The nub of the Net Neutrality debate is about an open Internet and how to ensure its viability. We support an open Internet for a variety of reasons and have for a very long time as I have noted in numerous blog posts like this one. In fact, the “connectivity” principles which form the core of much of the FCC’s policy regarding the open Internet and even some of its thinking in the recent Net Neutrality NPRM are based on principles a wide array of industry players – including Verizon – actively championed in 2003. I was personally involved in the development of the principles so it is a history that I know well.
So what is the debate around net neutrality really all about? In my view, it is really about what role regulation should play in the Internet and the impacts active government intervention through specific rules will have on innovation and change.
First, I want to be clear about how I view regulation. Regulation does play an important role in many programs. For example, in the area of health and safety, it can have an important role. I am not an expert on such regulation so I am not commenting here on how effectively rules are designed or how well they are implemented. Those are important but separate factors. Antitrust requirements set out a framework for competition and are important too. Such rules can’t create competition but they help set out a better environment for it to flourish. Again, implementation and design of antitrust programs are separate but important factors in how effective such a regime is.
But economic regulation – rules regarding entry, pricing, acceptable business models or approaches – are different. They can and do have an impact on innovation and competition, especially in high tech, high change industries. Innovation is at the heart of the high tech sector and is vital to our country’s long-term success. Innovation is based on trial and error, trying something different, accepting risk. Government rules – ex ante regulation as it is often known – do not fit well with this model and in fact undermine it.
How? Regulation generally sets out specific rules and prohibits or allows various behaviors. It is by nature focused on guiding behavior in set patterns. It also is inflexible. It is designed to apply widely and partly as a result, can’t anticipate change or tolerate much deviation from the rules.
This is why it is so dangerous when applied to the Internet. The heart of the Internet is change based on innovation, competition, investment and cooperation. It sounds like an oxymoron to have both competition and cooperation but competition drives change and investment. Cooperation has been at the heart of the Internet’s openness and strength and has helped spur competition. Everyone knows they have to differentiate their offerings and compete in order to be successful in attracting traffic to their sites, their networks or downloads of their applications. Everyone also knows that if the traffic and communications of users are not delivered – routinely and as expected - the Internet’s success will be compromised. People will lose faith that it is a platform for expression, information gathering and satisfying individual and unique needs for content, services and products. The Internet is an ecosystem of companies, users, non-profit groups, applications, content sites and it thrives in significant part because everyone generally has faith that it will work and will deliver communications and information as they demand and expect.
To make this work, the Internet has grown based on minimal regulation. I want to be clear here again that what I am referring to is essentially economic regulation – entry barriers or requirements, price regulation, regulation of services that may be offered, regulation of how businesses may offer services. Make no mistake there is a “rule of law” on the Internet but it is based on a combination of self-governance – the development and adoption of protocols, agreements between networks on how traffic will be handled, and so on – and government enforcement of key policies around things like child pornography, piracy and consumer protection.
Innovation – which has been at the core of the Internet’s growth and its great strength – can only be undermined by regulation, including net neutrality regulation. In a joint filing by Google and Verizon at the FCC, we said this about self-governance and the importance of innovation at all levels of the Internet:
From the beginning, the Internet has thrived in an environment of minimal regulation. Various entities throughout the Internet space – whether providers or users of network services, applications, content, devices, or a combination – have worked together cooperatively to make the Internet what it is, to address legitimate challenges as they arise, and to meet users’ evolving needs and expectations. The Internet has flourished largely as a result of these cooperative efforts, backed more recently by significant levels of private investment and innovation. While we do not agree on every issue, we do agree as a matter of policy that this framework of minimal government involvement should continue going forward. We also agree as a matter of policy that certain core values should continue to provide guidelines for the conduct of all players in the Internet.
Among the core values we went on to cite in our filing is the importance of an Open Internet. Openness is at the heart of the Internet and it is reflected today in many ways. For example, new business models have emerged and innovation with it. Who could have imagined the Droid just a few years ago? It is an open platform mobile computing device offered in partnership by Verizon and Google. Yes, Google’s expertise drove the development of the phone but Verizon was a partner in the process and is actively promoting the phone. That is a far cry from the predominant business models used by mobile phone companies of the even the recent past. Verizon is also actively promoting a new wholesale wireless program called the Open Development Initiative in which any entrepreneur can bring in a wireless device, briefly test the device for connectivity and within weeks offer their product on their own using Verizon’s network.
Innovation comes from risk taking, trying something different, changing approaches and coming up with new ways to offer services. Companies often partner in new ways to make these innovations happen and government regulation and rules designed to anticipate or guide behavior simply curb these kinds of experiments and innovative approaches. It can’t adapt and further, while some rules may start out simply with only a few pages or lines of guidance, the regulatory process simply does not make it easy to leave well enough alone. Temptations to try and refine, define or add more guidance to rules means that over time, rules inevitably get more complex and almost certainly more confining.
Markets of course are not perfect. But this is in part due to the important role they play – to support and encourage competition and “trial and error” in order to see what best brings value to the consumer and success in the market. But as Alfred Kahn, brilliant economist and regulator has been paraphrased as saying “it is not that markets have to work better than regulation; they only need to work about as well as regulation to be preferable.” Given the success we have had with the existing broadband policy framework which has been based on the connectivity principles and minimal regulation, the threat to innovation and the continued evolution of the Internet are worth strong consideration before regulation is adopted.