Unsettled Questions about the ‘‘Internet Freedom Preservation Act of 2009’’

A bill titled the ‘‘Internet Freedom Preservation Act of 2009’’ was recently introduced by House members Ed Markey of Massachusetts and Anna Eshoo of California. The bill would amend the Communications Act of 1934 in order to “…establish a national broadband policy, safeguard consumer rights, [and] spur investment and innovation…” It would do so by adopting a scheme of regulation of Internet Access Providers (wireline, wireless and cable network owners) that has been advanced in recent years in the names of Network Neutrality, Network Openness, and Network Freedom—among others.

The main provisions of the Bill have been debated vigorously. Substantial evidence has been adduced about some of its likely impacts on elements of what might be broadly construed as the “public interest.” However, there remain several critical questions to which consumers deserve more information and better answers than have been offered to date. We have identified several critical unsettled questions in this context and hope that any hearings on the Bill would focus on resolving them with real data and analysis of the sort that has been sorely lacking to date.

Question # 1. What impact would the Bill’s implementation have on the rate of investment in broadband networks? Would network platform owners be likely to invest more, the same, or less under the Bill or under the status quo going forward? While Congress should be concerned with investment within core networks and at the “edge,” it is indisputable that the primary focus must be on network investment since it is a necessary element for deriving value of investing in applications or content or software or other complementary businesses. The value of networks and applications are synergistic. If there’s no network, there’s no value for applications. Seems simple enough, but surprisingly not often recognized in policy debates. Any hearings should feature a debate among stakeholders on that core question – is there evidence that imposing regulations and requirements on network investors will encourage more investment?

Question # 2. What impact would the Bill’s implementation have on the rate of innovation in companies in the Internet “value chain,” that is among the cluster of firms producing complementary outputs? The Bill’s language suggests that its sponsors clearly believe it would advance innovation in matters related to applications or, as the jargon goes, “at the edge.” Notwithstanding that presumption, there is little in the way of evidence about where innovation is taking place, what value specific innovations create, or even how to define innovation and to measure its impact. How do we compare and value network innovations, investment and services to innovations “at the edge?” We are familiar with assertions to the effect that all the important innovations are at the edge and that rules of the sort included in this Bill are necessary to foster them, but we have seen no evidence to substantiate these claims. At a minimum, hearings on the Bill should address not only empirical questions about the definition, locus, identity and value of different kinds of “Internet-related” innovations. They also should address with great diligence the question of how the Bill’s provisions would affect incentives, opportunities, and prospects for innovation among equipment providers, software providers, content providers, network providers and applications providers. So far as we can tell, the record contains lots of assertions, but little in the way of data or empirical analysis of the impacts of alternative regulatory regimes.

Question # 3. Where should the line be drawn between acceptable and unacceptable discrimination? Every action is discriminatory in the most general sense and our review of economic history found that price discrimination or other forms of unequal treatment of customers by business are the rule rather than the exception; that such discrimination is a form of competition; that it creates value for consumers; and, indeed, is part and parcel of communications policy for 75 years in accordance with provisions of the 1934 Act permitting and encouraging different forms of discriminatory pricing. The FCC has been struggling with this question for decades and most recently asked stakeholders how it could draw a bright line between good discrimination and bad discrimination.

Question # 4. What consumer rights are being safeguarded? Are the rights of any consumers harmed by provisions of the Bill? Are consumers as a whole harmed by regulations that prohibit discrimination between users who demand and use large amounts of capacity and thereby impose costs on other users of the shared network facility? Are consumers served by rules that require equal priority for downloading illegal video files versus an in-home medical device that sends patients’ diagnostic information to nearby hospitals in real time? Are consumers made better off by limiting the tiers, speeds and quality of service at a substantially lower price? These questions subsume issues about what constitutes reasonable network management; what is permissible discrimination; and, indeed, the consumer welfare impact of imposing a list of duties – well meaning to be sure – that will benefit some consumers but will without doubt impose on others a variety of unanticipated and unwanted costs. What we do know is that all of the empirical studies on record – including those by Litan and Singer; Darby; Ford, Koutsky and Spiwak; Sidak; Pociask; and Hahn and Wallsten – find net neutrality rules to increase consumer prices and reduce consumer welfare. We are still waiting for an objective study to demonstrate how the Bill will help consumers and increase network investment, and specifically by how much.

There are of course numerous other questions that should be addressed, if consumers are to be assured that their interests are indeed being advanced by the provisions of the Bill. A spirited debate of these will no doubt reach others. But, these are good places to start, if we are to distill fact from rhetoric.

FacebooktwitterredditlinkedinFacebooktwitterredditlinkedin