Why is the internet community—and now, John Oliver—so irate about the state of the Internet? Berin Szoka says the debate over “net neutrality” stopped being about neutrality years ago, and has become a debate over something else entirely, with nothing less than the very nature of the Internet at stake.
With the Federal Communications Commission’s ruling earlier this year, are we going to see a less dynamic, less innovative, less consumer‐friendly Internet?
Trevor Burrus: Welcome to Free Thoughts from Libertarianism.org and the Cato Institute. I’m Trevor Burrus.
Aaron Ross Powell: And I’m Aaron Powell.
Trevor Burrus: Joining us today is Berin Szoka, President of TechFreedom. Prior to that, Berin was a Senior Fellow and the Director of the Center for Internet Freedom at the Progress and Freedom Foundation. Welcome to Free Thoughts Berin.
Berin Szoka: Thanks. You know, everyone always gets tied up on that particular set of nouns.
Trevor Burrus: Yeah, there’s – Center for Internet Freedom at the Progress and Freedom Foundation. Yeah, there we go. Got it. So when I emailed you to ask you to come on, I said, “Would you like to talk about net neutrality?” You responded by saying yes, provided that we only use the word “net neutrality” once during the show. That may be difficult because that’s what …
Aaron Ross Powell: You’ve just used it twice.
Trevor Burrus: I know. I’ve already violated the rule. Why did you say that in response?
Berin Szoka: Right. Well, because the debate really hasn’t been about that term for a long time and that term has really confused everyone. So on the highest level, that is really an abstraction. It’s an empty vessel into which people pour all of their hopes, dreams and frustrations about the internet.
So when you ask people about it, everybody says they’re in favor of it, just as they would say they’re in favor of privacy and competition and free speech. It’s not a really meaningful question. So let me try to unpack that by giving you what I think are the levels of this conversation, what we should actually be talking about. So that term, that term which …
Trevor Burrus: Shall not be spoken, yes.
Berin Szoka: Was coined by Tim Wu, internet law professor. I happen to be in his internet law class at the time back at – at the University of Virginia back in 2002 and he had a very specific meaning for that term, which was essentially something similar to the way that railroads were regulated traditionally.
Now, he meant it in a very narrow sense, about giving prioritization to traffic on the network. To make a long story short – and I will unpack some of this. That concept, that paper eventually was turned into regulations in 2010. The FCC lost on its first attempt to regulate before it had issued formal regulations in 2010. So it then issued a formal order that was struck down last January.
So a debate we’re having now is about the FCC’s second attempt to write regulations. So that’s – the point there just to be really specific is that an abstract concept was turned into written rules in 2010 that boiled down to three things, that broadband providers should be transparent about how they operate their networks, that they shouldn’t block content and they shouldn’t unreasonably discriminate.
So that’s the core of what has traditionally been meant by that term. The FCC has gone well beyond that. So today, the debate that we’re having – even if that’s what you want, those three things, we’re well past that point. So the debate we’re having today is about not only a set of rules that go well beyond that but an underlying claim of legal authority by the FCC that has far more vast implications.
So the debate that we’re having today is primarily about the legal basis that the FCC has used to implement those rules and to expand those rules in the new order that it issued earlier this year and that’s my concern is really first and foremost about the FCC’s broad claims of authority, which will end up leading to broader regulation of the internet and a host of negative unintended consequences, things that pretty much everyone would agree are negative like taxes on broadband for example.
Aaron Ross Powell: It seems like the internet is pretty convinced that the system we have in place doesn’t work to prevent bad things from happening. By the internet, I mean basically Reddit and tech blogs and Silicon Valley and everyone who expresses loud opinions it seems, including – so John Oliver who – it seems like the internet thinks he’s second only to Neil deGrasse Tyson in terms of the pantheon of godhood.
But is this – is it the case that the rules we’ve had in place aren’t good enough, that we need to move forward with enforcing this term we don’t want to use even more? I mean I’m thinking of the instances of what was – Comcast was throttling Netflix or at least what’s what it looked like. Is there a legitimate concern here regardless of what the rules are in place or is this something that we just shouldn’t even really be worrying about in the first place?
Berin Szoka: OK. So the question is again what this is and my main point – and I will keep hammering this is no one is really clear in terms of people who talk about this what this is. They mean a lot of different things. So let me start by I think the most valid thing that everyone actually means where I think there is a lot of consensus and where we could actually have a very constructive conversation.
So for example, when you ask – even among republicans. Eighty percent of republicans will say they support “net neutrality”. Well, what they mean by that is – I think to a very large degree, what most people mean by that is they want more broadband competition. So let me just digress for a moment on this because this is really important and I think for libertarians in particular, this is the area where we really should be upset, where the state has gotten things wrong and you have to understand how it got them wrong, how it has tried to fix them and what remains to be done.
So as briefly as I can put this, so most people today think that cable has a monopoly over broadband service. You will even hear people like Rand Paul say that. That hasn’t been true for a very long time. That was actually true at one point because at one point – so we use the term “broadband” today. Broadband used to mean just high capacity networks. So there was a time in the 70s and 80s and even early 90s. When you use the term “broadband,” what you were talking about was the ability to carry cable television essentially instead of just video traffic.
So once upon a time for a very long time, local governments gave exclusive franchises, also known as monopolies to cable companies and the deal was basically that they agreed to serve the entire footprint of an area, the entire – an entire city, entire county, whatever the area was, in exchange for getting monopoly.
Essentially they were cross‐subsidizing because they were serving some users who wouldn’t be profitable to serve at the same rates that everyone else was paying, so that some users were paying essentially for other users’ service.
That was conceptually the same thing that happened with the traditional telephone monopoly. That’s how we got universal service since 1913. AT&T was given a legal monopoly. Cable basically had the same thing. To make a very long story short, in 1996, congress finally decided that that traditional system of having two regulated monopolies was not the way to go and we should instead try to pit those companies, cable and telephone companies, against each other and encourage them to compete in building high capacity networks, broadband, to deliver both television service and internet service.
Until 1996, telephone companies were barred by law from delivering video service because there was a concern that they were going to leverage their monopoly and telephone service. So as I said, trying to simplify – so 1996, it becomes legal for competition to happen. It then takes about 10 years for a lot of the details to get worked out, things like those local franchise monopolies and finally by about 2006, you have what I consider to be the beginning of the new era where Verizon decides they’re going to upgrade their traditional telephone network to fiber to the homes.
So they start deploying file service and that took a long time and required a huge amount of investment. But it is now the case that in – I think about 75 percent of Verizon’s footprint, which is basically the northeast. You have Verizon and cable competing and offering increasingly fast services. It’s a very competitive market. Now that is not true everywhere. There are lots of parts of the country where you don’t have fiber to the home service, but the situation is much better than most people think.
The point is we actually have in most areas two companies competing with each other. If they’re not competing more vigorously, it’s in large part because government is making it difficult and if there isn’t a third provider, like Google Fiber, the problem to a large degree lies with government.
So the reason that Google Fiber chose Kansas City and Austin was not just they like those cities or that Austin is weird. It’s that those cities were willing to work with Google Fiber to remove some of the barriers to deployment.
So that’s just a threshold answer to give you that we could have more broadband competition. We could have two or three potentially pipes to the home and we could have faster wireless service as well. But in significant part, the problem is and always has been government. So the answer there is we could have more competition and it would largely deal with those problems.
Trevor Burrus: And this is the interesting, conceptual point and we will have to put a link up in the show notes too. A podcast to do with Peter Van Doren, which was more about general public utility regulation, but where public utility regulation could be needed is directly related to how much competition there is, correct?
Berin Szoka: Yeah. So let me put it this way. The idea that something should be utility is often tossed around when people think there isn’t enough competition. But deciding that something is going to be utility is kind of one of those game‐over moments. In other words, once you do that, you’re giving up on competition. You’re saying that it’s not going to work. Economists would say essentially that you’re saying it’s a natural monopoly. You’re never going to have more than one. You shouldn’t try. It would be inefficient to do so. Not going to happen. The only way to protect consumers is have one company deliver a service and have the government heavily regulate that company.
That actually may be appropriate in some circumstances. I mean that’s essentially – we do that in a way for roads. We do have private roads but they are essentially regulated in many ways like utilities and I think here, there is some of that. So the thing that I think is potentially a natural monopoly here that is – potentially you could argue should be subject to that kind of regulation is the underlying infrastructure, the pipes and tubes if you will.
People make fun of Senator Stevens for having said that but the internet – where he was wrong is the internet isn’t itself a series of pipes and tubes. It flows through a series of pipes and tubes. So quite literally, under the streets, along highways, and then on – along poles, those telephone poles you see along the side of the road, those are all government land. Sometimes the poles are owned by private providers but it’s the government granting a monopoly and there is a tube through which information flows.
Sure, that probably is a natural monopoly. It’s probably not efficient to have more than one. You’re very rarely going to get more than one. But that’s not the internet and it’s not even broadband networks because this is the key difference. So imagine if you will that you could have a subway system with multiple companies running their trains through the subway system and it wasn’t really a practical limit on how many companies could do that.
Well, obviously that’s not very realistic because in the world of atoms, trains take up a lot of space. It doesn’t really work. So you might say that you should only have one company running a subway system or one company running the roads.
But with conduits and poles, you could have multiple strands of fiber running under a road, through a conduit, over a set of poles. It’s not going to be 20, but it could certainly be 2. It could probably be 3. It could perhaps be more.
So right there to answer your question, it’s not a natural monopoly and we’ve already demonstrated that the thing that’s the natural monopoly is the dumb part of the network. It’s not the fiber. It’s not the equipment. It’s not managing all of that and this is our vision is if government has a role here and should be doing something, it should be building that smart infrastructure, which is for example San Francisco right now. They’re replacing all the water mains in the city and when they do that, they’re installing these conduits so that those will be available for private companies to lease and that way, you could get multiple private companies deploying broadband in the city, in a city that right now doesn’t have a fiber to the home network at all.
Aaron Ross Powell: But if we’ve only got two or three large companies supplying your internet access, your broadband to your home in some area, what’s to stop even those – I mean from talking to Netflix, talking to Amazon and saying, “Hey, pay us more to accelerate your stuff.” I mean it doesn’t – they all would be interested in getting their hands on a little bit of that money. If they’re all doing it, there’s not going to be really any competition between them keeping them from doing it.
Berin Szoka: Right. Well, fair question. So first of all, if that were the question we were asking, if we were actively having a conversation about promoting broadband deployment and then asking how we regulate an imperfect market, even that would be progress over where we are today because where we are today is people – assuming that there is a monopoly or ignoring evidence that in fact the market is more competitive than they think it is and moving to a system of regulation that is a recipe for monopoly, right? There is no way in the long term to have both utility regulation in the traditional model and even two providers.
Trevor Burrus: Well, you eventually get something like Mabel. I mean that’s …
Berin Szoka: Precisely.
Trevor Burrus: We get what we have with telephones.
Berin Szoka: That form of regulation, which is exactly what the FCC has embraced and then tried to back away from in ways I can explain later, that form of regulation is a self‐fulfilling prophecy. So to answer your question, so the question is, “OK. So what’s the role for government?” Well, I think to start, if you believe in competition, you shouldn’t want the role for government to be something that makes competition impossible. So the starting place should be, “What can we do that will not lead to a monopoly, that will not discourage new broadband providers from entering the market? How can we craft a form of regulation to deal with that?” That is the debate that we should be having and unfortunately, we haven’t really had that debate because if we had had that debate, where it would have started would have been with the – the case that really I think put us off the rails here was back in 2007, Comcast was accused of slowing or throttling BitTorrent traffic on its network.
Most of that traffic was copyright infringement but not all of it and it’s – it appears to be although we will never really know because the issue wasn’t resolved. It appears to be the case that Comcast was in fact throttling that traffic and was deceiving its users about it. So right there, we have a problem. What should be done about it?
Well, so the way that I’ve just described this problem to you …
Trevor Burrus: Probably not nationalize the internet. That would be like well – it’s a limited problem.
Berin Szoka: And we didn’t even get there quickly. So what could have happened is the Federal Trade Commission, which is the general regulator of essentially every company in America other than common carriers and banks, the Federal Trade Commission had jurisdiction, could have brought an investigation and could have said, “Hey, look. At a minimum, you’re deceiving your customers and what you’re doing is probably unfair, because it’s harming users.” They could have brought that investigation.
It turns out that actually there was a bipartisan consensus on the Federal Trade Commission at the time. Both the democrat who became chairman and the republican who was the chairwoman at the time wanted to bring that investigation and they didn’t. This to me was the fundamental mistake where this entire discussion went off the rails. What happened instead was the Federal Communications Commission Chairman Kevin Martin who embodied I think all of the things for which the Bush administration is most remembered, all of those attributes, whatever you want to call them – I will let you decide for yourselves what they are.
Trevor Burrus: Fill in the blank, yes.
Berin Szoka: Right? And he was a Bush loyalist who had been on the Florida recount team and got to be FCC chairman because of that. He insisted that like George W. Bush, he was the decider. He was going to address this issue. No matter that the FCC really didn’t have any clear legal authority. He was going to resolve it. So he set in motion the FCC’s first loss in court where the FCC brought an enforcement action against Comcast and the DC circuit in 2010 said, “Sorry, you don’t have any legal authority. You haven’t even issued any rules here. You can’t do this.”
It was at that point that the FCC issued its first set of rules. So that was what – so A, the conversation that should have happened would have been, “How do we deal with this using laws of general application?” which would have been unfairness, deception, competition law, trying to craft a multi‐stakeholder code of conduct, which today if you ask broadband companies, they would all agree to what the FCC tried to do in 2010.
There is – I’m not aware of any company, broadband company in America, that would not agree to be held by the Federal Trade Commission or even for that matter, if congress said so, by the FCC, to be transparent about how they manage their networks. Not to block user traffic, not to throttle. The only questions have been about the FCC’s authority and about the difficult question of how do you deal with discrimination or with prioritization, because that gets into these questions that sound simple at first.
You ask this question everyone always asks which is, “What if Comcast wants Netflix to pay it?” But it actually turned out to be pretty complicated because a lot of those deals really could be quite good for users and you don’t want a hard and fast rule that discourages all of them. You want a flexible rule that discourages the kinds of conducts that really harm consumers.
So in a nutshell, that’s what this debate is really about. It’s about what’s the right model for regulating changing technologies when the conduct at issue is sometimes good and sometimes bad and you’re not sure in advance. How do you craft rules that deal with that?
Trevor Burrus: So let’s go back to 2007 because I want to bring in the rhetoric on this, the social justice, the kind of like – which I think is a pretty good way of describing it. In 2007, you hear about this throttling. You start getting – I think that the neutrality debate then gets mixed up with kind of anti‐corporate type of attitudes, that it’s bad to have anything that’s not egalitarian, to have rich people be able to pay more for faster internet versus not being able to get your website out there. So you get this idea of the fast lane and the slow lane, which is like a big part that people know about this, which you kind of mentioned.
But as you mentioned, sometimes it would probably be good for you to be able to pay more for certain things. The US Postal Service has a fast lane. There’s express mail and they have a slow lane. If you want to pay more, you can get the fast lane. So does the fast lane slow anything? Does that make sense or is that mischaracterizing something? Sometimes is it good for people to be able to pay for faster things?
Berin Szoka: Yeah, it absolutely does sometimes make sense. For the simplest shortest statement of this, I will just point you to our explanation of why TechFreedom intervened in the current litigation. We’re leading a group of internet independent entrepreneurs, investors and a hosting company called [indiscernable], all of whom make exactly that point. In other words, they all say that the FCC’s regulation, that their attempt to completely ban any payment for a prioritized treatment actually will stop them from doing things that make users better off. The simplest example I can give you of that is one of our individual investors, Silicon Valley Entrepreneurs, has been developing a way of unbundling wireless service. So today, we all understand that cable is being unbundled. You can watch shows on the internet. You don’t have to buy the entire package.
Well, his concept is you could do the same with wireless service. You could let people essentially pay a la carte for building their own wireless package every month. You would decide what you wanted instead of buying a plan that just gave you a certain amount of data.
Trevor Burrus: So you would buy like – I want Netflix, Facebook and Wiki or like …
Berin Szoka: That would be one way to do it. It’s a little hard frankly to explain because it’s a very different paradigm from what we’re used to. We’re all – just like we were all used to cable. We’re all used to getting an all‐you‐can‐eat package up to a certain amount for wireless service. He thinks that many users will be better off. They could build their own plan, starting from the bottom up, and that they would pay less.
Whether that would work in the marketplace or not isn’t really the point. The point is what he wants to do is pay prioritization. It’s giving users the ability to decide what they want. The FCC specifically was asked to allow at least user‐directed paid prioritization. They wouldn’t really do that. So that’s just to illustrate that the FCC is writing these rules in a way that is vastly overbroad, that goes after conduct that could potentially be very good for consumers.
This is the point that I should have said earlier to answer the question that was just asked. The fundamental problem here is the FCC is writing rules that have real harms because they ban practices that could be good for users or for a variety of other reasons in order to deal with largely phantom problems. So apart from the Comcast‐BitTorrent case, which as I already said could have been addressed by existing laws applied by another agency, the FCC has a handful of examples, all of which could have been resolved by other agencies under existing law or will resolve in the marketplace very quickly. Like, just for example, one situation that is often cited is Verizon was asked to issue a short messaging code to an abortion rights group. Verizon said no and that’s an example of a net neutrality violation. Well, that’s not actually what happened. There was a contract attorney who got the request over the weekend, looked at it and thought, “Gee, this looks controversial. I don’t think we should do this,” and said no.
I believe within 24 hours I think on Monday when the actual employees at the company saw this, they said, “Well gosh, that’s not something we do. We don’t make those editorial decisions.” They reversed themselves. In other words, those are the examples that are pointed to of there being a problem.
Trevor Burrus: What about the Comcast‐Netflix one, which Aaron mentioned? It’s featured prominently in the John Oliver video that has 10 million views, that they were using it as a negotiating tactic against them.
Berin Szoka: So as I said, I think the moments where this debate went off the rails were number one, back in 2007, where we could have had this resolved by another agency. Number two, there was an effort in 2006 and again in 2010 to get congress to resolve the issue with narrow authority for the FCC to write narrow rules.
The third moment was this moment where Reed Hastings who runs Netflix decided that he was going to use this issue for a variety of purposes that are frankly a little hard to understand. But he was essentially going to show – maybe he wanted to show Hollywood that he could really bring companies to their knees and he could rally mass opinion. But he was very successful because it was only when Netflix got involved early last year that this became the kind of issue that got John Oliver’s attention and it became something people could understand.
It was painted in the most misleading terms possible. So what Netflix wanted has never been considered a net neutrality issue. It had nothing to do with how your network works. It had to do with Netflix wanting to get interconnection with broadband networks for free, which has never happened before.
To make a long story short, when your broadband network interfaces with another company that is not another broadband network, that there’s not – exchange roughly equal amount of traffic, which is called peering. You have to pay, right? That has never been free. What he was trying to do, Reed Hastings, was to get something for free that frankly is actually peanuts in terms of what it cost Netflix.
Netflix was asked about this last year at an event here in DC. Someone said, “Well gee, if Verizon is charging you to carry traffic to their customers, why don’t you just add a little bit of charge on to the bill that your customers who are on Verizon’s network pay, so that you can just pass the cost through?” and Netflix said, “Oh, it wouldn’t even be worth doing that. It’s too small.”
I mean it’s literally pennies on the dollar. Netflix costs are content costs. It’s not this. But Netflix decided to try to get that for free and in the course of doing that, they so confused this debate, that the FCC was persuaded to expand the concept of net neutrality to include something that was never contemplated in 2010. It was never in the definition that now is part of this “strong net neutrality”.
Aaron Ross Powell: So does this mean that Netflix’s traffic was actually never being slowed down by the service providers? I mean this is purely anecdotal …
Berin Szoka: Yes, it does.
Aaron Ross Powell: Like I can remember a period a few years back when Netflix all of a sudden got slow for me and then about the time this resolved, it got fast again. But Amazon Prime always seemed to work.
Berin Szoka: So here’s what happened. So what you said is exactly right. Dan Rayburn is an independent media industry consultant. He has written about this extensively. Essentially Netflix made a huge mistake last year when they started to move to higher quality levels of streaming and they underestimated demand.
They weren’t ready. They didn’t have enough capacity and as a result, their service slowed down for all of their users. Quite frankly, they decided to point the finger elsewhere. They blamed Comcast and other companies, right?
So they were able to portray this as Comcast screwing them when in fact if you look very carefully at the data – and if you have show notes, I can send you a link to this because Dan Rayburn has written this up very well. The data actually show pretty clearly now what they were doing and that they really had the power to resolve this issue the entire time themselves.
Aaron Ross Powell: So we’ve been talking about how this fast lane is something that presumably if it were allowed, the consumer could choose to pay extra for faster access to – I want Netflix to come at a higher bit rate. I want Spotify to come in faster and so I’m going to pay a little bit extra. But is it – I mean the concern – and maybe this is future‐looking. We don’t have good examples of this now. But the concern you see expressed on the blogs and in the tech blogosphere is it’s said that this is all going to be hidden from the consumer, that you will never get the opportunity to pay extra for Netflix, that instead what happens is these backroom deals.
The problem with that is not necessarily that these big companies, these big streaming companies are going to be paying some extra money, but that if they can afford to pay it, then when the small guys come along and can’t afford to pay it, then as a result, I’m not going to see that like, “Oh, these small guys, their service is terrible because there are these backroom deals going on.” Instead I’m just going to say, “Well, clearly this isn’t as good as Netflix because the video stutters all the time.”
Berin Szoka: Right. Again, what we’re talking about isn’t net neutrality. It doesn’t mean it’s not a valid concern. But to the extent that that is our concern, you could craft regulation to deal with that and in fact, the FCC’s – the only one of the FCC’s regulations that stood up back in 2010 was the transparency mandate. Frankly, I can live with that and the FCC was given or would have been given the authority to issue exactly such a regulation in congressional legislation in 2006. It was passed by a veto‐proof majority in the House of Representatives, stalled in the senate.
Again in 2010, there was legislation considered to do just that. We could deal with those problems if that’s the concern. This is why I keep coming back to this point that the question here is not whether we regulate. The question is how and what I’m arguing essentially is that we should look first to existing laws like the antitrust laws and consumer protection laws. Then if those prove inadequate – I don’t think they have. But if you argue that they had, this is the kind of thing that you would want to turn to next. It would be regulation by transparency.
I have to say if there’s one thing that in the long term those of us who want smarter, better, generally less regulation will look back at this administration fondly for, it’s the thing that has gotten perhaps the least attention over the last few years, which is Cass Sunstein really has revolutionized from the left the way that people think about regulation. So he ran OIRA, the office that has to review every regulation. He made very powerful arguments for relying first and foremost on transparency as a means of regulating markets. He got that an executive order.
It’s all there. There’s Obama’s name on it. That’s exactly right. That’s how we should be handling all of these problems and yet that was not part of this debate at all. The FCC, instead of embracing that very forward‐ thinking 21st century model of smart regulation, instead fell back on 1934 regulations written for the AT&T monopoly that were based on how railroads were regulated in the 1880s.
Aaron Ross Powell: So if we are ultimately talking about a problem that hasn’t really been a problem in the past, that the instances that people point to have not been what they think they are. That’s unlikely to be a big issue and that in fact if we allow it might have consumer benefits and could be addressed with fairly simple rules or much narrower regulation.
Why is the internet again so angry about this? Also I mean I’m struck by – among techies, this doesn’t seem to be – it seems like the answer to this is obvious, the like public utility regulation. You know, treating everything is just a dumb pipe, not allowing any sort of changes in service like – or prioritization that this seems like the obviously right thing to do, that the only people who would disagree with them are stooges for the cable companies or whatever else. There seems to be no nuance and no debate going on at this level which seems way out of whack with the way that you’re describing it.
Berin Szoka: So a few answers. One, there’s a kernel of truth to all of their concerns, which is what I laid out about broadband competition. There’s a lot that could be done today primarily at the local level as with the federal level and there are a lot of people who are just frustrated. So that’s a legitimate concern.
But then there are two other factors that I think intersect to lead us to where we are today. So one is the advocates of “net neutrality” up until 2010, “strong net neutrality” today and Title 2 Regulation, that 1934 approach to regulating the telephone network. They are so much better organized and so much more effective than anyone on our side is. Just to give you some sense of this, this only has become clear in the last few years.
The Ford Foundation and the Soros Foundation have poured something like $200 million into this area and are planning to pour hundreds of millions of dollars more. They have funded an array of extremely effective advocacy groups that really grow out of the media access moment of the 1960s and 70s, which was an attempt to turn the First Amendment into a sword for government action, not a …
Berin Szoka: Precisely, right? It’s that movement and the campaign finance movement. They’re all the same people I mean quite literally. Larry Lessig for example went very, very directly from the net neutrality movement over to campaign finance. He has been the leader in both movements. The list of overlap is quite strong. The point is they have had a strategy and frankly it’s [Indiscernible] strategy. So his Marxist strategy for achieving the revolution was to capture the key institutions of society.
He was focused on universities while this movement has captured law schools. Everyone who goes to law school in America and studies tech policy reads Larry Lessig and his disciples like Tim Wu and they’re presented a holistic world view. There are very, very few exceptions to that. So there’s literally thousands of people who come out of schools every year, who go in to work for companies on the hill, in policy, in journalism, who all think the same way.
The same has been true of journalism. I mean there is no area of journalism in America that I’m aware of that is – where the idea of objectivity has been as abandoned as it has been in tech policy journalism. Almost everyone is writing as an editorialist. So they’re presenting one side of everything in all of these debates.
As you say, they don’t nuance. They’re not interested in having a conversation about subtlety. They’re interested in Manichean dualism where the enemy is cable, which by the way seems to include the telephone companies that are vigorously competing with cable.
So I wish it weren’t that way, but the reality is that we los this debate a long time ago and if anything, to me, as a lesson for libertarians, and people who care about free markets and classical liberalism. This just validates the importance of education. If you give up on educating and changing the culture and especially if you allow the other side to claim the language of freedom, which is what has happened here, where if you ask people about internet freedom, they will think you are talking about regulation. If you do that, you lose.
Trevor Burrus: It is a pretty good sleight of hand that they’ve performed here. Internet freedom means public utility basically.
Berin Szoka: That’s exactly what they’ve done.
Trevor Burrus: Yeah.
Aaron Ross Powell: So we end up talking about public choice issues a fair amount on this show and we talk about bootlegger and Baptist problems. Most of the people that you just described sounded like the Baptist’s side of the equation. So I’m wondering in the push for really strong regulation, who are the bootleggers? Who are the people who stand to gain financially from this?
We talked about like Netflix doesn’t want to pay stuff. So they would stand to gain something. But are there other people besides maybe the streaming provider?
Berin Szoka: Well, just remember this idea about Netflix not wanting to pay something, that’s a new issue. That was not the net neutrality debate in 2010. So the bootleggers have changed over time. So until 2010, there was a set of companies that were arguing for a narrow set of net neutrality rules and frankly, again, rules that broadband companies don’t really have a problem with.
I wouldn’t even necessarily call them bootleggers although some of them might have seen some advantage in that. The real Baptist and bootlegger story I think starts really in the last year and a half. Netflix is at the top of that list. As I said, they were trying to get something for free that they always had to pay for, that everybody always has to pay for.
They were trying to make things easier for themselves and frankly to make it harder for other companies to compete because the reality is there’s nothing neutral about the internet. Netflix is actually a wonderful example of how non‐neutrality works on the internet. They have their own proprietary network that’s embedded deeply within partner broadband providers to make sure that you get content, because it’s cashed locally near you on their servers, right?
So Netflix has been trying to get an advantage from all this. There are a few other companies who have pushed regulation more recently and I will give you an example of where it’s not exactly clear‐cut. So Sprint and T‐Mobile, which are the two smaller of the four nationwide wireless carriers.
Both of them when this debate was happening said to varying degrees that they didn’t object to or could even see some advantages to the FCC invoking Title 2 Regulation of the internet, the common carriage model.
The digital left trumpeted that and said, “Well, look, they’re big companies. That proves that this can’t be bad for investment.” Well, first of all –
Trevor Burrus: That’s like the – you hear that all the time. It’s the – oh, even the big companies are for this. It should make you terrified.
Berin Szoka: Well, first of all, it’s worth noting that neither one of them provides wire‐line service like AT&T and Verizon do. They’re both taking service to your homes. So you have to think about their business models.
Well, it turns out to make a long story short that a big part of their cost structure is – they have all these towers around the country or actually in many cases, they don’t even have their own towers. They have to put their antenna on a Verizon tower or an AT&T tower. Even when they do have their own towers, they’re reliant on other companies’ fiber to connect those towers.
Sometimes that fiber is owned by Verizon and AT&T. It’s called special access. In other words, there’s a way that that – the rates are regulated for that.
So then the question is, “Well, what do we think about that?” Well, they are trying now – just in the last few days, the FCC chairman has started to follow through on what appears to be the quid pro quo where in exchange for supporting Title 2, he was going to make things easier for them. He was going to essentially lower the prices they were paying for that special access.
So let me go back to what I was saying earlier. The fundamental problem there is that in some sense, there is a bit of a market failure. It’s very difficult for Verizon and AT&T in the first place to wire their towers. But they were able to do it in large part because they have legacy networks.
Now T‐Mobile and Sprint don’t have that. But if we have diverted even part of the effort that has gone into that neutrality, so‐called, into instead talking about smart infrastructure, and we had – let’s say five years ago when the idea was first proposed. If we have started having federal highways in this country include conduits, so that T‐Mobile and Sprint could very cheaply install fiber, they could have wired their own towers.
In other words, there is a market solution that could come from smarter government policies that are not necessarily regulation. So that’s an example just to say where I think they are a bootlegger, but they are responding to some of the imperfections of the world. I mean we’re all talking here about very high fixed costs, capital‐intensive industries, where the companies are reliant on government rights of way.
This is a problem that libertarians don’t like to talk about. It’s very awkward for us. It’s very difficult. There are never going to be any clean or simple solutions. But there are some fairly elegant ones here. “Dig Once” conduits are a great idea that has come – it’s an idea that has come from democrats. It has been supported by cable companies and it has never really gone anywhere unfortunately because the people who should be pushing for it are instead pushing for their ultimate objective really, which is government ownership of networks.
They want local governments to build networks, state governments to build these middle‐mile networks that connect small towns and wireless towers instead of getting what would be the practical more market‐oriented solutions.
So to me, that is as much of a failure of the discourse and the way that journalism is covered that’s – as is the way that net neutrality has been distorted and presented without nuance.
Aaron Ross Powell: I’m curious about another issue that I’ve been noticing more in the news, which is I think it’s – is it Internet.org? Facebook – it’s several companies but Facebook seems to be the one that’s most prominent among it. It has the same groups of people upset for similar sorts of reasons and this one, as I understand it, is Facebook wants to set up networks to bring internet access to people who wouldn’t have it otherwise.
So this isn’t about controlling the – messing with the traffic that those of us who are lucky enough already with broadband have. But this is – like people in the third world countries and whatever. There seems to be this similar level of anger in that we can’t let the corporations control to the point of – I mean as I understand it, basically saying these people shouldn’t get access if it’s going to come via Facebook. Is that a potentially concerning thing as well or – is that – are they wrong about this for similar reasons that they’re wrong about the broadband issue?
Berin Szoka: So let me just clarify what Facebook and Google and Wikipedia and so on are doing. They are giving away versions of their service where your use of that service, the data you use, is not counted against your monthly data plan. So that’s called zero rating. It means that your use of that service is counted as zero against your monthly plan, right?
This really matters in – as you say, in developing countries where data is very expensive and people pay by the megabyte or the gigabyte. So – and there are – as you say, there are lots of radicals here in the United States, absolutists, who have said in almost as many words that they would rather that these underserved populations not get internet access if it isn’t pure.
What they want is pure internet access to be deployed to everyone everywhere. So my first comment is these are ivory tower elitists who are living in Fantasy Land who – I’ve literally been at meetings in the old executive office building where we’ve sat down to talk about how to promote broadband deployment around the world. The consensus among the room is, well, everybody everywhere just needs fiber to the home.
Not understanding even remotely what the infrastructure situation in these countries is like and that in fact what’s really happening is it’s a struggle just to build that wireless service. It’s happening and there’s a lot we could do to make it work better. But that’s – in other words, their model of progress is everyone is brought to American standards tomorrow, right? It’s a complete fantasy.
So let me back up and unpack your question. So Facebook isn’t running the networks. They’re not providing service. They’re partnering with a local wireless company and think about the situation that a wireless company is in.
On the one hand, you have a supply and demand problem, right? So on the supply side, you have to figure out how do you build, how do you get your spectrum from the government, right? That’s another government problem. Very difficult in the United States, even harder in most countries around the world because governments don’t like to give up the spectrum and make it very difficult. If you get your spectrum, how do you put up towers? How do you keep them secure? How do you provide that fiber connection to the tower or otherwise connect the towers so traffic can be carried around?
Even if you can solve all those problems, which is very difficult, then you have to figure out the demand side, which is how do you get people to start using your service, which is – it’s difficult in the United States. It’s even more difficult in places where people don’t have regular power connections, people can’t afford phones, people don’t know what to do with the service. There isn’t a lot of local content or content in your language.
These are all very difficult problems and essentially the way to think about zero rating is Facebook is going to – and Google and other services are going to those carriers and saying, “Let’s do a joint marketing agreement.” We will help you market your service and achieve scale. You know, get people onboard and we’re going to do it by giving them the thing that always helps people get onboard which is local content, which is part of the thing that gets packaged into Internet.org or into other versions of Facebook Zero around the world and also social networks because social networks, as the word implies, have network effects.
If your son moves to America and you want to keep in touch with him, chances are pretty good he’s going to be on Facebook. So you might get on Facebook and then you might want to get your aunt on Facebook. It’s a very powerful way of achieving adoption of any service. So there’s a reason that Facebook is doing that. It’s the same reason that for example T‐Mobile – I always like to tell this story.
So T‐Mobile and Sprint as I said are the number three and four carriers in the United States today. Well, there was a number five carrier. There used to be called MetroPCS, which has now been bought by T‐Mobile. But back in 2011, after the first FCC rules were issued, they tried to do a version of this zero rating where they were going to offer a $40 a month plan that offered a limited data use because that’s the expensive thing for them to provide back in 2011. But unlimited YouTube use because they wanted to get urban populations online and they wanted to give them a compelling reason to buy the smartphone in the first place and they figured out a way to make it work on their network.
They didn’t get paid by Google to do that. They did it anyway and they were so demonized by net neutrality fanatics and absolutists who brought complaints to the FCC. Before the FCC could even act on this, it was almost certainly not illegal. MetroPCS abandoned the idea and decided that if they couldn’t do that kind of marketing to go for their niche markets, which is underserved people, minorities especially in American cities, they couldn’t cut it as an independent carrier. So they sold out to T‐Mobile.
So in other words, we’ve had this debate about innovative business models and potentially getting a non‐neutral experience in the United States, in developing worlds and we see the same absolutist response from net neutrality fanatics. I will just close by saying you asked, “Is there a potential concern here?” Yes! There’s always a potential concern in any of this that consumers might be screwed or that there might be anti‐competitive behavior. You could imagine a scenario where for example – this hasn’t happened but it could where Facebook might use a service like this to try to – to break into the payment market and maybe that would be anti‐competitive.
But we have a body of law, antitrust law, that could deal with those concerns and it would weigh costs and benefits. That would be a rational way to regulate on a case by case basis as technology involves. Instead of saying, “Before we know what the technology or the business models will look like, we’re not going to allow any form of innovation here because it’s not neutral.”
Trevor Burrus: So let’s talk about where we are now and going forward. The FCC proposed these rules, asked for comments on rules in 2014 and they got four million comments or something like that, more than they ever got before. Then in February I think of 2015, they came out with a rule that – so what is – where are we going forward? What does it say now? It is – so we’re going to regulate the internet under Title 2 and there are also legal challenges, correct?
So what do see going forward? Are you concerned – I mean first of all, if we do create this top‐down public utility regulation of the internet, you’re going to take – all these internet companies are going to start trying to work with Washington and less with the consumers. You’re going to have more cronyism I would assume or we could possibly overturn it. There are legal challenges going on, correct?
Berin Szoka: So to start with, the FCC and congressional democrats have and largely continue to lie through their teeth about those four million comments. Chairman – many of the democrats who have talked about this said again and again and again that essentially all of those comments supported what the FCC is doing. That’s not true. At least a quarter of those comments and potentially closer to 40 percent of them oppose what the FCC was doing.
So I just have to get that out there because I and a lot of other people spend a lot of time trying to raise public awareness of the dangers of the FCC being given broad authority here. It’s deeply galling to me that the FCC gets away with very straightforward misrepresentations of simple facts like that one. So that’s point number one.
Point number two, as you say, the FCC issue new rules that go far beyond its 2010 regulations. So it’s net neutrality plus – which is to say plus that’s banned on “paid prioritization,” whatever that means, which nobody can quite define. An incredibly vaguely‐worded general conduct standard which basically they say it’s a catch‐all. It allows the FCC to regulate anything that doesn’t fall into one of the other rules. When the chairman was asked to explain that rule, after it was issued, he said – I’m quoting verbatim here, “We don’t really know where things will go next.”
Trevor Burrus: That’s positive.
Berin Szoka: So the point is that the – there’s only really one word you need to keep in mind from all this. It’s discretion. The FCC’s new order maximizes the discretion the FCC has to regulate the internet and in a number of ways. One is that general conduct standard. Another is regulating interconnection which is the negotiations we talked about earlier between companies like Netflix and Comcast.
But even more fundamentally, I said this earlier, the FCC decided that they – even though the court in 2012 upheld section 706, which was this obscure provision of the 1996 Telecommunications Act, the FCC had claimed that that was an independent grant of authority, right? That’s I think ridiculous. It’s very clearly a command that when the FCC uses other grants of authority, that they’re supposed to do so in a way that promotes broadband competition and deployment.
Nonetheless, the DC circuit in 2012 said that section 706 is an independent grant of authority but that it can’t be used to violate specific provisions or limitations in the Communications Act, one of which is you can’t impose common carrier status on non‐common carriers.
So even though the FCC in fact won this huge victory in 2012 in a way that I think will eventually be overturned, the FCC decided that they needed to go beyond that grant of authority, sweeping as it is, because in the one respect in which it’s limited, they wanted to go further. They wanted to impose common carrier style regulation.
Trevor Burrus: Common carriers, you have to take all comers and basically …
Berin Szoka: Exactly.
Trevor Burrus: The price combination …
Berin Szoka: So when we talk about utility regulation and common carrier regulation, they’re not the same thing but they’re very close historically. The idea of railroads which is where American common carrier regulation really becomes recognizable in its modern form, the idea of the railroad was the railroad had a monopoly because if you were a farmer in a particular area, you only had one railroad that would serve you, right?
So it’s essentially – in that sense that it’s similar to traditional utility regulation. We have only one water system or one electrical system that serves you.
Trevor Burrus: So has the FCC now done essentially common carrier regulation?
Berin Szoka: Well, yes and no. They’ve invoked Title 2 in all of its ugliness and then they immediately say, “Oh, but of course we recognize that. We need a modernized Title 2 for the internet.” It’s at that point that the FCC having invoked Title 2 in order to issue its new expanded net neutrality regulations and a bunch of other regulations then says, “Oh, well, we’re going to forebear from most of it.” We’re not going to apply – they say something like three‐quarters of the sections of Title 2.
Well, what they don’t tell you is that the ones that they are applying are the core of Title 2. It’s the things that they’re forbearing from, not applying are the unimportant sections. The ones that they’re applying are the things that were in the Interstate Commerce Act of 1887 that were used to regulate railroads. It’s the heart of common carriage regulation.
So at the end of the day, as I said again, the keyword here is discretion because going forward, the FCC has the discretion to do essentially whatever it wants with the sections of Title 2 that it is applying. I don’t see any reason why the FCC can’t change its mind in the future and forbear – or un‐forbear and use the rest of those sections.
Oh, by the way, this is an area where I think the left should be very worried. The logic of the FCC’s approach here I think would allow a republican FCC, if one is elected anytime soon, to come in and to use forbearance very broadly to gut the Title 2 and pretty much the rest of the FCC’s regulations.
So the point is, that’s what the FCC has done. They really claimed discretion to do whatever they want across the board with no limitations other than having to provide some justification to a court saying – it doesn’t have to be the best justification but having some potentially plausible argument for their case because their justification for these regulations is laughable. They’ve never done an economic analysis. They’ve refused to do so.
Trevor Burrus: So did they break the internet? The whole idea was to save the internet. I mean are you afraid now that the writing on the wall says that – we’re going to see a less dynamic, less innovative, less customer‐friendly internet going forward unless we can somehow change what happened?
Berin Szoka: So let me say at the outset here that we’re always at a disadvantage here because the greatest costs of regulation are always unseen. So the first answer to your question is we will never know what we’ve lost. Now that’s the very argument the FCC makes. They make that argument in justifying regulation by saying that without regulation, broadband providers will squelch innovation. We will never see what we’ve lost.
Well, I can just tell you what the FCC has said. So their argument essentially is that there’s this virtuous circle that when there’s openness on the internet, that everyone uses broadband more and so there’s – for your listeners who are familiar with Bastiat, his entire work is essentially – boils down to the idea that antagonism in society and in the economy is the creation of government. Without that, there are generally economic harmonies that in fact people – even competitors in fact, when they are competing, they in fact are in fundamental harmony over their basic interests.
Well here the FCC essentially is trying to claim that conceptual framing by saying everyone would be in harmony. If only we could just regulate – just make sure that the broadband providers are not tempted to just tweak the marketplace a little bit, because it’s not good for them. But they might try to do it in being short‐sighted. That would actually reduce demand for broadband and everyone would suffer, even though the broadband providers don’t see it. That’s their argument. They’ve never had any economic analysis for it. They refuse to do any.
But what they did say is essentially that we think – and they say this in their economic analysis. We think that our regulation will – of broadband providers will promote investment in broadband by – we don’t know how much, but at least $100 million a year. So in other words, they predicted a net positive increase in broadband performance. That’s the one metric that they’ve given us.
Well, we now have one‐quarter of results to look at since the new order came out. What we’ve seen is a 12 percent drop in investment by the major broadband providers and this doesn’t count, as I mentioned, T‐Mobile and Sprint. They’re in a different category. If you include them, it’s only an eight percent drop and now we’re getting into a debate about, “Well, why did this happen?” I think it’s always important to distinguish between correlation and causation. It’s true that there are always changes in investment cycles and there are other things you can point to.
This is the first time that there has been a drop with the exception of the dotcom boom crashing and the very, very worst of the 2008 recession …
Trevor Burrus: A drop that was against the current economy.
Berin Szoka: Exactly, right. So in other words, you’re seeing $1.4 trillion invested by private providers since 1996 and the trend is upwards and upwards and now suddenly we see a downwards trend. It’s not exactly clear precisely what’s going on or what the exact numbers are and how much of that 12 percent drop is solely due to the FCC’s regulation, but directionally, the FCC said investment will go up and directionally investment has very, very clearly gone down.
So that right there tells you that something actually is going quite wrong. The part of that analysis that has been left out of this – and this is where the nuance, the lack of nuance in the media discussion bothers me most, is remember that everyone always thinks in aggregates. It’s almost impossible for most people to think on the margins.
So here that really matters because when you hear a number like that, broadband investment dropped 12 percent, you kind of think, “Well, OK. So maybe that means that my service might be 12 percent slower than it otherwise would have been,” or something like that.
Well, that’s not actually how it works. What actually happens is that profitable areas probably see their investment. Maybe it’s unaffected. Maybe it drops just slightly. Where investment really suffers is in unprofitable areas. It’s in marginal communities. What that means very specifically is urban areas, which means heavily minority area populations, and rural areas, areas where it’s not profitable to deploy high quality service.
That has always been the concern and if you rewind the tape and you look back at the late 1990s, the reason that Bill Kennard, who not coincidentally was the first African‐American chairman of the FCC, and very emblematic of the new democrats, the pro‐investment democrats who are trying to rethink regulation of 1990s, the reason that he started to move the FCC away from Title 2 and issued initial reports saying it wasn’t a good idea to apply to broadband was precisely this. That he wanted more investment across the board and in particular that he was concerned about the effects on the margins.
To be very blunt about this, fact of the matter is that the new democrats of the 1990s who were worried, genuinely worried about social justice and thought about it in economic terms, have been displaced by primarily white elitists who are heavy internet users, who imagine that everyone is like them, who refuse to think in economic terms and who refuse to think carefully about the effects of regulation upon people on the margins of societies, rural areas and in cities.
That to me is nothing short of tragic and it’s again an area where we free marketeers and libertarians have not been telling the story about how capitalism actually helps – yes, it helps people in suburbs who are well‐to‐do and have fast broadband access. But it could help people on the margins even more.
Trevor Burrus: So what’s going to happen next?
Berin Szoka: So the FCC right now is going to court. Oral arguments are on December 4th at the DC circuit. That’s the same court that has already struck down the FCC’s attempt to regulate here twice. I think we will probably see a decision by May or June of next year. It could possibly drag out. It will very likely go to the Supreme Court. Then the question is, “What’s the decision going to look like?”
Scenario number one is the FCC loses just on procedure. Court says that the FCC fundamentally changed what they were doing. They went from proposing a very mild approach to proposing something based on Title 2, which was not clear in the initial proposal and the FCC has a do‐over and this thing goes back to the circus of public opinion and is even more demagogued than it was last time, and it’s a political boom for democrats because frankly, a large part of the purpose here has been for what I call the tea party of the left, this radical fringe of activists who are trying to undo that new democrat revolution in the 1990s. They use this to further gain control of the democratic party and to push their ideas in the general election. That’s scenario number one.
Scenario number two is the procedure issue is not the grounds on which it’s decided and it’s decided just on statutory merits. I think the FCC will lose. The court will probably say that the FCC can’t invoke Title 2 and in that case, the courts are probably going to leave the door open for the FCC to go back and issue milder regulations under section 706.
If that happens, I think we will see a narrow legislative fix. It’s something that democrats on the hill – at least some of them, some of the smarter, more moderate ones have been pushing for. Republicans have offered such a fix and they were spurned earlier this year when they did it. I think we will see a legislative solution.
Then finally if the FCC actually wins – and it is possible because, without getting into the details, the courts give broad discretion to agencies. If that happens and the FCC is allowed to use Title 2 here, I think this issue just festers and it becomes a question of when congress is willing to rewrite the Communications Act to fix all these problems.
But even then, it’s still going to go up to the Supreme Court. It’s going to be years before we get an answer. I think in the end – I’m biased but I think it’s very unlikely the Supreme Court would ultimately uphold what the FCC does. So bottom line, whatever happens, we’re going to spend years fighting about this until w actually get something done in congress.
All the issues that I care about, about broadband deployment and so on, are not going to get the attention. The situation is just going to continue as it is, which is precisely what the tea part of the left, the Ford Foundation, the Soros Foundation, that’s what they want. They want the fight to go on forever. In that sense, I would just say this is a lot like the gay marriage debate where you have activists and radical on both sides who need to fight to keep going because that’s what their livelihood depends on. That’s what their organizations depend on and that’s what gives them political influence.
Trevor Burrus: Thank you for listening. If you have any questions, you can find us on Twitter, at FreeThoughtsPod. Free Thoughts is produced by Evan Banks and Mark McDaniel. To learn more, find us on the web at www.Libertarianism.org.