Wednesday, November 12, 2014

Net Neutrality—and Obama's Scheme for the Internet—Are Lousy Ideas

Net Neutrality—and Obama's Scheme for the Internet—Are Lousy Ideas:

Obama surfing porn
President Barack Obama recently came out in favor of
both "net neutrality" and the FCC changing the way that Internet
service providers, or ISPs, are regulated. Shortly thereafter, Sen.
Ted Cruz opined
"'Net Neutrality' is Obamacare for the Internet; the Internet
should not operate at the speed of government." Obama's and Cruz's
statements fed into the popular misconception that the proposed FCC
reclassification is the same thing as net neutrality. It's not. The
policies are distinct, though both are bad ideas.

What Net Neutrality Is and Is Not

Net neutrality is about how traffic flows through the Internet.
When someone sends a message over the Internet, it gets broken up
into tiny bits called "packets." Each packet gets passed around
from node to node, eventually arriving at its destination. It's
like if you tore up a letter, put the parts in different envelopes,
and then mailed each of them separately. When the packages arrive
at their destination, they're reassembled in the proper order so
you can view the content.

Net neutrality is a policy that mandates that all packets be
treated the same regardless or source, destination, or content,
with very limited exceptions for traffic that's illegal, malicious,
or unwanted.

Sometimes people use "net neutrality" to refer to a whole swath
of policy ideas that are not net neutrality. For example,
some people think it's unfair that Internet speeds are usually
faster in urban areas than in rural areas where there hasn't been
as much investment in infrastructure, arguing for "net neutrality"
as a solution.

Title II Regulation

To address perceived problems like slower access in rural areas,
some people have advocated changing the way ISPs are regulated.
Under Title II regulation, part of the Communications Act
of 1934
, in addition to a slew of other regulatory burdens,
ISPs could be subjected to universal service
. That means they would be required to ameliorate
bottlenecks caused by comparatively slow local infrastructure. Just
like telephone companies are required to wire up every house more
or less regardless of cost, ISPs would be required to bring all
infrastructure up to a minimum standard. Let's be clear about
something—it makes no economic sense from a society-wide
perspective to make such a large investment to serve so few people.
It's a handout to rural Internet consumers, pure and simple.

In exchange for the added regulatory burdens, the FCC has the
power to set prices at a level that allows ISPs to make money. If
that power were exercised, the cost of Internet access would no
longer be subject to market forces. This is the default "public
utility" model. Most advocates of net neutrality, including
President Obama, don't want that to happen, suggesting the FCC make
an exception for ISPs. But that process of making an exception,
called "forbearance," isn't automatic.
There are legal obstacles.
If forbearance fails, we can expect
a concerted lobbying effort by the ISPs to make sure rates are set
as high as possible.

Weighing the Risks

Set aside for a moment whether the worst-case scenarios raised
by net neutrality and regulatory reclassification advocates are
terribly likely. They're not, as even this popular
pro-neutrality cartoon
attests. The nightmare outcome? The
Internet becomes more expensive and less convenient for consumers,
and it becomes harder for small content producers to compete.

That's what might conceivably happen. Here's what
actually is happening, right now:

We know, indisputably, thanks to the heroic disclosures by
Edward Snowden and the tireless work of journalists like
Laura Poitras
Glenn Greenwald
, that the federal government is attempting to
use the Internet to build a global Panopticon, capable of accessing
everyone's personal information at any time for any reason or no

We also know that one way the government is trying to accomplish
this is by securing the cooperation of private companies. You can
attempt to thwart surveillance by using encryption—but encryption
only protects data in transit. Once it's received and decrypted,
it's an open book. If the government can compromise private data
custodians, encryption loses a lot of its efficacy. This is exactly
what happened to
Google, which had its internal traffic bugged by the NSA

Sometimes instead of outright sabotage, the government pressures
companies into turning over information about their customers. See,
for example, the
brave efforts of Ladar Levison
, head of now-defunct secure
email provider Lavabit, to protect his customers—including Edward
Snowden—from the government's prying eyes.

But not all tech companies have the spine of Lavabit. What we
risk doing by ramping up the government's regulatory authority over
the Internet is to make it easier for the government to pressure
ISPs, many of which are data custodians, to get what they want.

Is it crazy to think the government might use its "legitimate"
regulatory authorities to bully private actors? Let's consider the
financial sector, one of the most heavily regulated parts of the

In his book
The Financial Crisis and the Free Market Cure
, former
BB&T chief John Allison relates how Bernanke's Federal Reserve
blackmailed healthy banks into taking TARP money they didn't

The day after TARP passed, we were contacted by our regulators.
This was an informal contact over the phone. I received a very
carefully stated nondocumentable message. The essence of the
message was that although BB&T had substantially more capital
than it needed under long-established regulatory standards, given
the current economic environment, the regulators were going to
create a news set of capital standards. They did not know what the
standards would be. However, they were "very concerned" that we
would not have enough capital under these new standards unless we
took the TARP capital. They had a regulatory team in place to
reexamine our capital position immediately unless we took the TARP
funding. The threat was very clear.  (pp. 170-171)
Another example is the government's "Operation
Choke Point" program
, which puts pressure on banks to refuse to
deal with people engaged in perfectly legal businesses the Obama
administration, for one reason or another, doesn't like.

"Net neutrality" and public-utility style regulation
are about Internet freedom, just not the way advocates think.
Comcast and Netflix, two of the main parties in the public debate,
are squabbling about who should bear the financial burden of
building and maintaining the costly infrastructure needed to
deliver streaming video to consumers. There's no dire threat to
freedom hinging on the outcome of that fight. The threat to
Internet freedom is government control. That means that if you care
about liberty, you should oppose Net neutrality and Title II

Thanks to Ryan Radia, Associate Director of
Technology Studies at the Competitive Enterprise Institute, for his
assistance with this article.