As most commentators, myself included, predicted last fall, a federal appellate court has vacated the FCC’s controversial 2010 “net neutrality” rules, holding that the agency wildly exceeded its authority to regulate how broadband internet service providers manage network traffic.
Doomsday scenarios aside, the reality is that consumers have nothing to fear from this decision. No one disputes the critical importance of the Internet’s open architecture, in which the network’s basic protocols aren’t owned by anyone and improvements are constantly being implemented.
Well before the FCC’s Open Internet Order (the agency never uses the term “net neutrality”), billions of dollars of new value were created by companies including Google, Facebook and Twitter, with hundreds of new start-ups launching every day.
Fast broadband quickly replaced slow dial-up, with blazingly-fast fiber and wireless now arriving to power the next generation of users. Thanks to billions in private infrastructure investment, the Internet is spawning an explosion of consumer-friendly products and services that are both better and cheaper than the traditional goods with which they compete.
My co-author Paul Nunes and I call these innovations “Big Bang Disruptions,” because consumers tend to embrace them all at once, devastating older industries. The smartphone, just to pick one example, has in record time become not only a better telephone but also a better camera, Web browser, personal navigation system, calculator, address book—even a flashlight.
Is all that now at risk? Hardly.
The Internet’s growth has never been dependent on “rules of the road” from the FCC, either before or now after the agency’s ill-fated Open Internet order.
In the furious hand-wringing that accompanied last week’s ruling, it’s notable that not one leading Internet company has joined the chorus of doom.
That’s because nearly all of them learned during the nasty fight leading up to the now-defunct rules that they and their customers were all better off without the well-intentioned but politically-malleable FCC in the middle of business dealings with ISPs.
Four years ago, in fact, the FCC’s Open Internet order could only point to four possible incidents of non-neutral behavior over the past decade, only two of which even involved the FCC. (The rules, in any case, wouldn’t have covered any of these incidents, and for good reasons.) There was never a case for regulating, which is why the Open Internet order referred to its rules as “prophylactic” a dozen times.
The providers, in any case, have long-since pledged to abide by the principles of the Open Internet. Some are legally required to do so as a condition of earlier mergers.
But more to the point, the market is turning in the direction of consumers and large content providers, who each have increasing leverage to police broadband providers. Already Netflix, the hypothetical victim in a world without the FCC’s babysitting, has begun dictating its terms to ISPs and not the other way around. The promise of true intermodal competition between wired and mobile broadband services will add to that pressure.
Nor are consumers lacking powerful legal protections. If ISPs do behave in anti-competitive ways that translate to genuine consumer harm, the Department of Justice and in particular the Federal Trade Commission—the real experts in competition law—stand ready to step in, as they have readily done in plenty of Internet-related dust-ups.
But last week’s complicated ruling offers a double-edged sword. While the court sensibly found the FCC had exceeded its legal authority, they left the door open for the agency to try again. The majority opinion gave little guidance on what kind of broadband regulation it thought was within the FCC’s power, so we may go through this multi-year madness a few more times before the FCC finds a winning formula.
Or worse. Recently-confirmed FCC Chairman Tom Wheeler could heed the siren song of self-styled consumer advocates and attempt a dubious legal maneuver that would “reclassify” every company offering Internet access as a common carrier, like the old telephone company.
Doing so could get around Congress’s sensible 1996 decision to limit the FCC’s Internet authority. But it would come at the terrible cost of subjecting every access provider to a sclerotic tangle of state and federal rules and regulations originally designed to micromanage the long-gone telephone monopoly.
That’s the real risk for consumers. To understand why, just look at the sorry state of the old wired telephone network. Under the crushing burden of that law, the regulated networks have been unable to keep pace with Internet-based competitors, including Skype, Vonage, and the cable companies, who are offering better and cheaper voice services as just another Internet app.
In true Big Bang fashion, more than half of all U.S. homes have simply cut the cord to the old telephone network, which has become an expensive dinosaur—obsolete, unmaintainable, and increasingly abandoned by consumers and businesses alike. In a little over a decade, it has become both worse and more expensive—loved to death by the regulators.
Ironically, the FCC has been developing plans to allow the carriers to shut down what’s left of that network, transitioning the remaining customers to Internet voice services. Later this month, the agency is set to vote on a series of test switchovers, with the goal of ending traditional phone service by 2020. And with it, retiring the regulations that sealed the old network’s doom.
Why would anyone instead urge the agency to reverse course, sending the 21st century Internet back 100 years?
Cooler heads know better. Had Congress and the FCC not wisely kept the Internet free of those rules up until now, the robust ecosystem we have today would still be a toy, generating marginal innovation, unable to attract the private infrastructure investment that fuels its development.
As our research makes clear, slow-moving regulators and fast-changing technologies don’t mix. As the pace of innovation continues to accelerate, the gap between government agencies and entrepreneurs has become a dangerous chasm. Increasingly, the only law that really applies is the law of unintended consequences, with regulators inadvertently harming the very consumers they are sworn to protect.
At a panel discussion I moderated at the International Consumer Electronics Show, FTC Commissioner Maureen Ohlhausen called for a more enlightened approach to regulating quickly-evolving technologies. Agencies should let dynamic markets work out their own problems, she said, intervening only when genuine consumer harms appear. “Government officials like myself,” Ohlhausen said candidly, “need to approach innovation with a dose of regulatory humility.”
Humility is a bitter pill to swallow for officials who genuinely want to help but are neither empowered nor fast enough to do so. But they must. The Internet has become the greatest engine of innovation in at least a century because of the relatively light touch—so far–of regulators at home and abroad.
The FCC has tried and failed repeatedly to get control over the Internet. Maybe it should just stop trying.
Larry Downes is co-author with Paul Nunes of Big Bang Disruption: Strategy in the Age of Devastating Innovation.