Net Neutrality Is Not 'The Government Takeover Of The Internet' -- Or Why Republicans Should Support Reclassification

from the myths dept

That’s because – guess what! – internet service is a market where natural monopolies prevail. Just like with the electric company, most of the cables and most of the network are already purchased and deployed. Adding a new customer often means literally just flipping a switch at HQ, or – at most – laying a few yards of cable to an existing network. In the end, the more the company sells, the less it costs them. Over time, the big companies beat the small ones on cost, gobble them up… then lobby the government to freeze out potential competitors, while jacking up costs and slashing service quality,. If you have ever interacted with Comcast in any way, you already know about their “service” “quality” – the infinite wait times, the incompetent “help,” the constant upselling, the blatant lies (usually about credits they promise), the desperate measures. Since they are our local monopoly, I don’t hear too much about the other monopolists out there, but I understand Time-Warner isn’t any better. It is a fact that customers despise their ISPs on average: What you may not realize is that they are overcharging you, too, like textbook monopolists.

So now the delay-and-harass strategy has failed. The monopolists have a blank check from the law, and they are exploiting it with tremendous rapacity (as we’ve seen in the series of Netflix stickups, which picked up the moment net neutrality collapsed). Perhaps the next most attractive option is to pull a Reagan and just break up the major ISPs into smaller companies. Unfortunately, there is no obvious legal way to do that. The Bell breakup resulted from a lot of special circumstances, some plain-as-day antitrust violations, and an 8-year court battle. Moreover, breakup would probably not solve the problem: the wee ISPs would still have local monopolies in many areas, and economics 101 would force them to immediately begin reconsolidating into new national monopolies (as the Baby Bells are doing today). In the long run, the consolidation and price gouging of natural monopolies are probably inevitable. It’s a cold, heartless law of economics: the same laws that allow the government to increase revenues by cutting taxes will eventually compel certain telecom markets to become monopolies, no matter how many times we break them up.

To sum up, the only reason the Internet isn’t protected from monopolies today is because, in 2002, the FCC decided to experiment with not regulating the Internet. Almost immediately thereafter, the telecoms began fighting the core Internet principle of network neutrality, aiming to take control of the Internet for themselves and impose monopoly prices on consumers. All attempts to restrain them outside of Title II have failed. The Wall Street Journal regularly argues that the Internet has thrived because ISPs have never been regulated like phone companies. This is false, and the Journal should know better. Indeed, the years of the Web’s most explosive growth and development happened under the auspices of strict common carrier regulation, identical to those of phone companies. (Heck, even today, limited portions of Verizon’s high-speed fiber network, FiOS, fall under Title II!)



The fix to the growing monopoly problem is very, very easy, and several courts have pointed to it over the past several years: simply revisit the obviously nonsensical ruling of 2002. Overturn it, and (correctly) decide this time that Internet Service Providers are “telecommunications providers”. Instantly, every ISP in America would go back to common carrier status, and net neutrality regulation wouldn’t just become easy; in many ways, neutrality is baked into Title II. The FCC would gain many tools to reduce the risk of natural monopoly where it doesn’t exist, or its effects where it does. The market would be saved, the consumer freed from the tyranny of monopoly.

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One of the general rules that we try to follow here on Techdirt is to avoid anything that has to do with "partisan politics" or debates that involve "Democrats" v. "Republicans." Thankfully, many of the tech issues that we discuss don't fall neatly into one camp or the other -- issues around intellectual property, privacy, innovation and surveillance seem to have supporters and detractors on both sides of the traditional aisle. Sometimes that's because the issue is so "new" that it hasn't been twisted and distorted into a partisan fight yet. Sometimes (more frequently) it's because these issues aren't ones that get enough attention at all. Net neutrality was like that in the early days, a decade ago. It was a legitimate concern that was being raised about broadband providers potentially abusing market power. Somewhere around 2004 or 2005, however, something shifted in the debate, and it suddenly became a "partisan" issue with Democrats tending to be "for" net neutrality and Republicans tending to be against it. At this point, the debate became stupid. This often seems to happen with partisan issues. Once the "Parties" take over (and this is true of both parties), pretty much all debate on the relevant facts goes out the window, and it all becomes hyperbole and rhetoric. That has absolutely been the case with the net neutrality debate as well.So, while we don't normally dive into any kind of partisan spin on things, because the rhetoric has become absolutely ridiculous on net neutrality, it seemed worth discussing why the Republican claims that reclassification under Title II is some sort of "government takeover of the internet" or "regulating the internet" are just wrong. And we'll go one step further and point out why Republicans should actually be standing right along side their Democratic colleagues in supporting reclassification. This shouldn't be a partisan issue at all, but a bipartisan effort to make sure that the internet remains free and open for true innovation and competition (the kind of thing that both parties should agree on).We'll start by pointing to a fantastic article from James Heaney, a self-identified conservative, who goes into great detail explaining why free marketers should support reclassification of broadband access by the FCC . He covers a lot of ground that we've discussed before, but does so in a clear and concise manner that makes it easy to read. In short, he notes that free markets and competition are great for innovation -- and that while regulation can often get in the way of those things,. Further, he highlights how internet infrastructure is effectively a natural monopoly (just like we discussed... a decade ago ). And, thus, it makes sense to haveto keep the natural monopoly from getting out of control and more importantly, to stop the natural monopoly from hindering all sorts of other innovation. Heaney's argument goes into a lot more detail, including a discussion of why the FCC was crazy wrong in its 2002 decision to declare cable a Title I "information service" rather than a Title II "telecommunications service," and why now is the time for the FCC to correct that mistake. Either way, he notes, the nature of broadband -- like highways or electricity -- makes it clear that it's a natural monopoly:From there, he points out that often the best way to deal with natural monopolies is through theof a government crackdown, rather than actual regulation. This was actually a position that we supported for a long time as well. I can't seem to find a reference to it now, but I'm pretty sure that this was the suggestion of Professor Ed Felten as well, noting that a sort of "Sword of Damocles" dangling above broadband providers' heads might be the best form of net neutrality as we learned more. However, as Heaney notes, we have learned more and that plan has now failed, thanks to the appeals court ruling in favor of Verizon (Heaney incorrectly says it's Comcast -- possibly confusing it with a different net neutrality lawsuit). And, thus, he notes, without the hovering threat, the playing field is now open for monopoly-power abuse -- which is the kind of thing that Republicans and conservativesagainst:Given that, he notes, the next best option is Title II. He notes, correctly, that the early days of the internet saw growth and investment in broadband thrive under Title II (contrary to claims to the contrary) and how the telcos today still beg to be classified under Title II for parts of their infrastructure:His full piece is much longer and well worth reading, but I have one further quibble with it, which gets back to the underlying claim about all of this that Title II is somehow "regulating the internet." It's not. It's never been about that at all. Quite the opposite, in fact. It's about. The anti-net neutrality crew like to make this mistake (and they make it often), trying to pretend thatis. It's not. Andhasbeen heavily regulated, often out of necessity. In order to allow a cable company or a telco to install broadband infrastructure, local cities and towns often did special deals, handing over subsidies, rights of way, pole rights, tax breaks, franchise agreements and other such things to the broadband players. The idea that internet infrastructure hasbeen "a free market" is laughable. No matter what kind of infrastructure was being installed, it'srelied on some sort of deal with government in exchange for access. As such, it'sto argue that there should be certain requirements in exchange for suchfor their network, and that includes keeping the network itself free and open to use.And that's really what net neutrality is all about. It's not about "regulating the internet," but making sure that the big broadband players don't "regulate" the internet themselves, by setting up toll booths and other limitations, allowingto pick the winners and losers. It's about blocking monopolistic powers from putting in place systems to extract monopoly rents that harm the public and limit innovation and consumer surplus. Net neutralitythe internet from suchby putting common carrier rulesto make sure that there's true competition and freedom. And that makes total sense, because you don't want competition of natural monopolies, you want to make sure natural monopolies don't block competition.Given that Republicans like to claim that they're pro-innovation, pro-business and pro-competition, they should absolutely be in favor of net neutrality as well because it creates the environment where there will be real competition and innovation at the service level. The argument that they're using against it is to pretend that Title II regulates "the internet" when it really justthe existing style of regulation for, preventing a few monopolistic powers from squeezing monopoly rents from everyone else. Normally stopping monopolies is supposed to be a key tenant of conservative economics. It honestly seems like the only reason that isn't the case here is because big broadband lobbyists have carefully spun this tale (and heavily funded some campaigns) to pretend that what they're trying to stop is "regulation of the internet."

Filed Under: conservatives, economics, government takeover of the internet, infrastructure, monopolies, natural monopoly, net neutrality, reclassification, regulations, republicans, title ii