Internet Companies’ Bogus Plea for Regulation

Some of the most prominent Internet companies sent a letter yesterday asking for protection from market forces. Among them: Facebook, Google, Amazon, and Twitter.

A Washington Post story summarizes their concerns: “[W]ithout a strong anti-discrimination policy, companies like theirs may not get a fair shot on the Internet because carriers could decide to block them from ever reaching consumers.”

No ISP could block access to these popular services and survive, of course. What they could do is try to charge the most popular services a higher tariff to get their services through. Thus, weep the helpless, multi-billion-dollar Internet behemoths, we need a “fair shot”!

Plain and simple, these companies want regulation to ensure that ISPs can’t capture a larger share of the profits that the Internet generates. They want it all for themselves. Phrased another way, the goal is to create a subsidy for content creators by blocking ISPs from getting a piece of the action.

It’s all very reminiscent of disputes between coal mines and railroads. The coal mines “produced the coal” and believed that the profitability of the coal-energy ecosystem should accrue only to themselves, with railroads earning the barest minimum. But where is it written that digging coal out of the ground is what creates the value, and getting it where it’s used creates none? Transport may be as valuable as “production” of both commodities and content. The market should decide, not the industry with the best lobbyists.

What happens if ISPs can’t capture the value of providing transport? Of course, less investment flows to transport and we have less of it. Consumers will have to pay more of their dollars out of pocket for broadband, while Facebook’s boy CEO draws an excessive salary from atop a pile of overpriced stock holdings. The irony is thick when opponents of high executive compensation support “net neutrality” regulation.

Another reason why these Internet companies’ concerns are bogus is their size and popularity. They have a direct line to consumers and more than enough capability to convince consumers that any given ISP is wrongly degrading access to their services. As Tim Lee pointed out in his excellent paper, “The Durable Internet,” ownership of a network service does not equate to control. ISPs can be quickly reined in by the public, as has already happened.

A “net neutrality” subsidy for small start-up services is also unnecessary: They have no profits to share with ISPs. What about mid-size services—heading to profitability, but not there yet? Can ISPs choke them off? Absolutely not.

Large, established companies are not known for being ahead of trends, for one thing, and the anti-authoritarian culture of the Internet is the perfect place to play “beleaguered upstart” against the giant, evil ISP. There could be no greater PR gift than for a small service to have access to it degraded by an ISP.

The Internet companies’ plea for regulation is bogus, and these companies are losing their way. The leadership of these companies should fire their government relations staffs, disband their contrived advocacy organization, and get back to innovating and competing.