Time to Reboot the Net Neutrality Debate

House Commerce Committee Chairman Fred Upton has made good on one of his campaign promises. The Michigan Republican said after the November election "shellacking" that he would overturn the Federal Communications Commission's net neutrality regulations of the Internet. In early April he made good on that pledge as the House voted 240-179 to dump the rules.

A final overhaul faces steep odds with a Democratic-controlled Senate and a pro-net-neutrality Barack Obama wielding a veto pen. But Upton's move generates a fresh opportunity to revisit the net neutrality debate in light of recent developments.

It's worth recalling how the fight over net neutrality started. Dial the way-back machine to 2005 when then-Southwestern Bell CEO Ed Whitacre uttered the quote that launched a thousand digital activists.

"Now what they would like to do is use my pipes free," Whitacre said of Internet firms such as Google, MSN and Vonage, "but I ain't going to let them do that because we have spent this capital and we have to have a return on it. So there's going to have to be some mechanism for these people who use these pipes to pay for the portion they're using. Why should they be allowed to use my pipes?"

This quote prompted howls of protest that ISPs would "end the Internet as we know it" by charging access fees, stifling speech, blocking websites, and other alleged horrors. The quote provided the jet fuel that propelled regulation enthusiasts on their quest for formal "net neutrality" rules. The FCC ultimately obliged; Rep. Fred Upton has fought back. And here we are today.

The best way to ensure the networks of the future get built is to rely on the market's unique power to experiment with new business models and technologies.

Lost amidst the bickering of the last half dozen years has been an appreciation of the fact that the economic and technological issues raised by Whitacre-however inartfully worded at the time-cannot be wished away and haven't disappeared. Consider a few recent developments.

The Director of Research for the Consumer Federation of America (CFA), a pro-net neutrality group, recently called for a tax on Internet content providers such as Netflix. "The Internet is not an infant industry anymore," says Mark Cooper. "It can certainly bear the burden of making sure that wires and the communications mediums are there" [emphasis added].

"I suggest we tax Netflix--which is using the network--to help pay for the network," he said.

Meanwhile the French Minister responsible for regulating the Internet recently urged Google and other content portals and providers to pay more for network usage. Eric Beeson, Minister of Industry, Energy and the Digital economy, recently called on "services that occupy the largest part of our networks [to] contribute to the deployment and maintenance of those networks" [emphasis added].

Fancy that: a recognition that the Internet must be built and extended and that multiple parties might be required to pay to make it so.

So what's going on? The remarks show that despite the subsequent squealing, Whitacre was on to something. Expensive networks need to be built and maintained. And networks need to adapt to new uses and demands. Great risks must be taken at great expense. The only question is how it will all happen.

The best way to ensure the networks of the future get built is to rely on the market's unique power to experiment with new business models and technologies. Can we?

Beeson is a thoughtful and conscientious proponent of innovation and technological advance. This month he spent time in Silicon Valley and Washington, D.C., meeting with industry leaders and technology analysts to discuss the future of the Internet. He told me that in France there is such a high degree of public skepticism about the merits of markets that getting politics out of the way is close to impossible. It is France, after all.

But that shouldn't necessarily be the case in the U.S. Contrary to Cooper's assertion, we don't need the government to tax Netflix to redistribute investment resources to politically connected constituents. Instead, we should let the market sort out different approaches to forming the capital needed to satisfy demand for broadband Internet services.

Economic reality is dawning, even on some traditional proponents of regulation such as the CFA. The next step is for them to understand that the best strategy of all for the moment will be to get out of the way.

Nick Schulz is Editor-in-Chief of American.com and the DeWitt Wallace Fellow at AEI.


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About the Author



  • Nick Schulz was the DeWitt Wallace Fellow at AEI and editor-in-chief of American.com, AEI's online magazine focusing on business, economics, and public affairs. He writes the “Economics 2.0” column for Forbes.com where he analyzes technology, innovation, entrepreneurship, and economic growth. He is the co-author with Arnold Kling of From Poverty to Prosperity: Intangible Assets, Hidden Liabilities, and the Lasting Triumph Over Scarcity. He has been published widely in newspapers and magazines around the country, including The Washington Post, The Wall Street Journal, the Los Angeles Times, USA Today, and Slate.

  • Phone: 202-862-5911
    Email: nick.schulz@aei.org

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