Good News from D.C. on Net Neutrality

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There is good, though not unexpected, news from the Federal Communications Commission. PC World and other sites and publications report that the commission is releasing a notice of proposed rulemaking intended to back the concept that carriers -- mostly cable and phone companies -- can't discriminate against the traffic that flows through their networks. The FCC also is expected to demand visibility into network management techniques and mandate provider neutrality into applications and services.


This is a controversial topic that excites great emotion on both sides, as you can see in this post from Mike Vizard here at IT Business Edge.


The news is good for everyone -- including the cable and telephone companies who will now have the demarcation between their programming and network entities clearly delineated and set as law. In the long run, they will benefit.


It is important to remember that cable operators and telcos are not private companies in the truest sense of the word. While they are private in that they are not owned by the government, their businesses are built on certain rights-such as the right to dig up streets and use telephone poles without having half of the local police force show up-that are granted to it by the regulators and government officials that represent the people. It is fair for the government to have a bit more of a say in how they do business then the neighborhood grocery store.


To their credit, cable and phone companies have parlayed these rights into multi-billion dollar industries. The quid pro quo, however, is that they must serve the public good. It is in everybody's best interest to have the rules baked into the law, which is what the FCC is trying to do.


Imagine that XYZ Cable Company won some cable franchise agreements in 1985 and created a series of networks. It aggressively signed subscribers from the homes and businesses those networks pass and eventually grew to 10 million subscribers. The did a great job, and made a lot of money. In a completely open environment, the movie channel it started in 1989 would have significant advantages over a fledgling third party provider's. Also, by bringing 10 million subscribers to the table, it would have far greater leverage with outside content providers than smaller carriers attempting to compete in the same service areas.


The bottom line is that XYZ benefits greatly from what the government has awarded it, and is only serving the due diligence to its owners by doing everything within the law to take advantage of that sweet deal.


But XYZ would not have 10 million customers without the rights initially granted to it by municipalities. Likewise, XYZ will take a portion of the money it gets from those subscribers to create better platforms and expand into new lines of business. The key is that those sleeker networks and fancy applications are the product of funds provided by subscribers who wouldn't be paying XYZ a dime if it didn't have a franchise in the first place.


The details are a bit different in the case of telephone companies, but the inescapable fact is that at the root of everything carriers do is based on the head start given to them by the government. Thus, municipalities have the right (and obligation) to demand fair treatment on behalf of the people they represent and who pay taxes.

That's where the FCC comes in. It is impossible for an entity that is both a common carrier (or quasi-common carrier) and a for-profit business to police itself simply because the legitimate goals of each side of the house are contradictory. The hands-off philosophy of marketplace self-regulation led to staggering problems in the 1930s, and this year and last. The simple reality is that what is good for shareholders and other corporate owners generally isn't good for customers or, in many cases, for the economy as a whole. In an unfettered or lightly regulated environment, decisions always will be made to serve shareholders' needs.


Some critics say that carriers will be less inclined to invest if there is a level playing field, and that this will hurt consumers.


There are two problems with this logic. The first is that there is no guarantee that carriers will stop innovating. It's just as likely that they will continue to do so (or even accelerate their investments) because their survival increasingly will depend on pleasing customers in such a newly energized environment. If XYZ doesn't improve its network, its subscribers will migrate to alternative network-such as the 4G networks that are beginning to take root. Consumers will benefit from competition regardless. It just may come from a different source.


The other fallacy is that net neutrality will end up hurting the carriers. If the FCC creates an environment in which fledgling services are more likely to thrive, perhaps the biggest benefactors (besides those services themselves) will be the network providers who distribute those services. A lot of broadband subscriptions have been sold in the United States because people like YouTube. The main difference is that subscribers' checks will be made out to the network instead of the programming arms of the the business.