TCS Daily


Dear Judge: Don't Regulate the Internet!

By Adam D. Thierer - March 6, 2000 12:00 AM

What hath AOL wrought? Before AOL's sudden about-face on open access regulation a few weeks ago, the firm had been the most vociferous supporter of opening up cable networks (AT&T's new holdings in particular) to competitors on terms set by federal, state, or local regulators. Now, in the wake of their proposed mega-merger with cable giant Time Warner, AOL officials are changing their tune faster than Bill Clinton in a confessional.

And no wonder. AOL has created major legal problems for itself and the rest of its new-found buddies in the cable industry. AOL's blitzkrieg lobbying tactics gave birth to several proposals in Congress and many state capitals which would require cable network owners to "unbundle" network elements and "share" them on a "non-discriminatory" basis with their rivals.

Worse yet, their "open access" crusade in the city of Portland, Oregon forced a heated legal battle, soon to be decided by the Ninth Circuit of the U.S. Court of Appeals. If the judges in that case side with Portland regulators over AT&T, it would give every municipal regulator in America the right to exercise crude, quasi-socialistic management of the communications infrastructure. Every local jurisdiction could set its own cyber-policies - and sound the death knell of the borderless Internet.

All this has left AOL execs scratching their heads and wondering how to put the genie back in the bottle. Problem is, the issue is much more complicated than AOL or many of its cable brethren realize. What these firms are really fighting is the specter of good, old-fashioned "public interest" or "common carrier" regulation in its ugliest incarnation.

It all started more than one hundred years ago with the Supreme Court's disastrous 1877 decision, Munn v. Illinois. In Munn, the Court held that grain elevator and warehouse operators possessed property that became, "clothed with public interest when used in a manner to make it of public consequence, and affect the community at large. When, therefore, one devotes his property to a use in which the public has an interest, he, in effect, grants to the public an interest in that use, and must submit to be controlled by the public for the common good."

Huh? So let me get this straight. You're saying, if my business sells goods or services which, "affect the community at large," or, "in which the public has an interest," then essentially I should expect to be regulated "for the common good?" Yup, that's right. But wait a minute, you shoot back. Every business in America - - my local grocery store, the corner pharmacy, even the Dunkin' Donuts down the block -- they all "affect the community" in some way, right?

Sure they do. But what makes grain elevators, railroads, telephone systems, or today's cable networks special, the public interest crowd will counter, is that they really, really affect the community. Fancy legal terms and theories (i.e., "common carriage," "social utility," "network externalities") have been invented to justify this sort of industry-specific micro-management. But in the end, the logic can be boiled down to this: Their property or networks are just so big or so important that we can't possibly let them play by the same market rules as everyone else. Apparently, as with pornography, the court will know a "public interest industry" when it sees it.

"Public interest" regulation is another unforgettable tune in the long parade of judicial activism's greatest hits. Unfortunately, however, this was no one-hit wonder. This nonsense gave rise to the 20th century's massively intrusive regulatory Leviathan. Today's debate over cable forced access is merely the latest incarnation of this warped, century-old philosophy in action. (Ironically, even if you buy into the "too big for the free market" theory - which I don't -- cable Internet services represent a small fraction of the market, so the analogies with the railroad tycoons and the old Bell system make no sense.)

The judges in the Portland-AT&T case, and the policy makers currently considering this issue, have the opportunity to dynamite this corrupt public interest paradigm to the ground. If they want to save the industry from AOL's Frankenstein monster and decades of additional regulatory requirements, they should do so without hesitation.

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Adam D. Thierer (adam.thierer@heritage.org) is the Walker Fellow in Economic Policy at the Heritage Foundation in Washington, D.C.
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