Front and center is Mar. 15's Wall Street Journal op-ed by George Gilder, the well-known techno-gadfly supply-sider who co-founded the Discovery Institute, a conservative think tank. He blasts the broadband plan in the article and disparages network neutrality -- the idea that Internet providers shouldn't discriminate against rival content.
A "Marxist" Plot?
Characterizing Gilder's argument, his fellow Discovery co-founder Bruce Chapman writes approvingly: "Net neutrality is Orwellian. It is further evidence of America's careening drive into a planned economy -- and stagnation." This alarmist view is reminiscent of popular TV host Glenn Beck, who last fall described net neutrality as a "Marxist" plot by the Obama administration to take over the Internet.
Sounds scary. But in truth, Net neutrality is really simple: You like YouTube? Net neutrality means that -- like now -- no Internet provider will be able to block you from getting it in favor of its own video programming.
In this case, both Gilder and Chapman start off on the wrong foot by conflating Net neutrality with the new broadband plan. However, the Federal Communications Commission has made it quite clear that the net neutrality rule-making process is on a separate track from the broadband plan. But Gilder doesn't let that fact -- or myriad others, as we'll see below -- get in the way of his polemic.
"Gilder's piece is so factually inaccurate in so many different ways, it's quite difficult to know where to start," says Sascha Meinrath, director of the New America Foundation's Open Technology Initiative, which favors the broadband plan as well as net neutrality.
A "Bogus Crisis"?
Gilder, 70, begins by making a lame joke based on the old right-wing saw that Al Gore claimed to invent the Internet. This has nothing to do with his argument but rather signals the author's ideological bonafides to his audience. He then calls the state of U.S. broadband a "bogus crisis" -- a typical tactic of anti-government zealots who frequently label necessary industry regulations as "solutions without a problem."Under Chairman Julius Genachowski, Al Gore's old friends at the Federal Communications Commission are out to reinvent the Internet. In the name of a bogus crisis in broadband deployment, the FCC is today lathering on an array of network stimuli and subsidies as part of a new "National Broadband Plan" that will transform this current font of U.S. economic growth into a consumer of taxes and a playground for pettifogs.
Leave aside the weak U.S. ranking of 30th in broadband speeds among advanced countries. And never mind the fact that one-third of Americans lack broadband access. Instead, just consider what Gary Shapiro, president and CEO of the Consumer Electronics Association, which represents the nearly $200 billion consumer technology industry, has to say about the national broadband plan.
"I am pleased the Commission has addressed many of the crucial broadband and spectrum issues that are critical to innovation and confronting the looming broadband crisis," Shapiro says. "The National Broadband Plan, in addition to recent work in Congress, is key to our national competitiveness and the future of technology innovation."
Cyberwar, Porn and Scare Tactics
Nevertheless, Gilder thunders on:
Gilder's characterization of "network neutrality" is false: I've never heard an advocate of it argue that the principle should allow "spam," "cyberwar intrusions" or "stolen video." The proposed rules leave ample room from reasonable network management, both to prevent illegal content, and ensure service quality to customers.This subsidy plan comes on top of previous ill-defined "network neutrality" requirements that would bar carriers from charging different prices for different forms of Internet content. Whether spam, TV programs, pornography, stolen video, movie downloads, streaming games, cyberwar intrusions or sensitive voice services, carriers of Internet packets could not discriminate among them.
For example, in Paragraph 138 of the FCC's Open Internet Notice of Proposed Rulemaking, the following appears:
"We propose that broadband Internet access service providers may address harmful traffic or traffic unwanted by users as a reasonable network management practice. For example, blocking spam appears to be a reasonable network management practice, as does blocking malware or malicious traffic originating from malware, as well as any traffic that a particular user has requested be blocked (e.g., blocking pornography for a particular user who has asked the broadband Internet access service provider to do so)."
In fact, having clear guidelines will help providers crack down on objectionable content, according to the FCC. The point of net neutrality is to ensure that a giant broadband carrier, say, Comcast (CMCSA) -- which is about to obtain a huge content factory in NBC Universal -- shouldn't be able to discriminate against rival content on its own network. References to "spam," "cyberwar intrusions" and "stolen video" are all-too-familiar fear tactics designed to scare the public.
U.S.: Broadband Leadership?
Next, Gilder further misleads by suggesting that Net neutrality is somehow "new," or represents a "new" set of onerous government regulations. This couldn't be further from the truth: The Internet has been largely unfettered since its early days, and the amazing development of Google (GOOG), YouTube, Facebook and Twitter has been driven by the Web's open nature. That's exactly what net neutrality seeks to preserve. Ensuring online openness will continue to drive competition and innovation on the Internet, not bog it down with regulations.
Gilder's claim that, thanks to deregulation, the U.S. now holds "world leadership in Internet bandwidth," is nonsense. The opposite is true, according to any number of studies, including one by the Organization for Economic Cooperation & Development, which ranks the U.S. 15th in broadband penetration. "The deregulation frenzy from 2000 onward directly corresponds with the U.S.'s free-fall in our international broadband ranking over the past decade," says Meinrath.Since 2001, on both the federal and state levels, the U.S. has led the world in telecom deregulation. With business investment flooding into this arena, the U.S. has accomplished a broadband miracle, with residential bandwidth up 54 fold, wireless bandwidth to consumers up 542 fold. With some $4 trillion in investment in information infrastructure and software since the crash of 2000, including nearly $500 billion in 2008, the U.S. has moved from the back of the pack in broadband Internet to world leadership in Internet bandwidth and commerce.
One Internet analysis firm finds the U.S. about 30th in the world in upload and download speeds. Another study found that at the current "bogus crisis" pace, the U.S. won't catch up to South Korea, the global Internet speed leader at 20.4 mbps, for 15 years. Some leadership.
Is Google a Free-Rider?
Here, Gilder invokes the myth of the free-rider problem. Everyone pays for bandwidth, including Google and the rest of the companies mentioned, which pay billions of dollars for bandwidth, servers and infrastructure. There's no such thing as a free ride. Gilder repeats a falsehood frequently used by telecom lobbyists -- and just as frequently debunked.The new broadband surge has created a heyday for such companies as Google, MySpace, Facebook, Apple, Twitter, Hulu and eBay's Skype that ride virtually free on the Internet. Supporting the neutrality campaign with new-found friends in Washington, however, Google and its allies are now more focused on neutralizing possible competition than on keeping up the broadband bonanza.
"Google already pays billions of dollars for the bandwidth and server capacity necessary to connect our data centers together, and then to carry traffic from those data centers to the Internet backbone," says Richard Whitt, Google's top telecom lawyer. "That is the way the Net has always operated: Each side pays for their own connection to the Net." Paying billions doesn't sound "free" to me. Or is Gilder calling Whitt a liar?
What Drives Broadband Investment?
In practice, actual network neutrality and access are determined not by the laws of the land but by the laws of network abundance and scarcity. With sufficient investment in bandwidth, carriers will have no economic incentive to exclude content from an unaffiliated provider. When bandwidth is scarce, carriers will have to allocate, ration and set priorities regardless of what the rules say, slowing everything down to the lowest common denominator. Network neutrality is particularly inappropriate for the booming wireless sector, which is the hope of underserved rural areas and needs to prioritize packets because wireless bandwidth always tends to be scarce.
What ultimately makes bandwidth scarce is Wall Street's reluctance to back the companies doing the investment. Nothing can so wither broadband investment as murky mandates from Washington. As Bret Swanson of Entropy Economics has shown, corporations critical of network neutrality invest some 10 times more on networks than do net-neutrality supporters. This is a campaign by free riders to continue the free ride.
Investment in the Internet is now in jeopardy. With capital gains taxes set to rise next year, overall investment in information technology is down some 12% since 2008, IPOs languish, and venture capital is drying up.
Let's set aside Gilder's citing of Bret Swanson of "Entropy Economics" as if Swanson is an independent source -- when he's a Senior Fellow at the Discovery Institute, the very outfit Gilder founded. The statement that "With sufficient investment in bandwidth, carriers will have no economic incentive to exclude content from an unaffiliated provider," is absolutely false. In today's oligopolistic broadband market, carriers have great incentives to exclude content from competing providers -- or more likely, without Net neutrality, extract higher fees for rival content. In other words, without Net neutrality, Comcast -- which says it supports the principle -- could be allowed to block YouTube in favor of its own video content.
Just look at what's happening in the cable television market: almost every month we get a new fee war between a cable company and a TV network, threatening service for millions of customers. Is this what we want the future of the Internet to look like?
If broadband lacks private investment, it's due to lack of competition in markets around the country. If a market is dominated by one or two major broadband providers -- 80% of American consumers have two or fewer broadband choices -- those companies have little incentive to invest in building out their networks. Why? Because they face no competitive threat if they don't. What the legacy broadband companies are petrified about is the government creating a competing free or low-cost network -- something explicitly referred to in the National Broadband Plan.
Rat Hole as Luxury Condo
The response from Washington is more calls for a "public option" Internet, built by the feds and by states and municipalities to compete with the private networks neutered and neutralized by the new rules. As we've seen in Europe, which has adopted a policy of suing U.S. companies such as Microsoft and Google that are surging ahead of the continent's national champions, these public-option networks inevitably become bottlenecks for needed innovation.
The FCC's new regulatory regime amounts to a kind of cap and trade for the Internet: It will cap Internet growth and restrict Internet trade. The likely winners are lawyers and special interests leeching off the telecom and Internet industries. A 2007 study by the Brookings Institution's Robert Crandall, William Lehr and Robert Litan estimated that every one percentage point increase in broadband subscriptions by U.S. households yields nearly 300,000 new jobs. Do we really want to jeopardize this industry's cornucopia of growth?
"Public option"? "Cap and trade"? Again Gilder invokes the right-wing bogeymen of the moment in a ham-handed attempt to associate the broadband plan with other Obama initiatives the right hates. And let's face it: That's what this is really about. Right-wing, anti-Obama ideologues who think government is always bad and the private sector will solve all of the nation's problems. Loath to allow Obama a victory -- even on something as benign as faster Internet for more people -- these folks do the bidding of the incumbent telecom and cable companies that are desperate to maintain control of media distribution in a time of profound change.
"These are the people who led us down the rat hole and told us that rat hole was a luxury condo," says Harold Feld, legal director at Public Knowledge. "We have a fundamental question: 'Is there a role for government in making people's lives better?' For those ideologically opposed to this idea, it is not surprising that they utterly and irrationally oppose the plan." Enough said.