Do We Want a Neutral Net?

On April 6, the U.S. Court of Appeals for the District of Columbia Circuit ruled that the Federal Communications Commission lacked the authority to regulate cable giant Comcast’s internet service. The verdict was the fallout from a long series of FCC rulings regarding Comcast’s policies towards customers it considers “excessive” users of broadband internet. The court’s decision is widely interpreted as deep-sixing the FCC’s recent drive towards requiring net neutrality and other new regulations for internet providers.

The ruling has been either cheered or jeered largely along partisan lines; National Review and the Washington Examiner’s redoubtable Michael Barone both supported the court, citing industry concerns of overregulation as stifling innovation and leading to bandwidth congestion. On the other side, Salon’s Jenn Kepka called for congressional action to overturn the ruling, fearing the potential of ISPs blocking political or commercial sites they disagree with.

While I suspect Kepka’s particular concern is overblown — the surest way for a company to find itself under an immense wave of public and governmental pressure would be to act as a speech censor — other left-of-center commenters like Mother Jones’ Kevin Drum have a legitimate point when noting that “open internet has worked pretty well” to date. The ISPs want to charge "heavy user fees" to big services like Google and Hulu (and presumably even small video providers like, say, PJTV), and one suspects such charges would result in fewer innovative new companies being formed in the future. And none of the above even touches on the lack of serious pricing competition in the American broadband market.

The problem here is, just about everybody has a good point or two, but neither the law nor the market has a seamless answer to: “What’s the best way to do this?”

To borrow a now hoary metaphor from Ted Stephens, broadband service requires large tubes, at least relative to the days of slow dial-up service. Most of those tubes are owned by large corporations — cable TV and phone companies. The fortunate side of that equation is that even before the internet era dawned in the mid-90’s, almost every home in the country was wired for phone service, and most of them were wired for cable. While it wasn’t as easy (or cheap) as simply plugging in a modem, getting from the black rotary phone or analog cable TV to high-speed internet did not require entirely new technologies and infrastructure to be built out, and fast access spread like wildfire to most of the country.

The downside was, well, that infrastructure belonged to cable and phone companies, both of which had spent decades as monopoly operators thanks to exclusive agreements with the feds, the states, and municipalities. This status did not exactly breed a bias towards customer service or competitive pricing. As a Wired profile of Comcast, the nation’s largest cable company, put it:

[T]here's something about the business that makes executives a little blasè about consumer complaints. They've been lambasted for so long, they just don't hear it anymore. Brian's father, perpetually bow-tied 88-year-old Ralph, started Comcast in the early 1960s. Programming cost nothing — he simply took broadcast signals and piped them to homes. Government regulation (unlike for broadcast television) was nonexistent. And expansion was just a matter of finding more towns to wire. Customers complained about price and service — but they never cut the cord. "It's the greatest thing since stealing," one of Ralph's first employees told his friends.

That’s not too different from the attitudes of the old Ma Bell or her post-1982 offspring (as Lily Tomlin put it, “We’re the Phone Company. We don’t care. We don’t have to”). Now that they are ISPs in addition to TV or telephone providers, the cablers and telcos still act like monopoly incumbents, charging more and more every year with only minimal improvements in quality. Customer service horror stories are rampant; nobody looks forward to calling either side of their local broadband duopoly when they have a problem.

But the thing is — they do own the tubes. Like them or not, those companies did put up the billions to roll out the wiring and associated infrastructure, and they pay today for their upkeep and upgrades. Internet services aren’t public utilities, and few people like the basic idea of the government stepping in and saying, “You can earn this much on your investment but no more.”

Even so, it’s not entirely accurate to say that infrastructure was built solely by rough-and-ready entrepreneurialism. The Bells enjoyed decades of regulated monopoly status, to say nothing of over a hundred years of subsidized full-access rollouts. Similarly, local cable companies almost always enjoy sole access to their markets thanks to their franchising agreements with localities. Since prices for all of these services have always gone up instead of down, it’s fair to ask when enough monopoly featherbedding is enough; at what point is it reasonable to say, okay guys, you’ve recouped your investment X times over, and it’s time for some competition? Broadband bandwidth is extremely profitable, reportedly costing providers as little as $1 per month per household. Given the dual-monopoly state of “competition” in most markets, a 450% markup probably makes even the most committed libertarian blanch.

For individual customers and net service companies like Google or Apple, the ideal is a fast, cheap, dumb pipe — but that’s also the bane of cable and telco executives who dream of cashing in. Phone companies are terrified of losing their century-old, hugely-profitable voice lines, and for good reason: those lines are going away by the millions as customers cut the cord in favor of cheap cell accounts or even cheaper VOIP service. Similarly, cable companies live in fear of customers ditching their every-year-it-goes-up cable bills for internet television services like Netflix or iTunes or ESPN360 (to say nothing of the vast darkweb of pirate video).

Both sides of the duopoly hate the innovation that made broadband really work at the consumer level, namely all-you-can-eat internet service. Unlimited broadband — for a higher price — was the silver bullet that killed the internet’s first wave of providers: AOL, CompuServe, Earthlink, and a giant host of other early pay-by-the-minute services were all vanquished by unlimited broadband in a small number of years. But now the incumbents want to do for internet service what they did for telephone and television: milk the cash cow, meaning the gradual accumulation of additional fees and annual rate increases while limiting new spending on upgrades. None of that sits well with users who are accustomed to everything related to computers getting better and cheaper over time.

While the American incumbents do have a point when they note geographic and political reasons why the U.S. lags many other developed nations in speed-for-the-dollar rankings of broadband service, it’s clear that customers in other countries have benefited from open access rules. Such rules require internet infrastructure — in simple terms, the wiring — to be accessible by numerous ISPs, opening up the market for greater competition. Open access was originally a part of the 1996 telecom legislation, but persistent court challenges from the Bells eventually put an end to such line-sharing in the U.S.

From the customer’s perspective, separating control of the wiring from the providers of internet access looks like the ideal solution. If AT&T or Comcast had to compete with other companies to provide broadband over the same infrastructure, it stands to reason that prices would drop thanks to that competition. Problem is, that kind of open access would require removing the ownership of networks built with private investment, and handing the benefits of that investment over to other private companies who didn’t pay to build it in the first place. In an age of anti-Kelo-ism, that’s a step to be taken only with great trepidation.