Why Net Neutrality Was Mistaken From the Beginning (AOL Edition)

It turns out that Tom Wheeler, the FCC head who imposed the rules, doesn't know what he's talking about.

By Nick Gillespie of Reason.

"Current Federal Communications Commission (FCC) Chairman Ajit Pai memorably told Reason that "net neutrality" rules were "a solution that won't work to a problem that doesn't exist."

Yet in 2015, despite a blessed lack of throttling of specific traffic streams, blocking of websites, and other feared behavior by internet service providers (ISPs) and mobile carriers, the FCC issued net neutrality rules that gave the federal government the right to punish business practices under Title II regulations designed for the old state-enabled Bell telephone monopoly.

Now that Pai, who became chairman earlier this year, has announced an FCC vote to repeal the Obama-era regulations, he is being pilloried by progressives, liberals, Democrats, and web giants ranging from Google to Netflix to Amazon to Facebook, often in the name of protecting an "open internet" that would let little companies and startups flourish like in the good old days before Google, Netflix, Amazon, and Facebook dominated everything. Even the Electronic Frontier Foundation (EFF), which back in 2009 called FCC attempts to claim jurisdiction over the internet a "Trojan Horse" for government control, is squarely against the repeal.

Yet the panic over the repeal of net neutrality is misguided for any number of reasons.
First and foremost, the repeal simply returns the internet back to pre-2015 rules where there were absolutely no systematic issues related to throttling and blocking of sites (and no, ISPs weren't to blame for Netflix quality issues in 2013). As Pai stressed in an exclusive interview with Reason last week, one major impact of net neutrality regs was a historic decline in investment in internet infrastructure, which would ultimately make things worse for all users. Why bother building out more capacity if there's a strong likelihood that the government will effectively nationalize your pipes?

Despite fears, the fact is that in the run-up to government regulation, both the average speed and number of internet connections (especially mobile) continued to climb and the percentage of Americans without "advanced telecommunications capability" dropped from 20 percent to 10 percent between 2012 and 2014, according to the FCC (see table 7 in full report). Nobody likes paying for the internet or for cell service, but the fact is that services have been getting better and options have been growing for most people.

Second, as Reason contributor Thomas W. Hazlett, a former chief economist for the FCC, writes in The New York Daily News, even FCC bureaucrats don't know what they're talking about.
Hazlett notes that in a recent debate former FCC Chairman Tom Wheeler, who implemented the 2015 net neutrality rules after explicit lobbying by President Obama, said the rise of AOL to dominance during the late 1990s proved the need for the sort of government regulation he imposed. But "AOL's foray only became possible when regulators in the 1980s peeled back 'Title II' mandates, the very regulations that Wheeler's FCC imposed on broadband providers in 2015," writes Hazlett. "AOL's experiment started small and grew huge, discovering progressively better ways to serve consumers. Wheeler's chosen example of innovation demonstrates how dangerous it is to impose one particular platform, freezing business models in place."

Deep confusion reigns on this point. In an explainer video posted earlier this year by the Wall Street Journal, net neutrality is analogized to package delivery. The overnight shipper, FedEx, delivers boxes to Amazon's customers, treating them all the same. This, says the video, is exactly what net neutrality rules applied to ISPs do.
Wrong. FedEx is unregulated. The firm chooses to offer terms and conditions that apply generically. Its rival, UPS, not so much: "UPS is not a common carrier," says the company's website, "and reserves the right in its absolute discretion to refuse carriage to any shipment tendered to it for transportation."
The firms are free to blaze different trails, with markets deciding the outcome.

Read the whole thing here.

And watch/read an interview with Hazlett from earlier this year where he discusses his epic history of the FCC, The Political Spectrum, and argues that deregulation gave us cable, HBO, and the iPhone.
Indeed, even more worrying than the decline in investment following the implementation of net neutrality is the attempt by its supporters to assume that the current moment is how internet access will forever be delivered. Last year, for instance, mobile traffic surpassed fixed (or desktop) traffic for the first time, so the territory is changing fast. Pai told Reason about a variety of moves that will allow for new ways to deliver the internet, especially to rural areas that are currently lagging behind. He also noted to Reason that many of the legal actions lobbed at mobile carriers by net neutrality proponents have been to challenge "zero-rating" plans that allow customers to stream unlimited amounts of music, video, and other services without counting against a monthly data cap. Exactly how such services are bad is unclear, especially since they don't block or throttle anything. In most contexts, giving customers something extra and unlimited is usually considered a good thing.

For Pai, repealing net neutrality isn't being done to bolster the bottom line of ISPs. Rather, it's to enable the very sort of innovation and experimentation that has worked so well from the early days of the commercialized internet. As Hazlett suggests, giving the government the ability to regulate business models is rarely a good idea, especially in fast-changing tech fields; there will be many competing models and many will die while some flourish. Pai's FCC would still insist on transparency from ISPs and the Federal Trade Commission (FTC) would be able to investigate anti-competitive practices by ISPs (Pai says that the FTC is actually better suited to this sort of role than the FCC, which is open to question). And in his interview with Reason, Pai also laid out some benchmarks by which to judge whether the repeal of net neutrality is successful or not.

Listen below, read a full transcript here, or go to iTunes and subscribe to the Reason Podcast and never miss our thrice-weekly conversations about politics, culture, and ideas from a libertarian perspective."