WSJ: Time to Shut Down the FCC

It's time to close the Federal Communications Commission. This week, FCC Chairman Julius Genachowski gave a speech outlining his push for net neutrality, the absurd notion that the Internet should be "open and free" when in fact it's quite expensive to build. Net neutrality will straitjacket the U.S. economy's single most important driver of productivity and transformation.

 
Besides the obvious question of whether the FCC even has the authority to regulate the Web—in April, the U.S. Court of Appeals for the D.C. Circuit said it doesn't—the agency has a long history of restraining trade. Founded in 1934 partly to regulate radio spectrum (which in reality hasn't ever been scarce), the FCC delayed FM radio by favoring AM and television in spectrum allocation, mandated a TV network oligopoly by restricting station ownership, and kept long-distance rates too high for decades by forcing operators to subsidize local telephone costs. Now, because of bad bandwidth policy, it limits what smart phones can really do.

Mr. Genachowski claims his Internet regulation efforts are based on "shared appreciation for the Internet's wondrous contributions to our economy and our way of life." His rules of the road state that consumers and innovators have a right to: know basic information about broadband service; send and receive lawful Internet traffic; visit the sites they want and say what they want online using the devices of their choice; and a level playing field.

"No central authority, public or private, should have the power to pick which ideas or companies win or lose," Mr. Genachowski says, "that's the role of the market and the marketplace of ideas."

It all sounds great. But incredibly, nowhere does he mention competition, a necessary condition of a marketplace. By discouraging competition in local access and refusing to change arcane licensing rules, this regime would freeze in place Google, Comcast, Verizon Wireless and ESPN just as the next wave of services will emerge to delight us.

This week a dispute over fees erupted between Comcast, which has 17 million broadband customers, and fiber communications company Level 3, which recently signed a deal to handle the transmission of Netflix streaming movies. Comcast is demanding that Level 3 pay additional fees for Comcast's added bandwidth requirement of all those movies—it's estimated that Netflix streaming represents 20% of peak Internet traffic—or else, my guess, it will charge customers more.

Level 3 is crying foul. And the FCC is investigating, especially in light of Comcast's pending merger with NBC Universal and its unstated goal of protecting its existing video delivery business to cable boxes.

What will come next is obvious: Netflix customers will complain about choppy video, and Comcast will point fingers at Level 3. Then the FCC will inevitably update its rules so that movies should stream without chop between, say, 9 p.m. and 11 p.m. Another set of rules will no doubt limit what content Netflix or other new entrants can even deliver.

Rules beget more rules until technology changes to make the whole mess obsolete. For the record, it was Skype, not the FCC, that brought down AT&T's consumer international rates.

Yes, the world inside of Internet data centers is complex, but what's clear is that there is almost no cable competition. Real network neutrality would come from customers dropping a fee-hiking Comcast and taking their business to another provider who can stream high-definition movies, TV shows and the next wave of video games. Right now, consumers are stuck with no real options because cable companies continue to bully municipalities to be the sole operator.

Ask anyone in the technology world about scarcity and you'll hear a lecture about how there is no such thing. More transistors exist today than yesterday. There is plenty of bandwidth, both inside of fiber optic cables and out in the air, and more everyday as faster chips can handle higher and higher speeds. And there is no scarcity of pixels, storage, servers or even energy to run data centers (which sit next to waterfalls for cheap electricity). Scarcity is a myth perpetrated by those that want the protection racket of regulation.

During the last two decades, the FCC has manufactured the idea that the electromagnetic spectrum used by wireless devices is scarce. Spectrum auctions became another way to restrain trade. Deep pocket operators, like AT&T and Verizon Wireless, overbid for spectrum and then pass along high costs to the consumer in the form of $40 monthly fees and cryptic calling plans. It's a longer conversation, but with the right network architecture, smart devices can be programmed to share huge swaths of spectrum without interfering with other users. If we do it with Wi-Fi for data, we can certainly do it for phone calls.

In place of the FCC, all we need is a policy framework that states that consumers and innovators have a right to one thing: real choice. Everyone should have the right to choose among many networks for communications services, and no state or municipality may restrict competition.

That's it. Everything else—faster networks, innovative services, a la carte programming, and yes, even privacy—follows from this one rule. Pay a new provider $5 extra a month and no one tracks what websites you visit!

The FCC can apply more Band-Aids to its broken scarcity-based regulatory model. Or we can close the agency and let consumers allocate capital efficiently.

 

Comments

[Moe Levine]

Andy

You could never work for Fox, for you are not fair and balanced. How long did the first ATT delay colored telephones?

I suspect you are writing for your own interest because you have a stock play that will benefit.

Frankly, your opinions have become trite and shopworn, whereas when you stuck to what you knew they were very informative.

I will be happy to pay a reasonable price to ATT or Charter (my only choices at home or office for Broadband) for their band width but I do not, repeat, do not want them providing content or having anything to do with what content I can reach, at what speed. I don't know any informed about the subject who wants ATT to monitor their use of the Internet.

In Europe and Asia consumers are getting higher speeds at lower costs, with net neutrality, so it has nothing to do with the false charges you make.

Your comments about the FCC in prior days only points out the importance of electing servants who favor consumers, something which subsidized local rates did.

Do you seriously think that we will be better off with an FCC that is in ATT's pocket?

[Robert J. Berger]

We're in a big catch 22. If we allow the ongoing runaway oligopoly control of both Internet transport AND content, the open marketplace of ideas will be destroyed. A major engine of innovation will be shutdown in the US and we will accelerate into loosing our first world status.

We can already see the complete stagnation of broadband deployment compared to the rest of the world since the reformation of AT&T / Verizon and the consolidation of Comcast.

If you want to see a very good example of what happens when you have an oligopoly in the Internet check out http://www.voxel.net/blog/2010/12/peering-disputes-comcast-level-3-and-you

The only tool we know of to counter monopolies and oligopolies is government regulation. But the danger of regulation isn't just that the government can be clueless, but that it is susceptible to regulatory capture. Almost all of your examples are of regulatory capture (most of those examples were driven by the dominate industry of the time.)

Yet we have no other tool to protect the common goods (the Internet is now a common good as are roads, water supplies and even the air and the ecosystem).

We can see that its possible for government regulation and policy formation can help economies. Look at China today. Or the US during the 40s thru the 60's. That doesn't mean we have to do it like those examples, but it shows that Government regulation and policy direction can help marketplaces flourish.

We need to come up with ways to represent the Common Good in marketplaces. In the mean time we need to prevent regulatory capture and make government less controlled by corporations and server the citizens better.

[Lee28Everett]

I think that to get the personal loans from banks you should present a firm motivation. Nevertheless, one time I've got a short term loan, because I was willing to buy a car.

[Cheap snapback hats]

Besides the obvious question of whether the FCC even has the authority to regulate the Web—in April