War for the Web
18 01.14

The Wall Street Journal and Regulation

Hello from the War for the Web team! We realize it’s been a while but we’ve been chained to a radiator in the edit room, working on getting a cut of the film ready. We’ve been following the news, however, and there was an op-ed in The Wall Street Journal published today that we felt really needed a response.

Robert McDowell, former FCC Commissioner and visiting fellow at the Hudson Institute, wrote a pretty infuriating editorial about the recent court defeat of the FCC’s Network Neutrality rules. It’s infuriating for a couple reasons, but let’s break down the situation and try to get to the bottom of what’s so frustrating about the attitude that Mr. McDowell demonstrates.

First and foremost, what were the network neutrality rules that the FCC was espousing, and why do we need them, or something like them? From the invention of the Internet until the turn of the century, the Internet ran over phone lines. Phone lines were subject to certain rules and regulations. First, they required common carriage, which meant that a standard, public rate applied to usage and third parties could use the phones to offer services. Second, they had consumer protections. In practice, these rules allowed many small business owners with access to the Internet to turn around and offer Internet connectivity to their community. There were more than 1500 service providers in California in the late 1990s.

Around the turn of the century, cable companies started to offer “broadband” services, Internet access using a cable modem. These connections were not considered Telecommunications, so they were not regulated the same way that telephone based connectivity and they did not need to allow third party Internet Service providers to use their infrastructure to offer service. The telephone companies felt that this wasn’t fair to their businesses, so they started lobbying the FCC to get rid of their common carriage obligations, and allow them to change their rate structures.

In 2005 a group of small Internet service providers in California sued the FCC to require the same rules of common carriage be applied to cable Internet as to telephone Internet. The court, rather than deciding the case, said that the FCC had the right and responsibility to regulate the Internet, and kicked the ball back to them. They subsequently re-classified the Internet as an “information” service rather than a “telecommunications” service, and all regulatory protections for small businesses and consumers disappeared. The FCC claimed that this decision would lead to “Facilities-based” competition; that is, competition between infrastructure owners, of which there were few. It basically destroyed the Independent ISP business.

Since then, we’ve seen a dramatic consolidation of Internet service provision in this country. Where we used to have many options, most consumers now only have one or two, and prices are disproportionately high compared to other countries with the same or better access speeds. This has been bad for consumers and bad for businesses, and it has created a set of gate keepers. Infrastructure owners are almost always monopolies in their given markets. The cable companies have divided up the United States into fiefdoms, and they all claim not to have a controlling market share, but the reality is they all control their markets; they don’t share their markets with competitors.

The FCC’s network neutrality rules were an effort to prevent these companies from using their dominant positions in the market to decide who wins and who loses online. Currently, there are no rules to prevent cable companies from throttling certain websites, or even censoring them as they are delivered to you. Network neutrality would have made it harder for cable operators to do this.

Robert McDowell’s article focuses on two points, first, that the United States regulating the Internet would alter the fragile state of diplomatic relations with the United Nation’s ITU, which has had it’s eye on regulating the Internet for the last five or six years. The ITU has a history of collaborating with repressive regimes around the world, so McDowell isn’t wrong when he argues that this is something we want to avoid. But this fight is coming regardless of the state of Internet regulation in the United States. It’s been brewing for years and a confrontation is unavoidable.

The second point that Mr. McDowell makes is inflammatory and disingenuous. He argues that the Internet has never been regulated, and that introducing government regulation would stifle the free market. He argues as well that rather than focusing on what Internet companies can do, we focus on anti-trust rules to deal with monopolies. This is absurd, the United States government has clearly demonstrated that it has no interest in regulating big business, and this is especially true in the Internet infrastructure field. Verizon, for example, has a nasty track record of accepting big tax breaks (that cost-tax payers money) in exchange for promises of connectivity and universal service, and then failing to deliver. This happened in New Jersey in 1991, and in Pennsylvania in 1994. In both instances, Verizon promised universal 45mbs symmetrical fiber access for every home in the state by 2010 and 2015 respectively. That hasn’t happened. No one has taken Verizon to task. States are too weak-kneed to stick up for themselves, and the federal government is incredibly business friendly. Deferring to Anti-trust law is simply a way of pretending the problem doesn’t exist. Instead what we need is intelligent regulation, rules that simplify market structures and foster competition. In that regard, we believe that a reversal of the Brand X decision from 2005 is in order, force the infrastructure owners to lease their lines at regulated rates to the competition. Faster Internet service and a better consumer experience will result.

The prevailing attitude espoused by the right wing in this country is that regulation, as a whole, is bad. This is the line or reasoning that Robert McDowell is using in his editorial, but it’s ridiculous. Regulation just means rules. Without rules for interaction, society becomes a violent place where those with power can dictate the rules and steal from those who do not have power.

To quote Richard Clarke, “If it weren’t for regulation, you’d be sick, and your children would be licking lead paint off chinese toys.”  Do we really want to live in a society where large, powerful companies can do whatever they please with impunity at the expense of the American people? We realize that the government is not always efficient, but at least it answers to the people through elections. Corporations don’t answer to consumers, particularly when consumers have no ability to vote with their wallets, as is often the case with Internet service provision. A completely unregulated, free-market is simply a bully taking your lunch money because he’s bigger than you. I’m fairly certain we all got tired of that in middle school.

Here are War for the Web, we hope that the recent court’s decision to strike down the Network Neutrality framework will have the positive effect of turning the debate back towards communications services and common carriage.

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