The Entrepreneurial View #482
Net Neutrality Regulation Ignores Broadband Realities
by Raymond J. Keating
No doubt it's dark humor, but there's something really funny about Congress pondering regulation over how the Internet is managed.
After all, politicians are not exactly a group known for their efficiency.
Nonetheless, the net neutrality regulation movement is pushing Congress to regulate how broadband network providers manage traffic online. Without any substantive evidence, the great concern is that these networks will treat certain Web traffic in nefarious fashion, putting some content providers purposefully at a disadvantage.
Why cable and telephone companies would aggravate the two markets they serve - that is, content providers and consumers - remains a mystery. Nonetheless, various politicians are taking such baseless worries seriously. Of course, the ability of Congress to extend its regulatory powers might have something to do with such willingness.
On April 22, the Senate Commerce, Science and Transportation Committee held a hearing titled "The Future of the Internet" focused on the net neutrality issue. By the way, if you were wondering what ever happened to Justine Bateman after playing Mallory on "Family Ties" in the 1980s, well, she was a witness at this hearing arguing for more government regulation of the Internet.
But Kyle McSlarrow, president and CEO of the National Cable & Telecommunications Association, proved far more insightful than the sitcom star. As reported on the Los Angeles Times "Bit Player" blog, McSlarrow was right on target noting:
"The disaster scenarios voiced by network neutrality proponents for many years have never happened. In fact, the opposite has happened -- the Internet is booming without regulation. There is quite simply no problem requiring a government solution... Putting every network management strategy up for debate before regulators would severely hamper the ability of network providers to ensure high-quality and reliable Internet access for their subscribers. Depriving network operators of certain bandwidth management tools only makes the network less efficient for everyone."
A cover story in the April 21 USA Today provides information regarding the challenges faced by broadband providers. For example:
• "AT&T and Verizon have spent more than $70 billion in the past two years to expand capacity and fortify their networks with optical technology and other capacity-enhancing gear." ... The basic problem: Consumers are becoming enamored with applications such as streaming high-definition video that eat up a lot of bandwidth. It was OK so long as those applications were on the fringe, with few users. But pressure on broadband networks ratchets up significantly once millions of people start engaging in bandwidth-intensive activities simultaneously, says Suraj Shetty, a senior director at Cisco, the big equipment maker."
• "By 2010, the average household will be using 1.1 terabytes (roughly equal to 1,000 copies of the Encyclopedia Britannica) of bandwidth a month, according to an estimate by the Internet Innovation Alliance in Washington, D.C. At that level, it says, 20 homes would generate more traffic than the entire Internet did in 1995."
• "Consumer addiction to the Internet is a double-edge sword for carriers. They stand to reap billions from additional data revenue. But they must spend heavily to add new capacity to stay ahead of demand. In the rarefied world of high-speed networks, nothing is ever simple or cheap. Add too much capacity in the wrong place, and it will sit idle, with no hope of recovering its costs. Add too little, and a network will surely crash at the first hint of congestion, angering customers and regulators. To avoid slowdowns, carriers have to manage their networks carefully, says Philippe Morin, a division president at Nortel, the big Canadian equipment maker. Otherwise, he says, ‘The user experience could go back to what we had with dial-up.'"
How to deal with this tremendous growth in broadband demand is a critical question for consumers, for small businesses and for our economy in general. Net neutrality regulation means that government regulators will question - and in effect approve or disapprove - each traffic management decision made by broadband network providers. That is a recipe for disaster, including the dampening of innovation and investment.
Far preferable is to allow businesses to experiment with different pricing and management models, with consumers ultimately deciding what works and what does not. The best undertaking for government is to remove governmental obstacles to competition in the broadband marketplace.
Government intervention does not make sense. There is absolutely no evidence that the private sector is stumbling with respect to network management, but every reason to believe that government could seriously mess things up.
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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.
