that the FCC will NOT regulate rates, increase taxes, or demand building of infrastructure in underserved areas, as defined by the FCC. In addition, Title II allows individuals to file complaints in district court vs. FCC regulators. Under the general conduct provision, telecoms fear continual litigation from class action suits and trial lawyers are major donors to the Democratic Party.
Amid court challenges, there are other possibilities for resolution. Congress could pass legislation to override the FCC on internet rules. However, political polarization ensures the failure of legislation in Congress (Republican) and a Presidential (Democrat) veto. Another option is a change of President in 2017 whose appointees can overturn the ruling, which belies the view of the FCC as an independent body.
Public opinion overwhelmingly supports freedom of the internet; however, many people remain confused by the definition and details of Net Neutrality. As of Feb 2015, Rasmussen Reports survey showed that 53% of Americans believe that the internet should NOT be regulated like radio and TV (vs. 21% who do ) and 68% are concerned that the FCC decision will evolve into government control over content or promote a political agenda.
It behooves us all – content providers, telecoms, Libertarians, liberty groups – to educate citizens on the true definition of Net Neutrality, the most serious example of false advertising.
Click here for Part 1 for introduction and history.
Enjoy the February 2015 edition of the Libertarian Party of Dallas County Newsletter!
As usual, thanks to all authors who contributed!
Just in time for your winter holiday hibernation, here comes the December 2014 Libertarian Party of Dallas County newsletter! This edition is overflowing with way too many book recommendations, so get your picks and stock up for the winter!
Thanks again to all authors who contributed, and thanks to our 2014 LP candidates once more. Enjoy the newsletter, and see you all next year!