‘The pact to end the Internet as we know it,” said a report on the Huffington Post. Wired’s headline called Google a “net neutrality surrender monkey.” The lobbying group Free Press called it “fake net neutrality.” MoveOn.org called Google “just another giant corporation out to make a buck regardless of the consequences” and organized protests at the company’s Silicon Valley headquarters.

The cause of the hysteria was a statement issued last week by Google and Verizon focusing on the need for more competition instead of more regulation to support the “open Internet”—a more apt term than the loaded “net neutrality.” The companies said that highly competitive wireless services, such as smart phones, should be largely unregulated. Bandwidth-hogging games and services could require added payments to Internet service providers.

The reaction to the Google-Verizon statement suggests that the network-neutrality debate has run its course. Google made the simple point that competition justifies treating wireless differently from traditional access. “The wireless market is more competitive than the wireline market, given that consumers typically have more than just two providers to choose from,” a Google blog post said.

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Getty Images/Kevin CurryInformation Highway

Why should this be controversial? Bernstein Research analyst Craig Moffett offers this example: A woman gets a pacemaker that “will wirelessly contact the hospital if she suffers from cardiac arrhythmia. Are you telling me that it would be illegal to prioritize that traffic over a video of a squirrel on water skis?”

This gets at the real issue. Beyond ensuring nondiscrimination by providers with regard to content, does anyone really want an operating role for federal bureaucrats? Should government regulators assess the reasonableness of terms for cloud computing or pricing plans for cell phones?

Regulations today leave providers uncertain whether they can earn back investments in broadband by charging for better levels of service. Meanwhile, the U.S. continues to move down the ranks of broadband penetration. Last week, the Pew Center reported that the proportion of Americans with broadband at home, about two-thirds, hardly changed over the past year.

The Web works best when companies invest in its infrastructure. Google speeds delivery of its services by placing warehouse computer servers near its users around the world. This is not a “neutral” Web, since Google services perform better than others, but accelerating services like Google’s YouTube helps everyone else’s performance on the Web. Network operators need more regulatory certainty that they can get paid—and get new customers—for offering new services, which will make the Web function better for all.

Few seem to realize the similarities between today’s rallying cry of net neutrality and the demands in the 19th century that Washington regulate the rails. The railroads were the Internet of their day, a network of communications, goods and services linking the country together. The Interstate Commerce Commission (ICC) was created in 1887 to ensure fairness and set rates, much as net neutrality proponents today want the Federal Communications Commission (FCC) to regulate traffic on the Web. The unintended result: Regulators protected incumbent railroads from competitors, suppressed new technologies, and left consumers with fewer choices and higher prices.

Net neutrality assumes an FCC built on the precedent of the ICC, which was abolished in 1995. This agency’s effect was “catastrophic,” recalls Larry Downes, a consultant and the author of “The Laws of Disruption.” A mandate to oversee rates “required the ICC to first determine a reasonable rate of return on investment in the railroad infrastructure, and after 10 years of effort the Bureau of Valuation simply gave up,” Mr. Downes says. “U.S. railroads sunk into a morass of regulation and proved unable to compete with new modes and new technologies.”

Regulators came to view their job as protecting incumbent railroads, even bringing trucking under their oversight so that railroads—not consumers—would benefit. The equivalent regulatory capture for the Internet would protect large providers and established Web sites at the expense of new technologies and startups. Would the net neutrality crowd really have wanted to protect railway robber barons?

The words of Alfred Kahn, who led deregulation of airlines under President Carter, should be required reading for anyone tempted by net neutrality. “When a commission is responsible for the performance of an industry,” he famously wrote in “The Economics of Regulation” (1970), “it is under never completely escapable pressure to protect the health of the companies it regulates, to assure a desirable performance by relying on those monopolistic chosen instruments and its own controls, rather than on the unplanned and unplannable forces of competition.”

This explains why an earlier generation of FCC regulators saw their role as protecting Ma Bell and its monopoly, prolonging the days of rotary dials and high consumer costs. Today’s FCC should focus on increasing competition, not increasing regulation, as the better way to ensure an open Internet.

This entry was posted on Wednesday, August 18th, 2010 at 12:24 am and is filed under Industry, Net Neutrality, Technology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.