Against a National Broadband Policy
Not only do presidential candidates such as Barack Obama seek to subsidize technological rollouts at the expense of coerced taxpayers, but, along with Representative Ed Markey, they want to regulate what network property owners do with their own infrastructure. All of this is done under the guise of the new populistic policy called network neutrality.[1][2]
And while the political rhetoric will almost certainly pick up pace throughout the election year in 2008, the joke is once again on statolatrists: it has already been tried numerous times.
It could have been GrayBar
At around the same time the modern-day FCC was being erected, the nationalization of independent telecom networks was being implemented. [3]
Beginning in 1907 and under the rhetoric of "national security" as well as the fallacious belief that everyone should have a phone, AT&T was granted geographical monopolies by each state. This was done despite the fact that at the turn of 20th century more than 50% of local telephone service was controlled by rivals.[4][5]
This insulation from competition also took place under the auspices of federal legislation including the Mann-Elkins Act of 1910 and the calculating Kingsbury Commitment of 1913. These edicts effectively cemented AT&T's role as the central telecom firm for the entire country.[6]
In addition, for 70+ years AT&T's international long-distance business was also protected by federal laws. Yet despite the landmark "break-up" of AT&T in 1982, the Baby Bells were and are still given many of the same monopolistic perks that were enjoyed by their predecessor. [7][8][9]
As noted above, while outright nationalization has already been a deleterious path once traveled, two FCC commissioners recently argued "that the US is in dire need of a national broadband strategy."[10]
Much akin to Vladimir Lenin's impassioned battle cry for nationalizing the "commanding heights," some pundits now argue that the telecom infrastructure is too important to be left to the whims of the marketplace.[11] However, as Peter Klein and others have argued, the only reason the Internet became useful in the first place was due to commercial activities by entrepreneurs and for-profit companies.[12]
Universal Service Fund
The business model for the USF fraud is literally no different than robbing Peter to pay Paul. Up front it was devised as a "Robin Hood" collection method to solely tax long-distance carriers. However, its levying authority grew in 1997 to purportedly finance the far-reaching subsidies enacted in the re-regulation of 1996. It now essentially gives various levels of government the authority to impose taxes on nearly every form of telecommunication. [13][14][15]
If you currently live in an urbanized area, both your phone and ISP bills can serve as purposeful exhibits of this fleecing. The monies are purportedly collected to finance the deployment of technologies to rural America. Thus, a variable percentage of the taxes you pay are collected in a "Fund" in a similar method that FICA redistribution taxes end up in a "Fund." This typically amounts to more than 10% of the overall bill.[16][17]
Again, though, as Techdirt has noted, unsurprisingly this deployment has not occurred, since neither the rural residents have received the technology nor have the unsupervised companies been admonished for their irresponsible, negligent accounting practices. At least $7 billion each year has done little more than line the pockets of companies that promised to fulfill the seemingly tenable goals. And guess who lobbies for yet more taxpayer funds?[18]
The USF has served to subsidize rural and residential customers at the expense of urban and business use. Arguably we might have very different patterns of land use if this subsidy had never existed. And like all rights artificially concocted by the state, it set forth the disingenuous precedent that everyone has an invented right to service regardless of location — which was taxing enough in the days of POTS, let alone broadband.[19]
Great Leap Forward
Unlike the largely unseen consequences of the monopolistic rent-seeking practices of Ma Bell or the wealth redistribution schemes of Universal Phone Service, arguably the most visible criminal endeavor in this industry has been the National Information Initiative spurred in part by then Senator and later Vice-President Al Gore.
It too was developed as a centrally managed endeavor to help spur the development and deployment of new telecom technologies.
However, as technology pundits such as Robert Cringely have detailed, the NII has been nothing short of a $200+ billion corporate subsidy to telecom incumbents — to big business.[20]
In exchange for continued monopolistic protections via the federal government, many of the regional bell companies were to develop and deploy multi-megabit connections to millions of households throughout the '90s. However, not only did it fail to deliver, it redirected and consumed vast swathes of productive resources that could have been used elsewhere.[21]
Like their South Korean counterparts, these companies received billions of dollars in tax-financed inducement packages. Yet, unsurprisingly it amounted to very little being accomplished. Or as Cringely noted,
[T]he FCC tried to control deployment centrally while states and cities tended to view video dial tone as just another cable company to be taxed and regulated.
[…] the FCC says America has the highest broadband deployment rate in the world and President Bush has set a goal of having broadband available to every U.S. home by the end of this year. What have these guys been smoking? Nothing, actually, they simply redefined "broadband" as any Internet service with a download speed of 200 kilobits per second or better. That's less than one percent the target speed set in 1994 that we were supposed to have achieved by 2000 under regulations that still remain in place.
And while this subject deserves much more attention than this article can afford, readers are encouraged to peruse the copiously detailed "$200 Billion Broadband Scandal" by Bruce Kushnick.
As noted by Kushnick, the very same fallacious incentives and grandiose plans envisioned by Obama were spelled out more than 10 years ago,
Almost at birth, the Baby Bells pitched a series of new regulations, called "alternative" or "price cap" or "incentive" regulation to the Public Utility Commissions. By 1997, the Bells had convinced almost every state regulator to grant some form of alternative regulation.
From the telephone company perspective, alternative regulation has been the buzzword for giving incentives to the telephone company to give new technology to the masses sooner. (p. 198)
In his "Christmas list," not only does Obama endorse giving companies tax-financed subsidies, but he would appoint a technology czar to help guide the assumedly unguided — or in short, to take on the role of CTO and entrepreneur in the marketplace. By every historical measure, this will result in planned chaos. More to the point, America unfortunately already has a tech czar through the National Telecommunications and Information Administration. Their economically myopic plans have obviously worked wonders.[22][23][24]
Beating a dead horse
In terms of network neutrality, B.K. Marcus has arguably done the best work on detailing the monumental missteps taken by the FCC throughout its chronically tumultuous tenure.[25]
Here is the scenario: you are a Tier 1 ISP. You purchase or rent land and place miles of fiber optics or radio antennas throughout a city. You also purchase routers, switches and servers. However, with "net neutrality" legislation the owners of the hardware would no longer be allowed to do whatever they want with their own property.[26]
Again, an ISP in a free market has every incentive to attract as many customers as its capacity can handle. In order to remain profitable, it would have to satisfy their wants.[27][28]
Every piece of legislation under the banner of "net neutrality" would be a gigantic step backwards for the industry. And while independent ISPs would certainly be in the losing category, the biggest losers would again be consumers.
Let us ignore the scarcity involved in transporting bits of data across switches and routers: the consumers would end up being taxed to enforce these provisions, their data would be snooped on by at least one government agency (what happened to the cries against the NSA wiretapping?), and whatever is ratified would be yet another barrier to entry for new competitors.[29][30]
The only long-term solution to this issue is deregulating the entire industry: remove all of the subsidies that incumbents receive, remove the state-enfranchised monopolies, and legalize competition.[31][32]
Or in short, do the complete opposite of what Obama, Markey, and others are advocating.[33]
Neither Congress nor the FCC would even need to take anything physical away. No need to "break" them up or "force" them to unbundle (i.e., offer a la carte services). Just stop protecting them, insulating them, subsidizing them (loans and handouts from taxpayers), stop giving them preferential treatment and no-compete geographies. Decriminalize all competition.[34]
In fact, it is arguably the deregulation of the industry and privatization that has spurred the ever-growing, break-neck speeds in technological innovation.[35]
Meet the new boss, same as the old boss
One wonders why politicians like Obama do not endorse increasing capacity via free-market competition. The taxpayer does not have to finance it and only those that want the services have to pay for it.
Instead of advocating new entrants and innovative technologies to expand scarce bandwidth — i.e., increase the size of the pie — the political class is merely focusing on the pie itself. It is this notable misdirected emphasis that gives rise to a key question: does it really understand the technical underpinnings of the infrastructure?[36]
While I have discussed the infrastructure issues numerous times, another issue is that many net neutrality proponents are unknowingly speaking with forked tongues.[37]
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For instance, Google and other search engines have to use discriminatory filtering practices in generating useful results. Quality of service is the name of the game and complex algorithms are all used in producing the end-result. In fact, in Google's case, approximately 100 variables are used to calculate which results will be displayed, including geography and previous searches.[38]
Thus, if net neutrality proponents such as Google were to be evenhanded about the matter, they would allow all content to be displayed regardless of quality.[39][40]
The case of GameRail is also an interesting study. Their service is essentially a specialized, private backbone that caters solely to hardcore computer gamers — a game service provider (GSP). [41]
And unsurprisingly, various net neutrality proponents were aghast to discover it, believing that this voluntary service is irresponsible, unethical, and downright criminal. Yet it is difficult to see how anyone is harmed in this mutual act of exchange — the same exchange and specialization process that takes place with an ISP.[42]
Ask-A-Revisionist
The fear mongering surrounding tiered pricing is also unwarranted. One of the reasons this business model has existed for nearly two decades is because of the flexible rates.
For instance, as a former webhost provider, I would purchase a certain amount of bandwidth from an upstream provider. The more bandwidth I purchased, the cheaper each additional bit was. In turn, my bandwidth provider was purchasing bandwidth from other middlemen who in turn were also leasing, renting, and buying capacity from someone else.[43]
In the end, each customer was charged according to how much they need and will potentially use.
Thus, the popular socialist objections against tiered pricing, packet prioritization and specialization are guilty of ill-informed historical revisionism. These "diabolical" business practices (e.g., freedom of contract, freedom of association) have been the norm rather than the exception (e.g., implemented as peering agreements, QoS). In fact, the net has never been neutral as Ask-A-Ninja, BoingBoing, and others insinuate.[44]
Simultaneously, the current opaque pricing structure and vaguely stated limits used by many ISPs arguably compounds the problem by encouraging customers to overuse "the bandwidth commons." In fact, according to Time Warner Cable, 5% of Internet users use 51% of the bandwidth and 25% use 85% overall. Yet, everyone is charged the same, or in the words of NetCompetition.org, the average user subsidizes bandwidth hogs.[45]
The buck stops here
The main problem with the telecom industry is that the government created the monopolistic problems in the first place. In addition, it was the same government that directed billions of dollars of taxpayer-financed subsidies to prop up the backward business models of incumbents — all under the guise of "innovation-fostering encouragement."
This issue really is about who controls the market — free enterprises or bureaucratic governments — because those are the only two players involved. And based on history, the federal government is the one institution that technologists should never turn to for aid and one that should never be allowed to give it.
Tim Swanson is a graduate of Texas A&M University and currently lives in Seoul, Korea. He would like to thank DJC|TANSTAAFL for his comments. Send him mail. See his archive. Comment on the blog.
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