Net Neutrality Arguments

Net neutrality hasn’t been a hot issue for the past three years, since we’ve been waiting for the courts to rule on the legality of the FCC’s Open Internet rules. As many have noted, the waiting period has been marked by a lack of complaints on net neutrality. The closest we’ve come to a formal complaint was an informal letter to the FCC on Google’s Terms of Service in Kansas City. The complainant isn’t a Google customer, which suggests lack of standing, and the complaint is pretty lightweight; the point at issue is whether it’s legal under the FCC’s rules for Google to forbid commercial activities on the residential service it offers. This is a common restriction on low-cost residential broadband accounts, so if it were to be converted into a formal complaint and upheld by the FCC (unlikely), all ISPs who offer low-cost residential accounts with stripped-down services and variable quality would be in trouble.

The legal arguments in today’s hearing seemed to this non-layer to deal primarily with the FCC’s authority to draft rules to address speculative harm. In that light, the lack of complaints under the rules is particularly interesting. If the FCC was right in arguing that ISPs made the means and the motive to interfere with the consumer Internet experience, it’s reasonable to suppose that several instances of such behavior would have come to light by now. The counter-argument is that the rules themselves prevented misbehavior, but that’s undercut by the one complaint citing a pre-existing practice common among ISPs. But we’re left comparing the history we know to an alternate history that we don’t know because it was presumably prevented from unfolding by the rules.

Net neutrality advocates continue to maintain that ISPs want to create a cable-ized Internet in which web sites would only have access to users if they paid special fees to consumer ISPs. A funny “mockumentary” was just released that makes this argument. This speculation has been at the heart of net neutrality fears from the beginning, and it’s quite ridiculous. Limited access to content has always been more likely on the content creator’s side than on the ISPs side, as we can clearly see in the rise of pay-walled news sites and subscription-based media streaming services such as Netflix and ESPN. The Internet is becoming fragmented and balkanized alright, but this is driven by the commercial needs of content creators, not by ISP greed. We find that the market for ISP services continues to be characterized by competition for high-speed access to the whole Internet at the best price. We also find that competition is increasing as more service providers are enabled in more territories by LTE.

The FCC’s argument for its authority seems like an “emanations and penumbras” claim. The Communications Act doesn’t specially tell the FCC to draft “open Internet” rules or to otherwise regulate the Internet interconnection market, and the FCC doesn’t say it does. They do say their reading of the Communications Act and other acts of Congress on the whole suggests that they’re expected to ensure that the Internet develops fully, is widely deployed, is widely used, and is generally happy and thriving.  Verizon rejects that reading as hopelessly broad and vague.

It’s still not clear what’s actually going on in this fight. One side attributes bad thoughts to the other, and seeks to prevent these thought from being expressed. The other side says its thoughts aren’t at issue, and simply points to its actions.

Are the ISPs increasing the quality and value of their Internet access services or aren’t they? Do ISPs stand to profit more by collecting large interconnect fees from firms like Netflix, or by signing up new customers in the basis of how well they deliver Netflix programming to users? These seem like obvious questions, given that Netflix has more customers than the largest American ISP, Comcast.

While this seems obvious to those of us in the United States, they’re less obvious in other countries. France and Korea have seen instances in which ISPs charge content streaming services fees to interconnect to their customers, and Korea Telecom offers a premium backbone to IPTV carriers. The WCIT debate sought to legitimize such services. But we have to ask why ISPs in France and Korea are motivated to impose anti-neutrality rules while American ISPs are not. Could it be that the wholesale/retail line sharing and unbundling rules in those countries have perverse side-effects on the interconnect market? It could indeed, because shifting costs from consumers to content producers helps keep end-user prices low even though it probably suppresses competition in the content space. It’s harder for ISPs in many countries to differentiate themselves from each other on the basis of speed and quality than it is for US ISPs to do so, because line sharing prevents them from competing on quality, or at least makes it very hard.

The oral arguments are available from the Third Circuit’s web site, they’re worth a listen as the judges seek to distinguish blocking from discrimination and other such niceties.