TCS Daily


Justice for the Internet

By K. Lloyd Billingsley - October 1, 2007 12:00 AM

Most Internet users don't know or care what "net neutrality" means or what it would do. They can now refer to the antitrust division of the United States Department of Justice, which on September 6 submitted a filing on net neutrality with the FCC.

Net neutrality means government regulation of the Internet, specifically a prohibition of differential charges for priority traffic. The Department of Justice thinks this is a bad idea, and would harm the development of the Internet.

"Free market competition, unfettered by unnecessary governmental regulatory restraints, is the best way to foster innovation and development of the Internet," says the DoJ filing.

"Free market competition drives scarce resources to their fullest and most efficient use, spurring businesses to invest in and sell as efficiently as possible the kinds and quality of goods and services that consumers desire. Past experience has demonstrated that, absent actual market failure, the operation of a free market is a far superior alternative to regulatory restraints."

Remember, this is the United States Department of Justice speaking, not the Milton Friedman Foundation or the economics department at the University of Chicago. The DoJ sees the Internet developing just fine without a new regulatory regime advertising itself as neutrality.

"It appears that the Internet is flourishing without the proposed sectoral regulation," explains the DoJ filing. "Statistics evidence an explosion in Internet usage in recent years due to new applications and increased broadband subscribership. According to press accounts, in June 2006 alone 2.5 billion videos were watched on YouTube; by May 2007, 'hundreds of millions' of videos were being downloaded every day.

Consumers increasingly are utilizing the Internet for everything from shopping, to news and information. E-commerce accounted for sales of $31 billion in the first quarter of 2007, an 18 percent increase from the first quarter of 2006. Internet advertising produced $16.9 billion in revenues in 2006, a 35 percent increase from 2005."

That kind of service requires investment, flourishing under current conditions, when broadband providers and ISPs can give priority to, say, streaming telemedicine video over video games. But such investment might not be forthcoming under a new regulatory regime, according to the DoJ filing:

"There is reason to believe that the type of regulatory restraints proposed by some commenters under the mantle of 'neutrality' could actually deter and delay investment and innovation, and result in less choice and higher prices to consumers of Internet services," the Department said.

In the lexicon of net neutrality, differential or priority pricing is called "discrimination," but the DoJ does not buy this rhetorical effort to seize the moral high ground.
"Differentiating service levels and pricing, for example, is a common and often efficient way of allocating scarce resources and meeting consumer preferences," the filing explains, using the United States Postal Service as an example. Consumers can send packages with a variety of delivery guarantees and speeds. These differentiated products, the DoJ explains, respond to market demand and expand consumer choice, and no one challenges their benefits. Further, "nor does anyone seriously propose that the United States Postal Service be banned from charging different fees for next-day delivery than for bulk mailers."

Net neutrality proponents enjoyed ample opportunity to show the FCC how current arrangements harm consumers but failed to make the case.

Two years ago, a consumer complained that Madison River, a small carrier in North Carolina, blocked a VoIP service. As the DoJ observed, "The FCC promptly addressed the issue and commenters submitted no evidence of any such blocking or other harmful conduct since this 2005 incident."

Net neutrality is the latest slogan of the "digital divide," the notion that new technology instantly creates new legions of haves and have-nots, an emergency situation caused by the market and requiring new regulation. Yet, in their filings with the FCC, organizations such as the NAACP and Jesse Jackson's PUSH coalition did not call for net neutrality, only for expanded access. That is happening now, and without one-size-fits-all regulations, Internet ubiquity and diversity will continue to unfold. That will come about through differential pricing, just like that practiced by the U.S. Postal Service.

"No one challenges the benefits to society of these differentiated products," the DoJ filing said. "Whether or not the same type of differentiated products and services will develop on the Internet should be determined by market forces, not regulatory intervention."

K. Lloyd Billingsley is editorial director of the Pacific Research Institute, and author of Net Gains or Net Losses: The Net Neutrality Debate and the Future of the Internet, released by PRI in August.

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11 Comments

priority mail
net neutrality makes as much sense as requiring UPS to charge the same for overnight delivery as it does for 3 day delivery.

DoJ understands free markets
Too bad the rest of the government does not.

If free markets work for the internet
why not healthcare?

or education or wages or.......?

Why, just ask Bob Jones,
every industry is different, needing special pleading and special laws.

DOH!

Of course.
Lobbyists and politicians have to extort their money from someone.

Licking Chops
For years the states have been licking their chops to tax the internet. The day they do it will be a nightmare.

The states are currently trying to impliment a scheme where business, all business, have to collect sales tax fro all 50 states nationwide.

The compliance on that should be fun, can you imagine trying to tax the internet?

I always love how we sell our votes to the politicians who take the most of our money.

small steps
>>The states are currently trying to impliment a scheme where business, all business, have to collect sales tax fro all 50 states nationwide.

They're already doing that (at least they should to comply with EU regulations, and yes, these are US companies) for 25+ EU memberstates...
All companies (worldwide) doing business online with the EU have to pay EU salestax to the nation they're shipping to.

Doing the same for interstate commerce in the US is a small step beyond that, they should have the core infrastructure to support it already in place.

Of course many of those companies have in reality stopped doing business with the EU, because the cost of doing so now outstrips the profits that business brings.
And others aren't going to play tax collector for a group of foreign kleptocrats and continue to ship without paying EU salestax (something they may try in the US internally as well, under US law regulating interstate mailorder purchases which are untaxed).

double edged sword
It can stifle innovation, but also prevent voices from being heard.

Say Google starts an ISP, they would not be allowed to charge customers extra for any data coming from say Yahoo!.
They'd also not be allowed to block access to this site unless this site pays some "service fee" unless Google charges the exact same fee to everyone else. So ISPs won't be able to effectively block content they (say something contradicting the political views of their founders) don't like by economic means.

nothing wrong with that?
If you don't like the restrictions placed on their ISP by google, then go somewhere else. There are hundreds, if not thousands of people offering ISP service.

Taxation of Internet Transactions
Those doing business on the internet should be required to collect sales tax on their transactions. This is NOT the same as "taxing the internet," in the sense of levying a tax on, say E-mails or per hour/gigabyte usage.

And requiring collection of sales or use taxes is not the imposition of a new tax. State laws currently impose sales tax (if a product is purchased within a state having sales tax), or use tax (if a product is purchased by a resident of the state and brought or shipped into the state--generally equal to the sales tax). Therefore, the tax is owed by the purchaser, regardless of where the product is purchased; the question is whether the seller has to collect it from the purchaser and pay it to the state.

Under U.S. Supreme Court precedent, a seller that does not "do business within" a state is not required to collect and submit that state's sales or use tax payment.
However, the precedent is clear that this applies because Congress has not chosen exercise its powers in this area.
Congress could constitutionally regulate in this area if it chose to do so.

It would not seem to be too difficult for a company like Amazon, with sophisticated computer capacity that permits it to deliver merchandise to my door a day or two after I order it on the internet, to collect and remit at least the basic state tax or use tax on transactions it conducts.

And I do not see why internet-based sellers should have yet another advantage over the "bricks and mortar" book and music stores they are so rapidly putting out of business.

You guys don't understand
Think about this:

so far, ISPs in america have been network neutral.

Cellular operators are directly analogous to ISPs that are not network neutral. Because of this, you have to buy their phones, pay for their service, pay $.10 for every txt message you send and receive, the phones generally suck, and you dont have access to all your favorite sites on the internet. If cellular networks were neutral, as some content providers have been lobbying the government over the 700mhz and Verizon has challenged in court, you'd be able to use any device, any application, and you'd be able to do anything you want. You'd only have to pay the provider to carry your data.

Further, the ISPs that are against network neutrality all use the argument that "with all this P2P traffic, we're not going to be able to offer reliable service if all data is treated equally". But its actually easy and cheap to add bandwidth to backbones. Fiber bandwidth is essentially limitless. Those ISPs contend that they need to be able to price discriminate based at least on latency. But if we allow them to descriminate then these pseudo-monopolies will all have the perverse incentive to create the very network bottlenecks that gives their clients the need to pay extra for better latency.

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