Don’t drag broadband into the net neutrality morass

Jeffrey A. Eisenach Managing Director, Navigant Economics
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The last great free-market regulatory decision of the 20th century was engineered by a Democrat, former FCC Chairman William Kennard, when he refused to drag the new and promising consumer broadband market into what he called the “whole morass” of telephone style regulation.

This was in September of 1999 and Kennard was specifically resisting demands that the FCC impose strict open-access requirements on cable company Internet service providers as a condition of approving the old AT&T’s acquisition of huge but faded cable company TCI. By that time the telephone industry was mired in the morass of unbundling requirements created in the Telecommunications Act of 1996.

“Unbundling” meant forcing the regional Bell phone companies, which still controlled local phone service in the most of the country, to sell capacity on their physical networks to new competitors.  Prices and terms of service were set by the FCC and state regulatory commissions.  It was supposed to produce deregulation and competition in the local phone markets, but only produced years of regulatory squabbles and litigation.

Kennard’s insistence on a market-based approach to broadband Internet service was a formative moment in what became America’s incredibly successful and bipartisan policy of applying minimal regulation to broadband. Yet 10 years later, the first Democratic FCC Chairman since Kennard is trying to move broadband into the morass of phone regulation through his support of Net Neutrality regulation for broadband Internet.

Looking at the benefits produced by the country’s minimal approach to broadband regulation, I am hard-pressed to rationalize the desire of the Chairman or of president Obama to reclassify broadband as a telecom service and swaddle the market in Net Neutrality regulations.

Those regulations would give the FCC authority to micromanage the operation of America’s privately financed broadband networks as if they were government subsidized telephone utilities.  This comes uncomfortably close to a government takeover of private businesses that have been serving the public interest as well as their own bottom lines.

Net Neutrality is a euphemism for unnecessary and restrictive regulation that would sharply discourage private investment. And it is private investment that has been funding the broadband growth and innovation of the past 10 years. Continued private investment is essential to meeting America’s broadband goals for the future.

The most compelling case against Net Neutrality regulation lies in the documented success of the country’s policy of minimal regulation. There is plenty of room for improvement in U.S. broadband policy, but the most direct route to improvement is to build on our market-based approach.

That approach has driven spectacular growth in broadband availability, affordability and adoption. For instance, home broadband adoption is projected to hit 70 percent by the end of this year and 74 percent by 2012. Per megabit broadband prices have dropped 50 to 80 percent in just the last five years

Leaders in Congress are now talking about re-opening and updating the Telecom Act of 1996 to reflect the realities of the broadband age. That’s worth exploring. After all, only 24 percent of Americans even had dial-up Internet service when the act was passed and home broadband was virtually unheard of.

But no reality is more apparent than the success of minimal regulation in driving maximum broadband investment and growth. There is no marketplace justification for reversing the progress of the last 10 years by pushing broadband into the dark morass of telephone regulation.

Jeffrey A. Eisenach, PH.D. is Managing Director of Navigant Economics and an adjunct professor at George Mason University Law School.