Kelly William Cobb
Why Net Neutrality and "Open" Internet Mandates are Bad for Consumers
Left wing groups spend a lot of time making false doomsday predictions about the “end of the Internet.” Judgment Day supposedly nears the more “closed” the Internet becomes; the more individuals and businesses can decide how their applications, services, or content are restricted from use on other networks or devices. The left’s demigod, Jonathan Zittrain, coined the term “generativity” for the degree to which the Internet and its devices and applications are “open.” In his and the left’s ideal world, anyone can create anything anywhere.
Take Android vs. the iPhone. Android accepts all applications (labeled as “good” by the left), while Apple sets rules for developers and even rejects some apps on its iPhone. The left laments this more “closed” system, even if apps are rejected for safety and reliability reasons. The “open-closed” debate is also at the core of FCC’s Net Neutrality and Title II reclassification proceeding. The Commission – led by left wing “open” advocates – want to prevent Internet service providers from managing traffic on their networks (amongst other things), which they view as a step toward making it more “closed.” The FCC’s last questionnaire also hinted that wireless providers shouldn’t be able to restrict certain apps on their network (see our comments here).
Today, Gizmodo ran a story highlighting exactly why a mandated, purely “open” Internet is bad for consumers. According to a recent FCC filing, T-Mobile service in a city was severely degraded when a popular Android-based instant messaging application required such high capacity that it overloaded the cellular network, causing congestion for every other user. A few take-aways:
First, government mandating any “open” or “closed” structure for the Internet is a disastrous idea, particularly for consumers. Left-wing groups label themselves as “consumer advocates,” but this highlights just how much they really care about consumers. Net Neutrality/Title II would force all Internet providers to treat data equally, a seemingly nice idea until congestion from one bad actor slows or shuts down your Internet service. Instead, service providers manage the flow of data on their networks, increasing efficiency and speed while preventing congestion for all.
Second, this highlights a difference between wired and wireless networks. The application mentioned above worked fine on a wired network, but not on a wireless network, which has less capacity and significantly more variables that can impact service. The FCC is rightly pondering no regulations on wireless for this exact reason. Wireless shouldn’t be regulated, but then neither should wired networks, so they can compete with one another for investment and consumers.
Finally, left wing groups bounce around Washington, D.C. demanding that politicians and bureaucrats at the FCC mandate an “open” Internet. But you don’t see center-right groups demanding a “closed” Internet (even though forcing Android to adhere some “closed” app restrictions like Apple could have potentially headed off this problem).
Instead, the best solution is for the free market to fix these problems. If “open” and “closed” systems are allowed to compete next to one another, they can correct each other’s rare but natural flaws. In the case mentioned above, T-Mobile reached out to the application developer, who fixed the coding in the app to cause less strain on the wireless network. But if it had crashed their network altogether, under the left’s Net Neutrality rules the wireless provider could not have slowed the application bogging down the network to ensure service continued working for everyone else. Worse, the FCC is even toying with the idea of removing the ability for wireless providers to decide what devices can connect to their networks – again destructively mandating “openness.”
The Internet is innovative and thriving because a balance has been created between “open” and “closed” systems in the free market. Only government mandates and regulations can change it for the worse.
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ATR Urges FCC to Avoid Regulating Wireless Broadband and Other Services
Today, ATR filed comments with the Federal Communications Commission urging them to avoid regulations on wireless broadband and other specialized broadband services. Amidst their effort to regulate the Internet under onerous sections of a 1930s telecom law, the FCC has asked whether wireless and other broadband services should be subject to such rules. The inquiry’s comment period punts the question of broadband regulation until just after the November election, teeing up an interesting battle between the FCC and a lame duck Congress, which opposes the FCC’s radical regulatory plan by a vast bipartisan majority.
Our comments focus on why regulations on wireless broadband and specialized services (such as companies paying ISPs to ensure data heavy content reaches consumers) are unjustified, go against longstanding precedent, and would be disastrous for consumers and future investment. Instead, we urge the FCC once again to defer to Congress and keep its meddling hands off the free and working Internet altogether. Excerpts from the comments:
"The Commission is yet again allowing the tail to wag the dog. First, with this Further Inquiry the Commission continues its push for overly onerous Title II regulations in the name of Network Neutrality. Now, the Commission has set their sights on regulating or banning specialized services due to the mere potential for such services to supplant Net Neutrality rules, which also have been proposed to combat a mere potential harm. The Commission has yet to justify action on Title II and Net Neutrality, let alone justify regulating or limiting the ability for ISPs to provide specialized services. Like Net Neutrality, the only justification here would be to cement the Commission’s backwards looking worldview into law that broadband Internet networks are stagnant, dumb pipes.
"While we maintain that neither wired nor wireless broadband should be subject to the Commission’s proposed regulations, it is evident that Title II regulations would have a different impact on wireless networks than wired networks. Wireless networks have significantly more variables that can impact capacity and bandwidth. Signal strength is dependant on location and physical barriers; the number of users connecting to a transmission source changes rapidly, with users switching between towers and coverage areas frequently; spectrum capacity is significantly lower. For these reasons, we appreciate the Commission’s recognition that wireless deserves a second look."
CLICK HERE to read our comments in full.
Hawaii's High-speed Internet Bailout
The Universal Service Fund (USF) is the tax on your phone line that subsidizes connections for rural and lower income households, as well as schools and libraries. The USF program has a long history of waste and abuse. However, thankfully Congress is working hard on a bill that would reform the fund. It contains a number of necessary provisions that would reign in wasteful spending, especially by redefining and limiting who exactly is eligible for payments. However, ATR is still concerned that the legislation doesn’t a cap the overall size of the multi-billion dollar fund. The USF rate sits at 15.3% today, rising 5.8% since President Obama’s new FCC took over in 2009.
This weekend, I had a piece in the Washington Times highlighting one Hawaiian company that has built their entire business model around accepting USF taxpayer money, mostly thanks to their political connections. From the op-ed:
[Sandwich Isles Communications] has siphoned off millions of dollars from American taxpayers in recurring payments. A congressional report last year labeled Sandwich Isles as one of the largest abusers of USF funding, accepting as much as $26.4 million in 2008 to connect just 1,967 households to the Internet. That's a whopping $13,408 in subsidies for each home. In 2009, the company raked in another $24 million.
Last year, the National Exchange Carrier Association (NECA) stalled the abuse by ruling that Sandwich Isles could not receive subsidies related to the cost of building a new interisland fiber network. … Sandwich Isles immediately demanded that the FCC intervene to reinstate the subsidies, and it ramped up a lobbying campaign to keep the spout of federal dollars running. Creating a company reliant on taxpayer money requires political connections, and Al Hee, the company's founder, certainly has plenty. The company has employed former Democratic state legislators, and a family friend who chaired the Hawaiian Homes Commission approved its original license to operate.
Click here to read the entire op-ed.
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Bill Halting Cell Phone Taxes Clears Subcommittee
A bill to prohibit already high cell phone taxes from going up even further has cleared its first Congressional hurdle today, passing out of a House Judiciary subcommittee. The Cell Tax Fairness Act places a mandatory five year break on all new, discriminatory state and local wireless taxes.
The move is certainly a welcome one. States have increasingly targeted cell phone service for revenue to cover overspending problems, mostly out of fear that broad based tax hikes anger voters. These taxes have spiraled out of control to the point where the average consumer pays 15% in taxes on wireless service. ATR’s Center for Fiscal Accountability has also calculated that after accounting for all telecom taxes, as well as other federal, state, and local taxes and fees, consumers across the country already spend 46.4% of their cell phone bill just paying for the cost of government.
Roughly 90% of Americans have cell phone service, yet high taxes on wireless service discourage further mobile usage by raising prices for consumers. Ideally tax rates on mobile services should be no higher than the tax on other goods and services. While the bill doesn’t force states to lower their rates, it does freeze them from going any higher. Hopefully the House and Senate will get around to passing the measure before next year’s state budget fights start up again.
Click here for a copy of ATR’s letter earlier this year in support of the bill.
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FCC Plotting Subsidies to Pick Winners and Losers
The Federal Communication Commission’s multi-billion dollar Universal Service Fund (USF) has a rocky history of waste and abuse. Yet, a new proposal by the Commission would make it even worse, directing up to $400 million in universal service support to subsidies for just two network providers. And, yes, their names are literally written in the FCC’s proposal.
The newly outlined “health infrastructure program” is intended to help rural health care providers to connect to broadband networks. The FCC’s plan is to subsidize up to 85% of the cost for health care organizations to connect to broadband networks, but only if they hook up to ones run by two university and government consortiums: Internet2 or National LambdaRail.
This is an absurd attempt at picking winners and losers in the marketplace. Much can be said about giving the Commission yet another multi-million dollar subsidy program to administer. But, even worse is their attempt to redirect money toward only two network providers. This enormously disrupts the free-market by skewing consumer choice and slowing broadband investment. Why would a rural health care institution ever buy from a private broadband provider if they can get an 85% “discount” with two others? And what incentive does the private sector have to invest in rural broadband networks if government subsidies ensure they can’t fairly compete for customers?
The Commission is well known for picking winners and losers in the marketplace. Their current push for Net Neutrality regulations would detrimentally micromanage Internet service providers’ business models, favoring Google and others in the Internet ecosphere. And before they were recently shot down in court, the FCC had a long history of applying unclear and inconsistent rules and fines censoring speech on broadcast TV and radio. If it’s approved, we can add the “health infrastructure program” to the pile.
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Government vs. Private Control and "Balkanization" of the Internet
The Economist had a piece yesterday called “The Future of the Internet: A virtual counter-revolution.” It twists and turns through the ways that government and businesses are attempting to “balkanize” the Internet; to take it over and turn it into a “collection of proprietary islands accessed by devices controlled remotely by their vendors.” The piece is certainly worth a read, but even if the picture it portrays is accurate, that doesn’t mean it’s not a good thing for consumers and the future of the Internet.
First, it points out how “governments are increasingly reasserting their sovereignty.” China is blocking content; India and Saudi Arabia threatened to block BlackBerry and other services; the U.S. is pushing regulations for Net Neutrality that could lead to government enforcement of price control, access, and more, eventually turning the Internet into a virtual public utility.
Most disconcerting was where it highlighted United States government’s influence online. According to The Economist piece, the U.S. ranked 4th amongst countries requesting that Google remove content from their website (roughly 125 times in the second half of last year). Ironic that it came from the same government that wants to enact Net Neutrality regulations to supposedly preserve the current open nature and free flow of information online. Worse, the U.S. government ranked second in requests for information from Google, 3,580 in the second half of 2009. Again, from the same government that wants to establish a “Do Not Track” list for “helping” consumers control online privacy.
The government’s actions raise enormous red flags for privacy and 4th Amendment violations. That’s why ATR is a member of the Digital Due Process coalition to require federal agencies to have a warrant and a target before asking, for example, Google for all Gmail emails sent between 2:00 and 3:00 pm EST yesterday. Today, the Electronic Communications Privacy Act (enacted way back in 1986) is woefully out of date, and permits the FBI and others to do exactly that. How are we supposed to trust a government that installs “strip-search” machines at airports, or President Obama who has been pushing for his own form of “online warrantless wiretapping” of late? (Coincidentally, you can visit another section of The Economist’s website to discuss and vote “no” on government regulation of online privacy alongside Cato’s Jim Harper).
Where the Economist piece goes awry is when it looks at how businesses are using the Internet. It says that if large players on the Internet move away from an open platform (where services, applications, and devices don’t construct walls against others), “this would be bad news.” But this is an oversimplification and allowing the free market to offer both open and closed systems means greater consumer choice, innovation, and competition. Mozilla Firefox vs. Apple’s Safari. Android vs. iPhone’s iOS.
The Internet is an innovative and dynamic space. Right now consumers are testing out both “open” and “closed” systems. This is a decidedly good thing. Facebook reached 500 million users this month, and its “closed” nature is probably why consumers put it in high demand. iPhone’s closed operating system has qualities consumers demand just as much as the open Android operating system. The Economist wrongly eulogizes Harvard professor Jonathan Zittrain for his concept of “generativity,” which values a system where anyone can create content anywhere. Zittrain and The Economist lament that the entire Internet is not "generative". But this is an absurd extreme of openness that ignores consumer preferences, like the way Apple restricts a small number of applications in its App Store for safety and reliability reasons.
The Economist also says Net Neutrality is a means to preserve openness, though the piece fairly outlines its many cons. Without Net Neutrality, proponents of government regulation argue Internet service providers will create a closed Internet by blocking content or permitting some websites to ride on a “fast-lane” above others. However, this, too, should be decided by consumer choice in the free market, not by prescriptive rules from the FCC that mandate extremely “open” business models. Consumer preferences in the free-market alone have long ensured that ISPs do not block websites. Additionally, prioritizing traffic helps prevent congestion, and the model of offering paid fast lanes is utlized by mostly “open” companies like Google to ensure their service is fast enough for consumers in places far from their servers. Finally, paid prioritization would provide a new revenue source for ISPs to lower prices and invest in broadband expansion, speed, and other services – something that can be very good for consumers. Net Neutrality and the FCC's lingering attempt at broadband reclassification could take all these potential benefits away.
Only government can seal off portions of the Internet outright. Businesses cannot. When companies choose to build islands in the online world, they do so knowing consumers will value their service, for or in spite of this reason. The same applies to companies that choose to have their products or services interconnect to all others. At the end of the day, some balkanization of the Internet gives consumers and businesses the most choice and opportunity compared to an only open or only closed Internet. And this competition is a good thing.
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FCC Stalls on Internet Regulation; Asks for More Comments
Against immense pressure from left-wing groups, yesterday the FCC announced that instead of adopting onerous Internet regulations, more study is needed. This is a breath of fresh air, but it certainly doesn’t spell the end of the FCC’s needless foray into regulating the Internet and the flourishing industry that has built it.
In its public notice, the FCC asked how or whether mobile broadband should regulated, as opposed to wired Internet connections. It also asked how to treat “specialized” services offered by service providers that run over the same broadband connection, such as teleconferencing, health IT, and gaming. The questions stem from a consensus proposal on Net Neutrality by Google and Verizon, which had exemptions for wireless and specialized services.
Yet, the questions carried the hostile and hypothetical tone that exemplifies the regulation-hungry government agency. They suggested service providers will use the “specialized service” designation to “supplant” the Internet. Despite prior assurances that their regulatory scheme would not focus on pricing, the FCC questioned the value of usage-based mobile data pricing as a means of preventing congestion and allocating bandwidth. They asked if regulations were necessary to prevent wireless carriers from blocking data-heavy applications or certain devices (that could frankly crash or congest mobile networks). The tone stems directly from the Commission’s obvious desire to make the Internet a one-size-fits-all public utility, killing the currently dynamic and innovative free-market where consumers decide which services, pricing plans, and content is the best and worst.
Immediately, the far left was up in arms. Gigi Sohn of Public Knowledge said the questions “were extensively explored in not one, but two proceedings.” Media Access Project’s Matt Wood remarked, “The commission asks the same questions time and time again… instead of providing basic answers.” Free Press’s S. Derek Turner declared, “We don’t need more questions from the FCC, we need more answers.” Is this an admission that they didn’t supply correct answers during prior proceedings? Or are they just concerned that the Commission may deviate from an authoritarian approach that regulates the Internet from the top down under an arcane 1930’s law? Regardless, for a bunch of “consumer interest” groups, they obviously don’t think consumers should have anymore say in a public proceeding about how the Internet is (or isn’t) regulated.
The FCC’s move is a welcome sign that they may adopt a more consensus-based approach, as opposed to their originally proposed Title II regulations. But it also raises a few red flags. Given the wording of the notice, no one necessarily expects the FCC to adopt a proposal with limited regulations. The FCC also appears to be punting the issue until after the election, when all the other horrid and unpopular ideas are passed in Washington. This would provide some cushion should they decide to adopt the heaviest regulations possible. In the meantime, the FCC is continuing what has become a multi-year regulatory saga that has left businesses looking to invest in broadband with infuriating uncertainty as to their regulatory fate.
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Sen. Al Franken Doesn't Understand Wireless Networks...or the First Amendment
The Google-Verizon "framework" was written so as not to apply to wireless Internet services. If you use wi-fi or access the Internet on your phone, this is a serious problem. Their framework could even allow for corporations to pay for premium access to the "wireline" Internet.
The Google-Verizon proposal does differentiate between wireless (e.g., cell phones) and wireline (e.g., cable, fiber, and wi-fi networks that broadcast wireline into a local area, like your home or office). But here, Sen. Franken confuses the two, thinking that wi-fi networks operate off cellular broadband networks. So, it appears that one of the very few Members of Congress pushing for overly burdensome Internet regulations lacks a rudimentary understanding of how networks even work.
This is the same Sen. Franken that claimed at the progressive Netroots Nation conference that “Net Neutrality is the First Amendment issue of our time.” In Franken’s absurd hypothetical world, without heavy regulations on the Internet, service providers will diminish your Internet speed or access to certain websites. Never mind that the goal of business is to retain and grow a customer base, not hand consumers a reason to switch companies by offering a less desirable service. Baseless and non-existent threats to consumers are never a justification for excessive and onerous regulations.
In fact, Sen. Franken is closely tied with the group Free Press, which has been one of the leading voices for Internet regulations and curbing speech. Franken’s email cited above was sent to tout his attendance at an event hosted by Free Press, along with far left FCC Commissioners Michael Copps and Mignon Clyburn.
What is quickly becoming the First Amendment of our time is the way the FCC, Sen. Franken, and Free Press want to regulate the Internet. Free Press, who all but hands FCC Chairman Genachowski his marching orders, has pushed for an incredibly ambiguous regulatory regime for the Internet, possibly one that could regulate speech. Free Press has already called for the FCC to monitor online speech. They also say that the businesses most impacted by Internet regulation shouldn’t be able to meet with the FCC (see First Amendment right “to petition government”). And while they are busy bashing the right to free speech, they have created a new “right” to Internet access out of thin air.
Rights exist to protect the American people from government and regulations like the ones Al Franken demands. Once the Senator from Minnesota learns what rights are, or stops affiliating with groups that don’t believe in the First Amendment, we’ll give him a crash course on what a Wi-Fi network is.
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911 Taxes Don't Fund 911 Service
ATR has long argued that excise taxes raised for specific government programs rarely go toward funding them. Cigarette taxes are a favorite of big-spenders, for example, who tout smoking cessation programs, but don't use the revenue to fund them. But, to understand why you should never trust a lawmaker who tells you why a specific excise tax is necessary, look no further than 911 phone taxes.
According to an FCC report released yesterday (PDF), last year 13 states redirected over $135 million in E911 taxes, which are levied on phone lines and are supposed to invest in emergency phone systems. Instead, 10 of them poured millions of dollars into their states’ general funds to cover overspending problems, while 3 others redirected the money to other administrative expenses. Topping the list was Illinois ($30.5 million), Wisconsin ($25 million), Hawaii ($16 million), Rhode Island ($13 million), and New York ($10 million).
Perhaps most egregious, however, was the raiding of the fund by Wisconsin Gov. Jim Doyle (D). Last year, the E911 fund was slated to end and the $20 million balance left after 911 service upgrades was to be returned to consumers as a credit on their phone bill. However, Doyle insisted on extending the tax, raising it to 75-cents, and kicking the money into the general fund for non-911 services. For good measure, he added another 56-cent tax to phones to fund universal service subsidies.
ATR's Center for Fiscal Accountability has calculated that 51.8% of your landline bill and 46.4% of your cell phone bill go toward paying for government taxes, "fees", and regulations.
Below are the states that used 911 taxes to fund excess general fund or administrative spending:
- Arizona: $8.7 million to General Fund
- California: $2.4 million to purchase multiple, unauthorized 911 hardware systems
- Delaware: $4 million to General Fund
- Georgia: $8.5 million to State Treasury
- Hawaii: $16 million to General Fund
- Illinois: $30.5 million to General Revenue Fund (since 2003)
- Nebraska: $3.4 million to General Fund; $273 thousand for administrative expenses
- New York: $10 million to General Fund
- Oregon: $3.6 million to General Fund (plus interest accrued by remaining 911 funds)
- Rhode Island: $13 million to General Fund
- Virginia: $8 million for administrative salaries
- Washington: $6 million to General Fund (law modified in 2001 to permit redirecting)
- Wisconsin: $25 million to General Fund
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ATR Submits Comments to FCC Opposing Internet Regulation
ATR’s Digital Liberty Project filed comments yesterday with the Federal Communications Commission objecting to their plan to impose 1930s regulations on the Internet. The comments shot back at false statements made by the neo-Marxist groups Free Press and Public Knowledge – as well as the FCC themselves – who believe the Internet should be taken from private industry and individuals to be made into a public utility.
The Internet has never been a regulated entity, and we argued the reasoning that led the FCC to determine it was an unregulated “information service” – as opposed to a regulated “telecommunications service” – is still valid today. We fired back at claims that prior law actually intended for more regulation when the first words of the 1996 Telecom Act read: “To promote competition and reduce regulation….” We also pointed out the many services Internet service providers offer that are distinctly “information services,” such as email hosting and DNS look-up. And we flat out mocked the FCC, Free Press, and Public Knowledge for claiming that targeted ads by Internet service providers on bandwidth speeds proved they were merely a means of connecting to the Internet. (Is a Swiffer mop really just a replacement for a stay-at-home mom’s love life?)
The FCC’s plan brings enormous uncertainty to the market and future investment. After claiming the plan is limited in scope, the FCC listed their proposed regulations and asked, “Are there others that should be added to this list?” Free Press cheerfully took them up, offering a whole host of regulations on mergers and acquisitions, forcing ISPs to resell their network lines to competitors, and more. In truth, the FCC’s plan creates enormous uncertainty by relying on a tool called “forbearance,” which allows them to apply various regulations almost at whim. This has an enormous impact for investors, who won’t dive into a regulated market with a lower chance of recouping capital. We also pointed out that Free Press – which claims there will be more certainty – argues that investment will be skewed toward wireless broadband if it (and not wireline broadband) is unregulated. Hmm…
Finally, we highlighted the way in which this plan opens the door to government price setting, when there really is no justification for rushing into such regulations to begin with. There is no consumer harm in the marketplace today to necessitate regulating the Internet. This opposition to the Commission’s plan has bipartisan sentiment with at least 282 Members of Congress, various U.S. courts, prior presidential administrations, and a vast majority of the American people.
Quite simply, the right way to move innovation forward is not the FCC’s way backward of imposing Depression-era regulations on the Internet.
To read our comments, click here. We also happily joined comments from the Internet Freedom Coalition, which you can read here. Finally, we helped rally over 150 organizations, state lawmakers, and bloggers to sign coalition letters opposing the FCC, which you can find here and here.