Statement by James G. Lakely, The Heartland Institute, on Genachowski Net Neutrality Proposal

September 21, 2009
James G. Lakely

James G. Lakely, co-director of the Chicago-based Heartland Institute’s Center on the Digital Economy and managing editor of InfoTech & Telecom News, offered the following comments on FCC Chairman Julius Genachowski’s statement Monday proposing stricter net neutrality rules.

You may quote from his statement below or contact him directly at jlakely@heartland.org, 626-421-9414.

IN GENERAL:

“Genachowski is attempting to solve a problem that doesn’t exist—and will end up harming the vast majority of broadband and wireless consumers in the process. In today’s ultracompetitive tech sector, market forces efficiently punish those who would impose ‘unfair’ network practices and reward those who provide the best service. The FCC chairman would make a grave mistake if he replaced the swift judgment of millions of consumers with the dictates of a handful of uninformed and unaccountable bureaucrats.

“The FCC should not claim for itself the power to determine what level of traffic management is ‘reasonable.’ Free-market forces, with broadband consumers regulating with their wallets, answer such questions with more fairness and efficiency than any government bureaucrat.

“If Genachowski is really interested in ‘preserving and maintaining an open and robust Internet,’ he should keep the FCC out of the way of the market.”

ON THE FCC’S HISTORY OF REGULATORY FAILURE:

“We should not be putting our faith in the FCC playing ‘smart cop’ over market forces. For an example of how the FCC is either unable or unwilling to regulate competently, just look at the result of its latest legal conflict, which can only be described as embarrassing. The United States Court of Appeals for the DC Circuit in August vacated the FCC’s long-held rule limiting any cable company to controlling no more than 30 percent of a market’s overall television service.

“The court—which recognized the rise of satellite and fiber-optic TV delivery into the market, even if the FCC remained willingly blind—called the rule ‘arbitrary and capricious.’ To drive the point home, the court noted the FCC’s ‘dereliction in this case is particularly egregious.’ It takes quite a dose of hubris to propose micromanaging an even more vibrant industry in the wake of that smackdown.

“By grabbing more power for itself over the broadband and wireless industries, the FCC is setting itself up for more lawsuits—and more humiliation at the hands of the courts. And the cost of those lawsuits will be borne by consumers, who will also see less innovation because of the drawn-out and senseless diversion of investment capital.”

ON BROADBAND INVESTMENT IMPLICATIONS:

“The telecommunications industry has invested hundreds of millions of dollars in their broadband networks in recent years, bringing technological advances that could only be dreamed of just a few years ago. Take away the right to manage their commercial property as the market demands, and the investment that is vital to the next advances in technology will start to dry up.”

ON THE WIRELESS IMPLICATIONS:

“I don’t think Genachowski realizes the damage he is poised to inflict on the wireless broadband industry, which is already rushing to meet the ever-increasing demands of its customers. Prohibit traffic management—or force ISPs to first ask for FCC permission—while opening the floodgates of content for an industry not quite ready for it, and America’s smart phones will begin to stutter or fail to work at all.

“Forcing, say, Apple’s iPhone to accept Web-based phone applications such as Skype or Google Voice undercuts a key source of revenue. It’s easy to think no one will cry for Apple, but customers will soon be weeping when the next round of innovations from a creative industry leader slows to a crawl.”

ON GENACHOWSKI’S TWO ADDITIONAL ‘PRINCIPLES’:

“The fifth principle, of nondiscrimination, is troublesome for the simple fact that not all acts of discrimination—such as slowing down bandwidth hogs to maintain good service for most customers—are harmful. Genachowski worries that ISPs will ‘pick winners.’ But it’s consumers, making free choices, who determine the winners on the Internet, and those decisions should not be usurped by the FCC.

“The sixth principle, however, is sound in calling for transparency. In fact, transparency combined with a market free to react to the policies of private broadband providers is virtually all the regulation the U.S. industry needs.”