A Hippocratic oath for the Internet?

John Kneuer Former Administrator, National Telecommunications and Information Administration
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Yesterday a federal appeals court dealt a blow to the FCC’s plans to expand its jurisdiction from traditional phone and media regulation onto the Internet. In response to this clear judicial ruling, proponents of so-called net neutrality regulation are scrambling to figure out how the FCC can expand its authority to regulate the Internet—either through some new regulatory contortion, or through the passage of legislation that would expand the FCC’s authority.

However, rather than rushing to overturn the longstanding consensus that the Internet should remain free of burdensome regulation, perhaps now is the time to take a step back and consider: What is the harm new regulations seek to prevent? and as important, What is the harm that may inadvertently result from this new regulation?

Proponents of net neutrality have long argued that prescriptive regulation is necessary to “keep the Internet open and free.” These arguments are often accompanied by warnings that U.S. is “falling behind the rest of the world” in broadband penetration.

Now, it is certainly true that certain geographic areas and demographic groups fail to enjoy the full benefits of the Internet that the rest of us take for granted. And we should not be complacent in addressing these disparities. However, regulators must also be mindful that when addressing deficiencies in Internet access they do no harm to the broader Internet economy.

For while it is true America has gaps in coverage and access for limited populations, it is also true that when viewed across the entire broadband ecosystem—access, software and applications, consumer devices, content and services—the United States not only enjoys a highly innovative, competitive, pro-consumer broadband market, but that the U.S. is at the epicenter of the entire global broadband economy.

Don’t believe it? Try out this thought exercise: name a non-U.S. Internet company that competes globally. Stumped? Off hand, I can think of two. Research in Motion, the Canadian developer of the Blackberry smart phones and innovator in wireless e-mail delivery; and Skype, the Estonian Internet phone call and video-conferencing software developer. Compare that with the litany of U.S.-based companies that lead the world in Internet innovation: Apple, Oracle, Yahoo, Microsoft, Intel, Qualcomm, Google, E-Bay, Amazon, YouTube, Twitter, FaceBook; the list goes on and our economy benefits from the jobs these companies create and the productivity gains they generate.

All of this innovation and investment takes place despite the absence of net neutrality regulation. Indeed the president himself seemed to miss the irony when he issued his most recent and explicit call for net neutrality on—wait for it—YouTube. A company that went from start-up, to global phenomenon, to multi-billion-dollar enterprise in less than two years. Indeed, YouTube’s success should not be possible if the fears of net neutrality proponents were well founded.

So how can this be? How can a company like YouTube emerge and prosper, much less survive, when broadband access providers—unrestrained by regulatory mandates—can simply cut off YouTube from its customers? Because in the absence of regulation, pro-investment, pro-competition policies have created a market where it is essentially impossible for a carrier to deny consumers access to the content and services they want.

Most American consumers have a choice from among two fixed-line and four wireless broadband providers, as well as emerging new entrants such as Clearwire. Not only do wireless networks offer speeds and services that are reasonable substitutes for fixed offerings, but switching services from one provider to another is essentially a friction-free transaction. A Verizon customer can walk into an Apple store (and vice versa) and walk out 20 minutes later with a new device, a new contract and new mobile broadband services.

In this competitive environment, it is essentially impossible for carriers to create anti-competitive barriers between consumers and the content and services they want. It’s just too easy for consumers to switch to providers that don’t put up such barriers. Now, this is not to say that carriers may not seek comparative advantage by having exclusive arrangements with certain content, equipment, or services. These sorts of exclusive arrangements are not only common across consumer industries (e.g. the NFL Sunday Ticket exclusively on satellite), but they create wholesome incentives for investment and innovation (iPhone begets Blackberry Storm begets iPhone 3G begets Droid etc., etc.).

Rather than allow competitive carriers to invest and innovate in a way that they believe will best serve their customers, proponents of net neutrality would have

Network-management practices and arms length negotiations between unaffiliated businesses subject to some Washington-based special interest driven regulatory standard of “reasonableness.”

Once network and other investments are tested by politically driven regulatory standards rather than dispassionate technical and economic evaluations, the value of the innovative lawyer or lobbyist quickly outstrips the value of the innovative network engineer or software developer.

So, by all means lets work together to address gaps in Broadband coverage and access where they exist. In that regard the FCC’s recently released National Broadband Plan has some good ideas (freeing up additional spectrum and reforming Universal Service subsidies, for example). But first (in the manner of the physicians oath) let us commit to do no harm to the wider Internet economy that has been built on a foundation regulatory restraint, competition, and innovation.

John Kneuer is the President and Founder of Kneuer LLC. From 2003-2007, Mr. Kneuer served first as the Deputy Assistant Secretary, and then as the Assistant Secretary of Commerce for Communications and Information. As Assistant Secretary, Mr. Kneuer was confirmed by the U.S. Senate as the principal advisor to the president on telecommunications policy, and the Administrator of the National Telecommunications and Information Administration.