Just Say "No" to Net Neutrality

Yesterday, Chairman of the Federal Communications Commission Kevin Martin came down hard on the side of "network neutrality" by recommending punishment against Comcast Corporation*.

According to the Associated Press (see the report here), Mr. Martin said "The commission has adopted a set of principles that protects consumers access to the Internet. We found that Comcast's actions in this instance violated our principles."

At issue was a formal complaint brought to the FCC by net neutrality activists ("consumer-rights groups") Free Press and Public Knowledge. Their complaint alleged that "a network operator, Comcast, is engaging in substantial network neutrality violations" and that "a moment of truth has come."

Network neutrality, or net neutrality, is the idea that networks established by private companies (and built with private capital) must recognize "the consumer's right to use any equipment, content, application or service on a non-discriminatory basis without interference from the network provider" according to the definition on the Save the Internet website run by the aforementioned Free Press.

While all this sounds good and pro-freedom, what it really amounts to is the very un-American idea of the government jumping on private corporations and telling them what they have to do with their own property. It means that networks built with private capital and owned by shareholders must be run in accordance with the dictates of a group of federal bureaucrats, regardless of whether the shareholder-elected leadership of that company feels it is the best way to run their business, and regardless of whether shareholders lose money because of it. It means, in the words of the aforementioned Public Knowledge, that "the network operator must bear the burden of demonstrating that any interference with traffic is necessary to support a lawful goal."

In fact, as the AP story indicates, the elected members of Congress have (so far) been unable to pass net neutrality bills into law, although sympathetic members of both the House and Senate have sponsored such legislation. But now, FCC Chairman Martin and just two other unelected members of the commission will be enough to punish Comcast and set a precedent for further complaints against carriers.

At the heart of all this is the same issue that forced AT&T (often called "Ma Bell") into breakup at the hands of the Department of Justice in 1984. The same sort of complaints were leveled in that case, alleging that AT&T had a "monopoly" because they only allowed certain types of telephones to be connected to their networks (phones that their subsidiary Western Electric manufactured, for instance). The current argument over net neutrality is no different than the argument that AT&T should be forced by the heavy hand of government to open the network which they designed, paid for, and built to any and all service providers**.

In fact, today's news gets to the heart of all anti-trust issues. There should be no laws against a so-called "monopoly," because monopolies which get lazy or provide poorer service than competitors can offer typically get killed because they fail to recognize where the next disruption (or paradigm shift) will come from. Long-distance telecommunication has been a classic example of that. Oh, and by the way . . . AT&T is basically back together again! What a waste of twenty years of lack of innovation in telecom!

Net neutrality may sound like a worthy cause against "monopolistic" tendencies in big network providers, but the fact is that these providers do not operate in a monopoly at all. There are no government restrictions on companies forming to compete against various network providers. Comcast is a network provider that uses cable, and they are in fact the largest such cable provider. But customers who dislike their service for whatever reason are perfectly free to go find a different network provider -- and that provider doesn't need to be through a cable company. Customers today can choose network providers who are phone companies, cable companies, satellite dish companies . . . the field is currently wide open, and cable companies are fighting hard for business survival. They have absolutely no incentive to drive customers away.

Maybe that is why Comcast and BitTorrent recently reached a deal on managing the very type of network traffic that the "consumer-rights groups" were ostensibly upset about when they brought their formal complaint to the FCC, as described in this Wall Street Journal opinion from April of this year.

As the Journal points out, the free market provides incentives for companies to work out issues like this one (and if a company does not, they can expect to lose customers to a competitor).

But government intrusion such as the smackdown of Comcast by Kevin Martin and the FCC will ultimately hurt consumers, because it will virtually guarantee less innovation and (in the end) less access and freedom than would otherwise develop. Supposed "consumer-rights advocates" like the net neutrality crowd should consider that eventuality.

Because this issue is central to the technological advances that are important to driving our entire economy, and to increasing productivity in industries as wide-ranging as medicine, national defense, and global logistics, foolish moves prompted by innocent-sounding ideas like "network neutrality" can have serious consequences.

* The principals of Taylor Frigon Capital Management do not own shares of Comcast (CMCS).

** Some net neutrality advocates might argue that, while AT&T built their network themselves, the government did in fact provide the funding and talent that started the internet back in the days of the ARPAnet (conceived by the Department of Defense agency ARPA and built using a government contract and thus taxpayer dollars in 1969). However, the fact that the internet started in its earliest form inside a government agency does not mean that every company that accesses the internet today must allow government agencies to dictate their business model. Net-neutrality advocate Google would certainly never agree to such a line of reasoning. Comcast built their network using their own revenue and the capital provided by their shareholders to buy the servers and the switches and the trucks and the cables and to hire all the employees that enable that network to operate. They did not receive taxpayer dollars to build the network that they open up to their paying customers, and the government should not be telling them what to do with that network. If customers don't like it, as noted above, they have the option of renting access from the networks built by competitors instead. The principals of Taylor Frigon Capital Management do not own shares of Google (GOOG).