The launch of Google's blog offers a good opportunity to reviewthe debate over network neutrality regulation. In a recent post,Google noted the challenge of "defining what exactly the termmeans." Richard Whitt, Google's Washington telecom and mediacounsel, offered details about what would and wouldn't be permittedunder the company's ideal regulatory scheme.
The requirements Whitt enumerates closely mirror the terms ofthe Snowe-Dorgan bill, the most prominent networkneutrality legislation introduced last year. Google wants to barISPs from imposing "surcharges on content providers that are nottheir retail customers," discriminating among packets based ontheir source, or building a new "fast lane" limited to contentproviders that paid extra to use it.
Google worries that if cable and telephone incumbents areallowed to build such a tiered network, Google could be forced topay tribute to companies like AT&T and Verizon, or be blockedfrom access to certain customers altogether. Whitt notes that 99.6percent of broadband customers get their service from either theirphone company or their cable company. He contends that two firmsper market is insufficient to ensure a robust, competitivemarketplace.
Many computer geeks are concerned that the Baby Bells --companies with a historical hostility to open networks -- will notrespect the Internet's open architecture. They rightly observe thatthe Internet's decentralized, non-proprietary design is essentialto its entrepreneurial culture. And given Google's dependence onthat open architecture, it's not too surprising that Google wouldhave a keen interest in keeping it that way.
But Google's post also highlights the difficulties that arelikely to arise if Congress attempts to codify the technicalprinciple of network neutrality into a detailed regulatory scheme.If regulation is too complicated, it can tie ISPs up in red tapeand make it more difficult for them to manage their networkseffectively. On the other hand, overly vague regulations can openloopholes that undermine the entire purpose of the regulation.Finally, we can be sure that once a network neutrality rule is onthe books, regulated firms will look for ways to turn the rules totheir advantage.
One potential loophole can be found in Google's list of whatbehaviors are permitted under its proposed rules (and in theSnowe-Dorgan bill on which it is based). Google would allow ISPs toprovide "managed IP services and proprietary content (like IPTV)"and to prioritize "all applications of a certain general type, suchas streaming video." This suggests one strategy that an ISP couldemploy to evade the intent of the network neutrality rules: Itcould give video services a lower priority on its broadband servicethan other types of content (which would apparently be legal aslong as all video services were treated the same), and then itcould syndicate the video content of partner companies via its IPTVservice. It's not clear how the law would distinguish between aprohibited "Internet fast lane" and permitted "managed IP servicesand proprietary content." This would appear to have precisely theeffect Google fears -- allowing an incumbent to sell preferentialdelivery of video content -- without running afoul of the letter ofthe law.
There's also a real danger of what economists call "regulatorycapture": when regulations designed to control industry incumbentsare manipulated to serve those incumbents' interests. One of thefirst examples of this problem in the United States was theregulation of railroads in the 19th Century. The railroads were thehigh-tech industry of their day, and there was a lot of concern inthe 1870s and 1880s that the railroads had become too monopolistic.Congress responded by creating the Interstate Commerce Commissionin 1887, giving it the power to regulate the railroads.
As I wrote in the New York Times lastyear, the story of the ICC does not have a happy ending. PresidentGrover Cleveland appointed Thomas M. Cooley, a railroad ally, asits first chairman. The Commission quickly fell under the controlof the railroads, gradually transforming the Americantransportation industry into a cartel. By 1935, when it was givenoversight of the trucking industry, the commission was restrictingcompetition and enabling price increases throughout virtually theentire surface transportation industry. In 1970, a report releasedby a Ralph Nader group described the Commission as "primarily aforum at which transportation interests divide up the nationaltransportation market."
Not all examples of regulatory capture are ancient history. Thecable industry has used cable franchising rules -- which wereoriginally intended to protect consumers -- to exclude the BabyBells from the video market. This protects cable's ability tocharge monopolistic rates for its services. And the Bellsthemselves are using a slew of telecom regulations -- Universal Service fees, E-911 requirements, CALEA, and others -- to harass up-and-coming VoIPproviders.
Similar things could happen if network neutrality regulationsare adopted. Once Congress passes a bill like Snowe-Dorgan, itwould fall to the FCC to enact specific regulations that implementthe bill's requirements. Google advocates imposing several newobligations on all Internet service providers: "requiring carriersto submit semiannual reports with broadband deployment data,"interconnection and open access requirements, a "ban on most formsof packet discrimination," and "an effective enforcement regime."These requirements could lead FCC bureaucrats to second-guess thedecisions ISPs make about their router configurations. At aminimum, it would require every ISP in the country to hire telecomlawyers to deal with the FCC's oversight process.
That's worrisome because new technologies are likely tointroduce additional competition to the broadband market in thenext decade or two. Some of them may not have the deep pockets of aVerizon or a Google. Overly burdensome regulations could become abarrier to entry for these smaller firms. Incumbents are likely tofile a slew of complaints against these competitors. And even ifthe incumbents ultimately lose, such harassment could be sufficientto drain the upstarts' resources, slow them down, and drive theminto bankruptcy.
A cynic might suggest that Google isn't concerned aboutregulatory capture because Google has sufficient resources todefend itself -- perhaps even because it wants to do some of thecapturing itself. Regulatory capture tends to harm small firms themost, and Google is no longer small.
More likely, though, Google's leadership is simply naive aboutthe regulatory process. Google's executives are amateurs at theregulatory game. Like Moby, Craig "List" Newmark, and generations ofidealistic activists, they have an unreasonably optimistic view ofthe regulatory process. But if Google and their allies succeed inenacting new regulations, the battlefield will shift to the FCC,which will translate the general principles articulated by Congressinto specific regulations. This arena is the Bells' home court, andGoogle could very easily find themselves outmatched.
Rather than seeking regulation, Google should focus its effortson the area where it does have an advantage over telecomincumbents: developing great technology.