A Funny Thing Happened on the Way to Title II & Net Neutrality

So President Obama has made clear his support for FCC reclassification of broadband under Title II of the Telecommunications Act. Title II is the section of law under which telephone service is regulated and has been for 80 years — since the passage of the Telecommunications Act of 1934. For those of you who think you have a pretty good bead on net neutrality – the theoretical concept which the President wants the FCC to enact, you are probably wrong. Part of the problem with net neutrality – like many things in government – is the very idea is a sort of Rorschach test of your beliefs in and understanding of the Internet.

Going back to the 1990s, there was a big push for what was then called “Open Access”. Open access was the belief that telecom companies, once they invested hundreds of billions of dollars in building a network, should be forced to lease that network for below market rates to their competitors. AT&T and the rest of the baby bells fought hard to prevent this, but because they were regulated under Title II at the time, they had precious little recourse. They were forced to lease lines to competing ISPs. As a result, they saw no reason to build out their network. DSL broadband languished for years because there was no financial incentive to develop plant your competition could use to take your customers.

At the same time, cable was building out its network under a different classification. The FCC had clearly delineated two concepts in law:

INFORMATION SERVICE.–The term ”information service” means the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, and includes electronic publishing, but does not include any use of any such capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service.

AND

TELECOMMUNICATIONS SERVICE.–The term ”telecommunications service” means the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used.

Pay particular attention to that last clause. The key difference between cable and the telcos at the time was that cable was not offering phone service, just data. The telcos were carrying data over the same wire. Well a company called Brand X Internet sued cable for access to their network (which was better than the telcos) under Title II regulations. The Supreme Court found that the FCC’s regulations placed the provision of cable broadband under a different regulatory regime because it did not have voice service. The court found that cable, as an information service did not need to open its lines the way it would if it carried telephone service.

The telcos immediately petitioned the FCC to clarify that its information services were separate and distinct from its phone service. As such, it should not have to give access to its information network, even if it was carried over the same line as its phone service. The FCC agreed and reclassified telco broadband as an information service.

To further complicate things, cable was also allowed to deliver phone service, and the entire idea of which service was which started to get muddied by things like Skype.

At about this time, the professional left began agitating for a generic term called net neutrality. Originally, that concept was simple: ISPs should not be allowed to block access to the legal web or prioritize its own traffic over that of its competitors. Under the original theory, Comcast would prioritize its own video over the likes of the nascent YouTube or Netflix. It would prioritize its own  phone service over Skype. The term, however, has grown to encompass a great many things to which it was never originally applied.

For instance, ISPs and backbone providers have always engaged in what are known as peering arrangements. Under the original, pre-Netflix/YouTube web, networks typically traded roughly equal amounts of traffic and honored gentlemen’s agreements that would exchange that traffic for free. With equal traffic passing back and forth, there was little reason to take fees for the exchange as they would have been a rough wash. Only if one side greatly exceeded the traffic entering or leaving its network would commercial agreements be reached.

With the rise of Internet video, those agreements became very lopsided. Netflix, under the original model would have paid a backbone provider for a connection to the broader web. Level 3 would pass that traffic to Comcast. Comcast, in return would pass traffic back to Level 3 in roughly equal amounts. As Netflix and YouTube started to explode in usage, the imbalance in traffic became significant. Netflix began to account for the majority of traffic on the Internet. Comcast suddenly found the traffic entering its network was significantly larger than what it sent back.

ISPs began to push for paid peering agreements where companies that used more resources would pay appropriately. Netflix and Level 3 balked because they liked an arrangement where they got the greatest benefit. They cried foul and started to demand that net neutrality concepts that had formerly been intended to protect the consumer would now protect giant businesses. Suddenly decades of widely accepted peering cooperation went out the window. The definition of what net neutrality addressed suddenly changed.

So, you may be asking, what do I care if the definition is changed? I just want to make sure I get my super-ultra-mega-fast Internet connection with all my traffic delivered flawlessly for very little per month.

That’s where things go south for you.

If ISPs are allowed to charge other ISPs and content providers for their network usage, customers of those companies will foot the bill. Your Netflix bill may go up a couple of dollars.

However, net neutrality results in exactly the opposite. If ISPs can’t charge Netflix, they will charge you. Make no mistake about it, you will pay either way.

The irony, of course, is that Netflix grew in popularity partly because people wanted an alternative to cable that would allow them to watch only the shows they wanted to watch – without being forced to subsidize all the programming they didn’t want. Yet the push for net neutrality now ensures that you, as a broadband customer, will be forced to subsidize Netflix whether you want to watch it or not.

Further, net neutrality also prohibits things like prioritization of game traffic. If you have ever played Call of Duty or World of Warcraft and watched your connection glitch out you are intimately aware of the effects of lag. Latency and jitter on the network connection have a tremendous impact on games that they simply don’t have on movies, music, or email. There is no reason game companies should not be allowed to provide priority access for game traffic. It’s already done in other countries. It would be prohibited here.

The President, in his statement pushing for Title II made the problem with net neutrality clear:

 If carefully designed, these rules should not create any undue burden for ISPs, and can have clear, monitored exceptions for reasonable network management and for specialized services such as dedicated, mission-critical networks serving a hospital.

First, ask yourself this in the warm afterglow of the ObamaCare rollout, Katrina response, the medical device tax, and countless other failures (large and small) of government: “How likely is it that those “carefully designed” regulations will have no unintended consequences?” How likely is it that the government will get the rules right when they are being written by bureaucrats that fundamentally have no idea how these services actually work?

Not to pick on the dead guy, but if you doubt how serious that lack of understanding is, ask Jon Stewart his thoughts on the guy that used to be in charge of regulating the Internet in Congress.

Yet we are supposed to create a new government regulatory regime based on a vague concept that is constantly shifting, that by the President’s own admission will need to be “monitored for exceptions” on a constant basis, and which already acknowledges that some services simply need prioritization because they are “mission critical.”

If net neutrality passes, you will receive the lowest common denominator, not the highest. All the services you consume will not be suddenly be guaranteed fantastic service, they will suddenly all become mediocre. To paraphrase Mr. Incredible, when all your services are special, none of them will be.

Oh, and don’t forget the fact that we will need a much larger FCC to monitor those exceptions, define which services are mission critical, hear disputes over net neutrality violations, process requests for exemptions (in a timely manner, of course) and generally stifle innovation.

Just imagine, circa 2004, three young guys named Chad Hurley, Steve Chen and Jawed Karim standing before an FCC panel arguing that they need a special exemption for their new service. Imagine the incredulous looks of FCC staff and the ridiculous questions – “So let me get this straight. You want to deliver video over the Internet? But what for? We have the TV for that.”

If you don’t think that is a possible – nay, likely – outcome, then you clearly don’t spend enough time dealing with regulatory quagmires the federal government constructs.

The title of this post is A Funny Thing Happened on the Way to Title II and Net Neutrality. But there is simply nothing funny about this attempt to impose massive regulation on the Internet in the pursuit of some vague notion of “open” that is not technologically sound, has not been demonstrably proven to be needed, and places approval for innovation in the hands of government.

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