Get ready for the Department of Broadband. On Monday, President Obama called on the Federal Communications Commission to reclassify the Internet as a public utility—like water or electricity—under Title II of the Communications Act of 1934. The goal: “to protect net neutrality,” Mr. Obama said in a White House YouTube video, an ironic venue for announcing a monumentally bad idea that could strangle the Internet.
For years the FCC has been inching toward imposing net-neutrality rules, which are sold as a way to ban Internet service providers from discriminating against content providers. In reality such rules would dictate what ISPs like Comcast and Verizon can charge for their services. The Silicon Valley crowd particularly likes the net-neut idea, because it would mean cheaper access for companies like Google and Netflix, who are heavy bandwidth users. President Obama’s announcement is likely to delight them—and liberal groups supporting supposed Internet “fairness”—because now FCC Chairman Tom Wheeler will be under enormous pressure to do the White House’s bidding.
But the Internet cannot function as a public utility. First, public utilities don’t serve the public; they serve themselves, usually by maneuvering through Byzantine regulations that they helped craft. Utilities are about tariffs, rate bases, price caps and other chokeholds that kill real price discovery and almost guarantee the misallocation of resources. I would know; I used to work for AT&T in the early 1980s when it was a phone utility. Its past may offer a glimpse of the broadband future. Innovation gets strangled.
Bell Laboratories—owned by AT&T—invented the transistor in 1947, the basic building block of today’s telecommunications and computing. But AT&T was one of the last businesses to use the innovation. Why? Because the company had a 10-year supply of the old technology—vacuum tubes—and waited until they ran out before converting to using AT&T’s own invention.