Safeguarding Access to Internet Content: Government or Market?

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What principles and public policies should govern communications networks and services in the 21st century? A number of academics, industry analysts, and corporate leaders suggest “nondiscriminatory open access” should be the guiding theme for the Information Age. That is, collective decisionmaking should trump the rights of network operators so that policymakers can compel them to allow competitors or consumers to utilize private networks for a variety of purposes. A better path is available, however‐​one based on the time‐​tested principles of property rights, voluntary contracts, and a healthy respect for the evolutionary nature of the free market.

The esoteric debate over open access regulation is quickly becoming the most important controversy within modern regulatory law. The latest example features a catfight between major technology companies over access to Internet content accessed through the cable or phone lines. A new group called the Coalition of Broadband Users and Innovators‐​which counts among its members Ama​zon​.com, Apple, Disney, E‐​Bay, Microsoft, and Yahoo!-has petitioned the Federal Communications Commission to adopt rules to ensure that broadband operators will not use their control of broadband networks to disrupt consumer access to websites or other users. Despite zero evidence that such blocking is taking place today, CBUI members claim the FCC must adopt “safeguards” to ensue “that consumer access to Internet content is full and unfettered” in the future.

Who Decides? Before delving into this latest skirmish, let’s step back a moment and think about the big picture. Put simply, battles over open access are really a debate about who will call the shots in the Information Age‐​the owners of high‐​technology businesses and networks, or a hodge‐​podge of federal, state, and international regulators who supposedly have the “public interest” in mind when they take control of private property for alternative purposes. (Hence, the “infrastructure socialism” we speak of in our new book What’s Yours Is Mine: Open Access and the Rise of Infrastructure Socialism). Critics will protest that label for their proposals, but what else are we to call the sacrifice of private property for the public good? If the owners of current and future networks cannot determine how their systems are used, and even who has access to them, they have lost their most basic right within our capitalist system.

Each year tens of millions of Americans purchase or construct a new home. They sacrifice much for that pleasure and would find it unthinkable if someone were to knock on their door the day after they moved in and inform them that heretofore everyone else in the neighborhood would be awarded the “right” of “nondiscriminatory access” to their house. Even if it was just your garage or a patch of your back yard, you’d be outraged. But this sort of thing is happening with increasing regularity in the business world. Seemingly every network‐​related industry or technology‐​electricity, phone and cable companies, and even software like AOL’s Instant Messenger service, Microsoft’s Windows operating system, and the Google search engine‐​has at some point been the target of open access supporters. The faith in open access is based on a flawed assumption, however: that such access represents a limited, competition‐​enhancing regulatory response to a perceived market failure. In reality, access regulation invites a significant expansion of government planning in markets. It is forced sharing, and ultimately, won’t be a temporary measure. Forced access policies require a burdensome regime of price and quality controls and attendant regulation, and ushers in litigation. Rather than create competitive market rivalry, open access discourages genuine facilities‐​based competition, investment, and innovation.

In the latest battle over open access to Internet content, CBUI members claim that cable and telco companies are forging a “broadband duopoly” that will “define the Internet for some time, and [allow] network operators to infringe or encumber the relationships among their customers or between their customers and destinations on the Internet.” Apparently, we are being asked to believe that the leaders of cable and telco firms are scheming villains‐​like Montgomery Burns on “The Simpsons,” wringing his hands while concocting his next sinister plot to make the lives of the town folk miserable. Broadband network operators are supposedly hell‐​bent on denying consumers access to all sorts of Internet content. But does that make any sense whatsoever? Why in the world would network operators seek to limit choices in such a way? And where are the examples? Regardless, the forced access crowd will retort, “Well, it could happen, so we better stop it before it does!” And that’s usually about as much legal reasoning as is needed to get the wheels of Big Government spinning. Regulators will whip up a preemptive, prophylactic measure to make sure we are all safe from the greedy capitalists who, incidentally, provided us that high‐​speed home Internet connection that wasn’t there just a few years ago.

Property Rights Versus Parasitism. Typically, it is the self‐​anointed “consumer advocates” who clamor for such regulatory activism, making it easy to classify calls for forced access as just another form of wealth redistribution. But the CBUI proposal is interesting in that the group’s membership includes an impressive list of innovative technology companies, some of which have themselves been the subject of forced access proposals. Don’t those firms realize that this strategy could backfire on them?

Sadly, this episode demonstrates that the greatest enemies of capitalism are sometimes the capitalists themselves. Instead of supporting the right of rivals to innovate and use their property as they wish in all instances‐​not just when they themselves are the target‐​technology firms today are engaged in a battle to employ regulators and the coercive apparatus of the regulatory system to hobble competitors. What CBUI members really fear is not that broadband operators might start blocking access to certain websites outright‐​a highly unlikely proposition‐​but, rather, that they might start employing differential pricing schemes for certain bandwidth‐​intensive sites or forms of content. In this sense, “discrimination” can be a good thing since network operators would be pricing according to demand and allocating access to their broadband pipes the same way cable operators price their video programming offerings. As any Econ 101 textbook makes clear, such price discrimination is used everyday in the marketplace in an attempt to match supply and demand and achieve allocational efficiency. But CBUI members probably don’t like the idea that their bandwidth‐​intensive offerings could be pushed into a “premium tier” and priced at a different rate than those of other sites. So before such price experimentation can develop, CBUI hopes to kneecap network operators with new FCC forced access mandates.

A New Defining Principle. The collectivist forced access mentality should be rejected in favor of a new principle: Competition in the creation of networks is as important as competition in the goods and services that get sold over new or existing networks. Property rights in “long and thin” assets like networks must be respected, just as we recognize property rights in “short and fat” assets like houses, cars, or television sets. A new coalition advancing that vision would be a welcome sight indeed‐​one that could carry the true mantle of consumer advocate.