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The Government’s Broadband and Video Competition Quagmire

I have been having discussions on several listservs about broadband and video competition over the last few days. They have led me to the inescapable conclusion there is a tremendous amount of misinformation around telecom. It is also apparent that proponents of net neutrality are doing all they can to muddy the waters.

Good, solid conservatives have repeated back to me, chapter and verse, the talking points of the left and their willful misrepresentations of the facts.  My friend Seton Motley has a good piece up about how the government creates monopolies and then proposes more government to deal with the monopolies they have created. it’s well worth a read.

Much of this recent wave of broadband hysteria started with the recent complain by Netflix that they have to pay transport costs to Comcast to connect directly to their network rather than going through backbone providers. This kind of arrangement is typically referred to as interconnection or peering. Under standard, roughly symmetrical peering, networks trade roughly the same amount of traffic, and they agree to do so without costs.

Under the Netflix agreement, Netflix passes a huge amount of traffic to Comcast, while Comcast passes very little back. In such an asymmetrical arrangement, it is normal for the network creating more traffic to pay for the inequitable consumption of bandwidth. In Netflix’ case, they are demanding that Comcast pay all the costs because their customers are requesting the Netflix content.

The net effect this will have is it amounts to a surcharge on every Comcast customer, whether they are a Netflix subscriber or not. This would work well for Netflix because they get to reap subscriber fees from their customers without having to pay transport costs because someone else is subsidizing their ride.

Netflix, to make its case, is calling this a net neutrality violation – despite the fact that net neutrality deals only with interference with traffic on the so-called “last mile” or the connection to a customers home. NN rules were established to prevent Comcast from favoring its own video traffic over Netflix.  As long as Comcast does not impede the flow of video from Netflix, and it can reach the customer as easily as Comcast’s, there is no violation.

Businesses Using Government as a Cudgel

What you have, in a nutshell, is a business attempting to use government as a cudgel to get what they want out of another business. This is the problem you have when government gets involved in picking winners and losers in policy fights.

As Seton notes in his piece, cable companies are monopolies created by local government in the last 60 years. When cable was a young, upstart industry, they went to every local government to get a franchise granting the right to serve the community. Local governments for their part, mandated that cable companies provide a certain amount of public service in exchange. In most cases that included things like providing public access channels, wiring schools for video and eventually broadband, and agreeing to wire the poorest neighborhoods in addition to the affluent. Cable companies (typically small operators at the time) negotiated with their local communities and got franchises.

The 1996 Cable Act gave telephone companies the right to provide video services in competition with cable, but it was only about 10 years ago that Verizon and AT&T finally decided to try it. In doing so, they were asked to make similar commitments to provide service for the poor. In leaked internal memos, however, it was revealed that they had no plans to do so and sought to target only the highest value cable subscribers – i.e. the rich people. Cities that demanded anti-redlining clauses were described as obstructionist and eventually the FCC agreed to streamline franchising rules under Section 706 of the Telecommunications Act.

In other words, federal government had to become the solution for monopolies created by local governments.

“Only One Provider”

So now the reason for demanding net neutrality rules is “but most communities have only one broadband provider.” Government, it is argued, should do anything in its power to divest these monopolists of their ill-gotten realms. The advocates for more intervention conveniently ignore the fact that it was government meddling that created this situation in the first place.

In reality, the simple solution would be a flat solution that grants companies who wish to carry Internet, voice and video services access to rights of way under a flat fee per mile or pole. Municipalities, to prevent redlining, could lower, or eliminate, those fees in neighborhoods that are typically underserved.

By prohibiting demands for things like PEG channels, studios for public access programming, and wired schools, policy would attract, not repel, investment.

Instead, the government seems bent on creating an additional morass of net neutrality and interconnection laws in order to deal with an already complex morass of franchise, redlining, and other regulations.

Demands for net neutrality are based on flawed reasoning created by a flawed system. It is clear that our nation is due for an overhaul of our telecom laws, but that overhaul should be based on eliminating troublesome regulations rather than just creating new ones.

Written by Turk