Research Notes

Net neutrality: Feelings may be justified in the debate, but there is no excuse not to follow an evidence-based approach to regulation

A complex debate
There is no doubt that the net neutrality debate is complicated. Each country considering net neutrality rules has its own definition—from notions that all traffic should move at the same speed across a network to rules that enshrine modular internet architecture to other definitions. In a number of countries, calls for net neutrality have been coupled with arguments for freedom of speech, freedom from censorship, and respect of privacy.

There is no doubt that these human rights are important, but whether these rights are being violated by operators’ traffic management practices is another matter. Making any net neutrality rule should be based on sound, verifiable evidence of consumer harm. Strand Consult has studied this issue in depth in various countries and has produced a report titled Understanding Net Neutrality and Stakeholders’ Arguments. This research note provides some background on how the debate has evolved in the US and the Netherlands, two countries with net neutrality rules.

What is good regulation
The 10th Anniversary Edition of the Telecom Regulations Handbook published in 2011 for the world community of telecom regulators, observes, ”Regulation has potentially high costs. The regulatory process is inherently time consuming to administer and requires considerable expenditure of resources. In addition, regulation can have unintended consequences which may be detrimental to customers and the ‘public interest’. No matter how capable and well intentioned regulators are, they will never be able to produce outcomes as efficient as a well-functioning market. . . Where regulation is necessary, regulatory forbearance is the key to good outcomes. . . In other words, the concept of regulatory forbearance rests on the goal of a gradual removal of ex ante regulation and an accompanying increase in the use of general ex poste competition regulation. ”

Net Neutrality in the USA
The American telecom regulator is the Federal Communications Commission (FCC). Calling it ”regulating the on ramp to the internet”, then FCC Chairman Julius Genachowski presented the Open Internet Report and Order in December 2010. He suggested that ”rules of the road” were needed to ensure that the principles that made the internet great would be preserved. Verizon has taken the the FCC to court, charging that the FCC does not have the authority to regulate the internet and that the ruling is a violation of the 1996 Telecommunications Act, the law which defines the powers of the FCC. The United States Court of Appeals for the District of Columbia hears cases with federal agencies and earlier ruled that the FCC overstepped its jurisdictional boundaries on net neutrality. Oral arguments take place on September 9, 2013.

Statements from former FCC Commissioner Robert McDowell may give Verizon some support. McDowell served from 2006 until earlier this year and was one of the two dissenters in the 3-2 vote for the FCC’s Open Internet Order. Shortly after the FCC vote, McDowell published a 33 page dissent noting that there was no market failure that needed remedied, that the FCC does not have the legal authority to issue these rules, that the proposed rules are likely to cause irreparable harm, and that existing law and internet governance structures provide ample consumer protection in the event of market failure. He observed that there was no market assessment, evidence gathering, nor assessment of consumer harm. McDowell explains,

Furthermore, on the night of Friday, December 10, just two business days before the public would be prohibited by law from communicating further with us about this proceeding, the Commission dumped nearly 2,000 pages of documents into the record. As if that weren’t enough, the FCC unloaded an additional 1,000 pages into the record less than 24 hours before the end of the public comment period. All of these extreme measures, defying the D.C. Circuit, Congress, and under mining the public comment process, have been deployed to deliver on a misguided campaign promise.

McDowell suggests that the FCC should justify net neutrality rules with bona fide cost-benefit and peer-reviewed market analysis.

Another who has observed the lack of empirical evidence for net neutrality is Clinton administration appointee and economist Ev Ehrlich in his report for a progressive broadband agenda. He notes of net neutrality,

But there is no pattern of suppressed content. In fact, the episodes in which advocates claim that connectivity providers have restricted content are so infrequent that they are all repeated every time the list is reproduced. To the contrary, the value proposition offered by broadband access providers is that they won’t limit a customer’s range on the Internet—who would buy access from a provider who limited access? This fundamental truth about the Internet’s value proposition explains why there are so few examples of content suppression, and no prospect of it. Moreover, were it to occur, there would be a variety of other ways to address it, from the First Amendment to anti-trust law.

NetNeutrality in the Netherlands
Strand Consult’s report Understanding Net Neutrality and Stakeholders’ Arguments contains a detailed case study about net neutrality in the Netherlands based upon interviews with all the stakeholders in the debate as well as a before and after financial analysis of operators.

In the Netherlands supporters of net neutrality claimed that mobile operators charging higher fees for VoIP services was a form of censorship and that the use of deep packet inspection (DPI) was an invasion of privacy. Notwithstanding that DPI fulfills a similar function to standard web analytics and behavioral targeting tools that are used by many web applications and services to monetize user behavior, it is curious that net neutrality supporters did not use existing censorship and privacy laws to prosecute mobile operators.

At the time of the rule making (the debate itself only took two months and included no evidence-gathering), Bart Schermer, assistant professor in internet law at the University of Leiden, wrote an editorial titled “Net neutrality is not about human rights”. He noted that the Dutch rule only applies to operators, not to the government, so the government could filter or discriminate. Further, he noted that the Dutch constitution and the European Charter of Fundamental Rights already protect human rights, so net-neutrality law is superfluous. He explains,

For the discussion in and beyond the Netherlands it is important to understand what Dutch net neutrality is really about: it is about regulating the telecoms market and the behaviour of internet service providers, not about the protection of human rights. Mixing human rights in the net neutrality debate not only clouds our judgment on the best way to regulate the telecommunications market, it might also provide a false sense of security when it comes to the ability of governments to control the internet.

There is no doubt that privacy, freedom of expression and human rights are important today as ever. But urgency is no excuse to avoid an evidenced-based approach to policy making. Indeed if the human rights abuses are so rampant as net neutrality supporters claim, then evidence gathering should be relatively easy and prosecution by using the relevant and existing laws and institutions should prove them right.

The multistakeholder process – time consuming but fair
One outcome of the FCC ruling was the creation of the Open Internet Advisory Committee, which includes some 30 representatives of all the stakeholders in the net neutrality debate. All of the meetings are recorded, open to the public, and held in different locations to provide geographical reach for Americans. The videos and proceedings are published on the FCC’s website along with a means for public comment. The four working groups dedicated to investigating issues in mobile broadband, economic impact, transparency and specialized services have revealed a number of deficiencies in ruling. Most important, the Committee’s reports highlight that issues of internet traffic management are complex and involve any many actors. Indeed it is not just operators that deliver voice, video and data.

There is no doubt that many are watching the outcome of the Verizon FCC case now at the D.C. Circuit Court, not the least of which are the Europeans. Later this week EU Vice President Neelie Kroes will present her plan for the digital single market, which includes some net neutrality provisions. Strand Consult will publish its analysis of this plan shortly.

There will be many emotional calls for and against net neutrality in the media in the coming days and weeks, but we hope that the court will keep remain impartial and judge the case on its merits.

If you would like to learn more about net neutrality in different countries and the motivations and arguments stakeholders use, contact Strand Consult to order the report Understanding Net Neutrality and Stakeholders’ Arguments. The report includes valuable background on the internet value chain, the threats and opportunities of over the top (OTT) technologies, and operators’ challenges.

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