In recent weeks, it has seemed that a day doesn't go by without Google becoming embroiled in a new legal controversy. Earlier this month we covered the company's antitrust complaint against Microsoft, its negotiations with the EU over its data retention policies, and the FTC's scrutiny of Google's DoubleClick acquisition.

Not surprisingly, Google has concluded it can no longer afford to ignore Washington, DC. Last week the Washington Post published a widely discussed story on the swift expansion of the company's presence inside the Beltway. Also last week, the company unveiled a new public policy blog which pledges to "do public policy advocacy in a Googley way."

The case for regulation

One recent post lays out Google's position in the network neutrality debate. Noting that "one of the challenges raised by our opponents has been defining what exactly the term means," Richard Whitt, Google's Washington telecom and media counsel, offers details about what would and wouldn't be permitted under the company's ideal regulatory scheme.

The requirements Whitt enumerates closely mirror the terms of the Snowe-Dorgan bill, the most prominent network neutrality legislation introduced last year. Google wants to ban ISPs from imposing "surcharges on content providers that are not their retail customers," discriminating among packets based on their source, or building a new "fast lane" that would be limited to content providers who paid extra for the privilege.

Google worries that if cable and telephone incumbents are allowed to build such a tiered network, Google could be forced to pay tribute to companies like AT&T and Verizon or blocked from access to certain customers altogether. Whitt notes that 99.6 percent of broadband customers get their service from either their phone company or their cable company. He contends that two firms per market is insufficient to ensure a robust, competitive marketplace.

The devil in the details

There's certainly reason to be concerned that the Baby Bells—companies with a congenital hostility to open networks—will not respect the Internet's open architecture. And as a company whose livelihood depends on that architecture, Google has particular reason to be concerned. But Google's post also highlights the difficulties of translating the theory of network neutrality into specific rules.

History shows that it's difficult to craft a sensible and effective regulatory scheme. If regulation is too complicated, it can tie ISPs up in red tape and make it more difficult for them to manage their networks effectively. On the other hand, vague regulations can leave open loopholes that can undermine the entire purpose of the regulation. And above all, regulators must be wary of unintended consequences; we can be sure that once a network neutrality rule is on the books, regulated firms will look for ways to turn the rules to their advantage.

One potential loophole can be found in Google's list of what behaviors are permitted under its proposed rules (and in the Snowe-Dorgan bill on which it is based). Google would allow ISPs to provide "managed IP services and proprietary content (like IPTV)" and to prioritize "all applications of a certain general type, such as streaming video." This suggests one strategy that an ISP could employ to evade the intent of the network neutrality rules: it could give video services the lowest priority on its broadband service (which would apparently be legal as long as all video services were treated the same), and then it could syndicate the video content of partner companies via its IPTV service. It's not clear how the law would distinguish between a prohibited "Internet fast lane" and a permitted "managed IP services and proprietary content." But the effect on the video marketplace would seem to be very similar in either case.

Regulatory capture

There's also a real danger of what economists call "regulatory capture": when regulations designed to control the behavior of industry incumbents are manipulated to serve those incumbents' interests. One of the first examples of this problem in the United States was the regulation of railroads in the 19th Century. The railroads were the high-tech industry of their day, and there was a lot of concern in the 1870s and 1880s that the railroads had become too monopolistic. Congress responded by creating the Interstate Commerce Commission in 1887, giving it the power to regulate the railroads.

Yet as I wrote in the New York Times last year, the story of the ICC does not have a happy ending. After President Grover Cleveland appointed Thomas M. Cooley, a railroad ally, as its first chairman, the Commission quickly fell under the control of the railroads, gradually transforming the American transportation industry into a cartel. By 1935, when it was given oversight of the trucking industry, the commission was restricting competition and enabling price increases throughout virtually the entire surface transportation industry. Decades later, in 1970, a report released by a Ralph Nader group described the Commission as "primarily a forum at which transportation interests divide up the national transportation market."

And not all examples of regulatory capture are ancient history. Until the 1970s, consumers paid high prices for airline tickets thanks to limitations on competition enforced by the Civil Aeronautics Board. The cable industry has used cable franchising rules—which were originally intended to protect consumers—to exclude the Baby Bells from the video market, allowing them to charge monopolistic rates for cable television. And the Bells themselves are using a slew of telecom regulations—Universal Service fees, E-911 requirements, CALEA, and others—to harass up-and-coming VoIP providers.

Something similar could happen if network neutrality regulations are adopted. Once Congress passes a bill like Snowe-Dorgan, it would fall to the FCC to enact specific regulations that implement the bil's requirements. Google advocates imposing several new obligations on all Internet service providers: "requiring carriers to submit semiannual reports with broadband deployment data," interconnection and open access requirements, a "ban on most forms of packet discrimination," and "an effective enforcement regime." These requirements could lead to FCC bureaucrats second-guessing the decisions ISPs make about their router configurations. And at a minimum, it would require every ISP in the country to hire telecom lawyers to deal with the FCC's oversight process.

That's worrisome because new technologies are likely to introduce additional competition to incumbent broadband providers in the next decade or two. Some of them may not have the deep pockets of a Verizon or a Google. Overly burdensome regulations could become a barrier to entry for these smaller firms. Incumbents are likely to file a slew of complaints against these competitors. Even if the incumbents ultimately lose in court, such harassment could be sufficient to drain small firms' resources, slow them down, and drive them into bankruptcy. Indeed, that's precisely the strategy they used against competitive local exchange carriers during the DSL wars of the late 1990s.

Wait and see?

Given the complexities and uncertainties involved in the network neutrality debate, it could be that the best outcome would be for Congress to continue to take a wait-and-see posture. Princeton computer science professor Ed Felten made precisely this point in a paper last year:

There is a good policy argument in favor of doing nothing and letting the situation develop further. The present situation, with the network neutrality issue on the table in Washington but no rules yet adopted, is in many ways ideal. ISPs, knowing that discriminating now would make regulation seem more necessary, are on their best behavior; and with no rules yet adopted we don't have to face the difficult issues of linedrawing and enforcement. Enacting strong regulation now would risk side-effects, and passing toothless regulation now would remove the threat of regulation.

Network neutrality is an important principle of the Internet's design. But given the FCC's poor track record at serving the interests of consumers, we should think twice before giving the agency more authority over the Internet—even to defend a worthy principle. It's quite possible that the mere threat of new regulations will be sufficient to keep the telcos on their best behavior. And threatening to enact new regulations has far fewer negative side effects than actually enacting them.