Editor’s note: James Gattuso is a research fellow at The Heritage Foundation.
WASHINGTON, D.C. …Â It’s hardly news anymore when the Internet is threatened with federal regulation. Every day, it seems someone hatches a plan to regulate this or that aspect of the web.
So it’s not surprising that another such idea is being floated to the Federal Communications Commission. What is mildly startling is that the plan is pushed not by out-of-touch bureaucrats but by major parts of the tech sector itself.
Last year, a coalition of tech firms and associations, ranging from Amazon.com to Yahoo to Disney, sent a letter urging the FCC to “assure that consumers and other Internet users continue to enjoy the unfettered ability to reach lawful content and services.” Their fear is that broadband providers would discriminate against certain types of content and uses of broadband, hindering the development of the Internet. Parades of horribles have been marched forward in this debate: What if a cable firm excludes certain websites? What if they pick favored applications?
It probably wasn’t hard to rile up the tech sector in favor of this effort. Despite their anti-regulatory image, techies have never much cared for network owners, thinking of the cable and telephone networks pretty much the same way early mammals thought of the dinosaurs. But these firms should know better, especially since many have been on the receiving end of regulatory attacks.
Much of the cyber-discrimination they warn of is imaginatively theoretical. No network owner has blocked out msn.com, for instance, nor is likely to. Even if they were monopolies, network owners wouldn’t generally profit by reducing the value their customers get from the service. Further, they aren’t monopolies. If a service were unreasonably discriminated against by a cable firm, telcos would likely take the disgruntled customers into their DSL fold.
Three types of discrimination
There is, however, some “discrimination” that does occur. Many cable firms, for instance, have rules against using cable modem service in certain ways. Reselling bandwidth or acting as an ISP is typically barred, and some bar operating a virtual private network.
But, there are legitimate business purposes for these rules. Cable modem service is shared — overuse by my neighbor reduces the speed at which my connection works. And there’s also price discrimination — providers charge more to businesses than residential users. That may be unfair, but such market segmentation occurs almost everywhere in industries with low marginal costs, from airlines to software.
A third category of “discrimination” is promotion and tie-ins. What if a network provider offers special treatment to a content provider for a fee or an equity investment? The special treatment could be a faster connection or a special promotion such as a pop-up ad.
Critics say such favoritism is against the Internet ethos. But it clearly wouldn’t be anything new to business world. It is, to say the least, surprising to see Disney and Microsoft rail against the dangers of cross-promotions. In many cases, especially when large-scale, risky investments are at stake, they may be essential.
Now, none of this proves there aren’t non-legitimate types of discrimination that network providers, left to their evil devices, would impose. So why not a general rule by the FCC against discrimination? The simple answer is because whatever the hypothetical potential for market abuse, the potential for regulatory abuse is greater. One can imagine how market rivals would twist and turn such rules to thwart competitors.
The FCC has long allowed itself to be used for such purposes; it shouldn’t do so again.
C:\spin is produced by the Competitive Enterprise Institute.
Competitive Enterprise Institute: www.cei.org