Silicon Valley’s Biggest Internet Mistake

Scott Cleland | Chairman, NetCompetition

Hubris causes blind spots.

Silicon Valley is putting its foreign Internet franchise at risk by imagining what happens in Washington D.C. stays in D.C.

Silicon Valley’s net neutrality tunnel vision in America blinds it to the disastrous international policy repercussions of promoting a protectionist industrial policy for Silicon Valley at the FCC, exactly when most other nations are looking for any pretext to justify imposing their own protectionist policies in response to Edward Snowden’s revelations of NSA spying.

To appreciate the biggest Internet mistake that Silicon Valley interests are making, one first needs to understand what they want from the FCC.

They want consumers to subsidize Silicon Valley’s cost of their commercial streaming to users in the form of a permanent FCC-set, zero-price for downstream traffic to their users.

To secure this large infrastructure-use government subsidy, Silicon Valley interests need the FCC to reclassify the U.S. Internet from a lightly-regulated “information” service to a utility-regulated “telecommunications” service, while simultaneously undoing, or “forbearing” from, some of the new utility regulations they just imposed.

So what is Silicon Valley’s biggest Internet mistake?

Legally, “telecommunications” is what international treaties and agreements regulate like a utility, under the Constitution of the United Nations’ International Telecommunications Union (ITU).

Specifically, ITU agreement: ITU-T D.50, recognizes the sovereign right of each State to regulate “telecommunications” as that State determines.

Apparently, Silicon Valley interests are blind to the many risks of “telecommunications” regulation to their foreign businesses.

First, the FCC reclassifying the American Internet as “telecommunications” predictably would invite most every other country to reclassify their Internet traffic as “telecommunications” too, so that they could impose lucrative price tariffs on Silicon Valley’s dominant share of Internet traffic into their countries.

Second, there is no “forbearance,” or undoing, process from the ITU’s “telecommunications” utility regulations.

Third, a new FCC-led protectionist, “telecommunications” trade dynamic, would give foreign regulators every incentive to protect their national interests at Silicon Valley’s expense.

Fourth, the world is watching.

Fadi Chehade, Internet governance leader and President of the Internet Corporation for Assigned Names and Numbers (ICANN,) told the Washington Post: “You think that how the FCC decides to move forward with net neutrality only affects America? No. The whole world is watching how this country manages its Internet.”

Simply, since Silicon Valley benefits the most from free trade and the free flow of information, they also have the most to lose from advocating for the FCC to protect Silicon Valley commercially with large Internet infrastructure-use government subsidies.

For example, Google alone sends roughly 8 billion video streams overseas daily.

Most countries in the world salivate at the prospect of America’s FCC leading the world in price regulating Internet traffic flows for America’s benefit.

It would provide priceless political cover for autocratic countries like China and Russia, to impose their own nationalist Internet regulations and censorship policies.

It also would eviscerate any moral or policy high-ground the U.S. could have to stave off protectionist trade policies for information services, like the European Parliament’s call to end the U.S.-EU Data Safe Harbor and many countries’ calls for data storage localization.

That’s because foreign negotiators could say that their countries were only doing for their national champions what the FCC did for America’s Silicon Valley national champions.

And unfortunately, price regulating Internet traffic as “telecommunications” likely would require privacy-invasive, deep-packet-inspection, at sovereign borders in order to determine who owes whom what under an ITU “telecommunications” sender-party-pays, trade-settlement regime.

In sum, hubris causes blind spots.

Silicon Valley imagines what happens at America’s FCC stays at the FCC.

Not when Silicon Valley dominates Internet traffic, usage, revenue, profit, and opportunity worldwide.

Not when Silicon Valley wants the rest of the world to subsidize its exceptional dominance with zero-pricing for sender traffic under the self-serving guise of “no fast-lane” net neutrality.

Not when Silicon Valley is under investigation in Europe and elsewhere for evading tens of billions of dollars in income taxes for many years.

Not when the rest of the world believes Silicon Valley was complicit with the NSA in spying on most everyone per Edward Snowden’s revelations.

In a nutshell, Silicon Valley’s biggest mistake is pushing the FCC to reclassify the Internet as “telecommunications” because it could be the catalyst for many of the worst things Silicon Valley claims to fear and oppose: an Internet with border inspections and price tariffs; more privacy-invasive deep-packet-inspection and censorship; and a less-universal “splinternet.”

Hopefully the FCC will not give Silicon Valley the “telecommunications” reclassification and national subsidies that they seek under the slogan-driven policy of “no fast lane” net neutrality.

History records that the Clinton Administration wisely convinced the world to not impose utility “telecommunications” regulation on the Internet. That was essential free trade policy leadership which enabled the Internet to become the global phenomenon that it is today.

Will the Tom Wheeler-led FCC stay the course set by the Clinton Administration, which has been hugely successful to date, or reverse course and lead the world to regulate the Internet as a “telecommunications” utility with border inspections and price tariffs?

May the Wheeler FCC choose wisely. The world is watching.

Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, a research consultancy for Fortune 500 companies, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests.

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