Dictators of the Internet

The announcement that the FCC would regulate carriers of Internet applications as common carriers has excited a storm of opposition from everyone but the people. The Financial Post today published my response to some concerns about the dictatorship of the Internet.

Dictators could rule the Internet

A response to Robert McDowell and Gordon Goldstein

Financial Post Comment, February 20, 2015

The Obama administration’s proposals to regulate the Internet according to common carrier rules have set off a storm of opposition from carrier interests, whose scale and reach have been impressive. The arguments they muster are fatuous and deceitful. The Internet is not what the carriers own or have created; the Internet is what they seek to extract money from. “Regulating the Internet” is not the issue; regulating the carriers is. The carriers seek to extract economic rents from traffic on the Internet, and would do if there is no regulation of their behavior. Net neutrality regulation limits the extraction they wish to exercise over innovators, consumers, and suppliers of services.

To put matters in perspective, since 2009[1], Canada has had just such a regime for Internet traffic as the FCC proposes. Most Western countries have similar prohibitions against unjust or undue discrimination by carriers in the traffic they carry.

The 19th century regime against which the carriers and their mouthpieces rail is what has constrained monopoly power since the time of railroads. Confusing the public by calling it “internet regulation” is rich indeed; it is regulation of themselves that carriers oppose.

The Internet has robbed the carriers of their primary product, long distance telephone revenues. What Uber promises to do to the regulated taxi industry, the Internet accomplished years ago in the telephone industry. Carriers have had to shift under the impetus of creative destruction.

The claims of the carriers are bolstered by the total confusion about what the Internet is. The Internet is a series of applications (web, email etc.) that ride on top of the Internet protocol layer. Below that layer lies all the transmission equipment that gets signals from one place to another. The carriers own the transmission equipment; what they seek is greater rights in applications riding on their networks. If they could prioritize traffic according to their wishes, they could extract more money from Amazon, Netflix or Google. “Net neutrality” is a rule telling them that they cannot. It is common carrier regulation applied to new circumstances, for the same reasons it was applied to carriers in times past.

The Internet constitutes a technological revolution that enabled there to be “innovation without permission”. The world wide web and email are the most conspicuous examples of protocols that were launched without having to be approved by the phone companies and their treaty organization, the ITU. In the recent court case that generated the net neutrality fracas at the FCC (Verizon v FCC[2], the US Court of Appeals found that carriers had the means and motive to favour particular applications and sources of supply, and to stifle innovation from the edge of the networks.

Listening to the arguments against net neutrality, you might be lulled into thinking that carriers invented cellphones, computers, Skype, social media, and the Internet itself. They did not. They have proven to be profoundly uncreative over the course of decades. Innovation has come from the edge of networks by people able to launch new software onto the Net without their permission. The dead hand of regulation was exercised by carriers, not governments.

Net neutrality regulation is the attempt to put the carriers of Internet traffic back into the legal category that best describes their attributes: common carriers, with an obligation to carry traffic without unjust discrimination. The dynamism in the market comes from applications, not from carriers. Setting up a referee between applications providers and users, on the one hand, and carriers, on the other, is common sense. The potential dictatorship of carriers over traffic: that is the proper concern of governments. Only in the United States could so sensible an idea be treated with apocalyptic hysteria.

Timothy Denton

[1] http://www.crtc.gc.ca/eng/archive/2009/2009-657.htm

[2] http://www.cadc.uscourts.gov/internet/opinions.nsf/3AF8B4D938CDEEA685257C6000532062/$file/11-1355-1474943.pdf

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