Andy Kessler On 'Net Neutrality' & Ed Markey's Bill

Yesterday's Wall Street Journal featured an excellent editorial by Andy Kessler, an occasional contributor, entitled "Internet Wrecking Ball." In contrast to his last Journal piece, with which I mostly disagreed with, in this post last month, this time Kessler provides good evidence and insight to support his contention that Ed Markey, in combination with a few existing internet titans, are conspiring to give us all second-rate internet capabilities for a long time to come.


Kessler begins his explanation of the issue thusly,


"The Federal Communications Commission is holding a public hearing today at Harvard Law School in Cambridge, Mass., to build the case for the ill-conceived idea of preventing, as Mr. Markey's bill would, network operators from using technologies that may favor one application over another.

It's a bad idea because the only thing Mr. Markey's bill will preserve is mediocrity via the lack of competition, and full employment for regulators micromanaging a business whose very innovation comes from the lack of rules. With net neutrality, there will be no new competition and no incentives for build outs. Bandwidth speeds will stagnate, and new services will wither from bandwidth starvation.

The idea of network neutrality is that all of our Internet packets are equal, and that the spirit of the Internet and its ability to create wonderful new applications like Google, MySpace and Facebook is predicated on open (albeit limited) access for all. Yet, despite an overabundance of bandwidth pulsing throughout the U.S., we are still stuck with rationing to our homes. Haven't we learned that advancing technology is never served by arbitrary rules to divvy up scarce resources? Look at the dearth of good cell phone applications: Rules make incumbents lazy."


Kessler makes a very important point about the pace of technology in this sector. In a classically Schumpeterian manner, yesterday's 'winners' are hoping to codify their victory, thus slowing change to a crawl, if it is allowed to occur at all.


How did this happen to what should be a sector experiencing breakneck competition and improvement in service, capacity, and consumer value? Kessler writes,


"In plain English: Comcast is this country's second largest Internet provider and has been plagued by mostly illegal copyrighted video file sharing that is chewing up half or more of its precious bandwidth. More of that than you'd think consists of "Family Guy" episodes. Comcast, whose growth is slowing and whose stock is down 30%, is acting scared of the day when video is delivered one episode at a time instead of via Basic Cable, threatening its bread and butter.


So Comcast took matters into its own hands and applied a sneaky technical fix, a fake message that severely slowed these peer-to-peer video downloads. By the way, this same technique is used by the so-called Great Firewall of China to censor search requests like "Falun" or "Tiananmen." Nice company.

So that's it, isn't it? Comcast's franchise is threatened so it got out the bag of dirty tricks. Google, who you would think has a huge incentive to kill the video star, supports net neutrality. Google has become an incumbent, protecting its no-longer-modern textual ads."


As I wrote in this post last April, and Kessler now reinforces, Comcast is rightly worried about video programming disintermediation which will render its cable television product offerings nearly worthless much sooner than it had ever imagined. Even Google is sufficiently entrenched in the current technological environment to wish for its continued stagnation. When you're the largest guy on the block, and can intimidate everybody else, you don't mind if inward movement to the neighborhood is prohibited.




"We need policy to help cut a path for more competition, rather than protecting incumbents -- a Bandwidth Competition Act of 2008, not bogus net neutrality. All takers should be allowed access to poles or underground conduits. This is where neutrality should be enforced, instead of being a choke point.

Municipal or privately run wireless data services using Wi-Fi or WiMax should be sprouting like weeds. But they aren't being built because of lack of access to street lights, of all things, to set up access points. Verizon is busy rolling out a fiber optic service, FIOS, that will provide much higher speeds and real competition to Comcast. But it is slow going, as state by state video franchise rules still favor cable over any newcomers.

A stroke of a pen can cure these ills, incumbents be damned. They will adjust. I personally would climb telephone poles on my street to run fiber if I could get 100 megabit Internet service. Any takers? Talk about an economic stimulus; this is the type of infrastructure we need. The stock market will fund it all as well as resolve overbuild problems.

Don't think of Internet access as a static business -- someone put in phone lines 50 years ago or cable lines 20 years ago, and we are stuck with their limitations. Technology changes the game every few years. Even fiber lines put in today will be obsolete within 10 years and need upgrading. Same for wireless systems."


As a veteran of the last years of AT&T's crumbling monopoly, I can attest to all of what Kessler contends. Once access is opened, and bogus arguments for protecting whatever 'embedded base' is the focus of the particular technological debate, competition will blossom, and customers will be incredibly better served.


Once MCI opened the tiny crack in AT&T's armor by suing for the right to lease lines and resell them, thus arbitraging the dominant phone company's pricing policies against the real costs to serve customers, the end of AT&T was just a matter of time.


Like AT&T, Comcast's own infrastructure has a useful life, not an indefinite one. Its regulatory-granted monopoly made sense for the time at which it was granted, with the technology and market forces then in existence.


Things are different now, and the Federal and state regulatory schemes should acknowledge that by providing rules which favor customer benefits, not the maintenance of recently-enshrined oligopolistic market conditions.