Cato Study Opposes FCC Imposition of Network Neutrality

January 12, 2004. The Cato Institute released a study [28 pages in PDF] titled "``Net Neutrality创 Digital Discrimination or Regulatory Gamesmanship in Cyberspace?" This report is a rebuttal of the network neutrality arguments that have been submitted to the Federal Communications Commission (FCC) by an ad hoc group named the "Coalition of Broadband Users and Innovators" and by academics such as Lawrence Lessig and Timothy Wu.

The CBUI wants the FCC to adopt a rule that prohibits broadband network operators (and particularly cable broadband and DSL service providers) from discriminating. It wants the FCC to mandate that "A broadband network operator shall not, on a discriminatory or unreasonable basis, interfere with or impair subscribers' ability to use their broadband service to access lawful Internet content or services, use applications or services in connection with their broadband service, or attach nonharmful devices to the network."

The Cato report argues that this would be bad policy. It states that "A new group called the Coalition of Broadband Users and Innovators -- which counts among its members Microsoft, Amazon.com, Apple, Disney, EBay, and Yahoo! -- has petitioned the Federal Communications Commission to adopt rules to ensure that cable and telephone broadband service providers (BSPs) will not use their control of high-speed networks to disrupt consumer access to websites or other users. The CBUI proposal, or variations of it, has typically been labeled ``Net neutrality创 or ``digital nondiscrimination.创"

The Cato report states that "It is certainly plausible that BSPs might deny consumers access to Internet content or prohibit attachment of various devices or networks at the edge of the system. Although there are few examples of BSPs engaging in such activities today, there may exist situations in which it is perfectly sensible for a network owner to impose use restrictions or differential pricing schemes on its broadband customers. Network owners may want to discourage the use of certain devices on their networks to avoid system crashes, interference, or ``signal theft.创 They may want to price services differently to avoid network congestion or capture greater revenues on bandwidth-intensive services. They may want to vertically integrate content and conduit on their systems, or partner with other firms that can help them reach new customers and offer superior services. And there might exist scenarios in which blocking access to certain sites makes sense for network operators. They may want to block access to certain controversial websites that contain material some subscribers might find objectionable, or they may want to block sites simply to avoid running the ads of a leading competitor."

The Cato report continues that "Consumers will consider some restrictions, such as a prohibition on the release of viruses on a broadband network, trivial and entirely acceptable. Other restrictions, such as a restriction on access to the website of a competitor or a specific advertiser, will be considered an intolerable restraint by many. But the important question here is whether any of this should be considered illegal discrimination and prohibited by law."

The Cato report offers several more reasons for not adopting a network neutrality policy. First, it argues that "Discrimination in this context is remarkably difficult to define and open to much subjective wrangling. Disputes over what constitutes discrimination will lead to endless regulatory proceedings and open the door to a great deal of mischief by companies or organizations that feel they should have greater say over how broadband networks are operated, either in a good-faith effort to improve the operation of those networks or in a more self-centered effort to ``game创 the regulatory system to their own advantage."

The report also argues that "Net neutrality regulation also flouts the property rights BSPs possess in the infrastructure they own and operate. Worse yet, by ignoring property rights and opening the door to increased regulatory meddling, Net neutrality regulation threatens to retard innovation and investment in new broadband facilities."

Finally, it argues that "proponents of Net neutrality also tend to ignore the fact that network capacity use and the profit motive will provide very powerful checks on overly restrictive carrier activities. Carriers make money only by carrying more traffic."

The Cato report concludes that "The Net neutrality catfight points to a much more troubling trend in the emerging field of cyberlaw: the rapid proliferation of requests for federal intervention in high-tech markets for one reason or another." It adds that "many high-tech firms and trade associations have openly invited government to play a greater role in the outcome of various industry squabbles or difficulties."

The Coalition of Broadband Users and Innovators (CBUI) listed its membership in a November 18, 2002 comment [PDF] filed with the FCC: AeA, Alliance for Community Media, Amazon, Apple, Association for Competitive Technology (ACT), Association for Independent Video and Filmmakers, Association for Local Telecommunications Services (ALTS), Competitive Telecommunications Association, CompTIA, Consumer Electronics Association (CEA), eBay, Information Technology Association of America (ITAA), Media Access Project (MAP), Microsoft, National Association of Manufacturers (NAM), Radioshack, The Walt Disney Company, and Yahoo.

In a January 8, 2003 comment [PDF], the CBUI announced that it added the following members: Alliance for Public Technology, Digital Media Association, Intertainer, Qualcomm, and Yankees Entertainment and Sports Network.

The CBUI argued in its comment [3 pages in PDF] filed on November 18, 2002 that "The myriad benefits of the Internet Age flow from one fundamental feature -- the ability of consumers and businesses to communicate with one another and lawfully to create, share and access information, all without obstruction from network service providers. ... We urge the Federal Communications Commission to bring this fundamental rule forward, into the broadband era."

The CBUI continued that "We are extremely concerned, however, that the robustness and innovativeness of the Internet will be at risk and broadband adoption will be slowed unless the FCC takes the necessary steps to preserve this principle. The Commission should assure that consumers and other Internet users continue to enjoy the unfettered ability to reach lawful content and services, and to communicate and interact with each other and reach desired Internet destinations without impediments imposed by transmission network providers. Despite our differences on the details of a solution, we are unanimous in our agreement that the Government must ensure that transmission network operators do not encumber relationships between their customers and destinations on the network."

The CBUI wrote in a comment [23 pages in PDF] filed on July 17, 2003 that "network operators have both the ability, via current technology, and the incentive, because they provide both the broadband pipe and Internet content, to impair consumer access to the Internet. ... Furthermore, while network operators have stated that they do not presently impair user access, they refuse to commit to not doing so in the future ... The Commission does not have to wait for harm to occur before acting".

The CBUI attached the following proposed rule to its July 17, 2003 comment.

"PREAMBLE: Until the market for the delivery of broadband services to consumers is deemed competitive, narrowband rules and principles that guarantee consumers (a) unfettered access to the Internet and (b) the ability to connect their choice of nonharmful devices to the network, should be applied to the provision of services by broadband network operators. Such protections would permit nondiscriminatory practices by broadband network operators, such as adopting a nondiscriminatory system of tiered pricing for consumers based on such consumers' actual use of the broadband service, or entering into promotional arrangements with third parties that solely give such parties an advantageous position on the first screen or other menu options presented to subscribers.

A broadband network operator shall not, on a discriminatory or unreasonable basis, interfere with or impair subscribers' ability to use their broadband service to access lawful Internet content or services, use applications or services in connection with their broadband service, or attach nonharmful devices to the network. Nothing herein shall prohibit such provider from managing its broadband network in a technically efficient manner or from implementing reasonable measures to prevent unlawful conduct."

See, also, CBUI comment [11 pages in PDF] filed on March 31, 2003, and comment [8 pages in PDF] filed on August 28, 2003.

Law professors Lawrence Lessig (Stanford) and Timothy Wu (University of Virginia) submitted a comment [17 pages in PDF] to the FCC on August 22, 2003 urging that it adopt a network neutrality rule.

"There are two reasons the Commission should care about maintaining a neutral network," wrote the two professors. "First, guaranteeing a neutral network eliminates the risk of future discrimination, providing greater incentives to invest in broadband application development today. Second, a neutral network facilitates fair competition among applications, ensuring the survival of the fittest, rather than that favored by network bias."

They elaborated on this first point. "A network that is as neutral as possible is predictable: all applications are treated alike. Since the Commission wants to maximize the incentives to invest in broadband applications, it should act now to eliminate the unpredictability created by potential future restrictions on network usage."

"Unfortunately the nature of todays broadband networks makes investment in mass broadband applications a far riskier proposition. The nation抯 broadband network is in its infancy, just now reaching tens of millions of users, like the narrowband Internet in the mid-1990s. At this critical juncture, the broadband networks, particularly those operated by cable operators, have imposed a confusing patchwork of contractual and technical restrictions, enforced in an unpredictable manner. The reasons for these bans and restrictions are a mix: they range from legitimate security concerns all the way to interests in promoting competing products. Since every provider acts independently, neither developers nor consumers can predict whether a new, innovative application will be banned in certain parts of the country", wrote Lessig and Wu.

They also elaborated on their point that "a neutrality regime also promotes policies of innovation through competition". They stated that "Most recently, in its broadband infrastructure inquiries, the Commission has favored ``multiple platform competition,创 promoting a fair fight between DSL, cable, and other broadband access infrastructures. The same underlying principles, namely, an evolutionary model of technological innovation, favor the promotion of a neutral network today."

Lessig and Wu proposed the following language:

"Broadband Users have the right reasonably to use their Internet connection in ways which are privately beneficial without being publicly detrimental. Accordingly, Broadband Operators shall impose no restrictions on the use of an Internet connection except as necessary to:

(1) Comply with any legal duty created by federal, state or local laws, or as necessary to comply with any executive order, warrant, legal injunction, subpoena, or other duly authorized governmental directive;

(2) Prevent physical harm to the local Broadband Network caused by any network attachment or network usage;

(3) Prevent Broadband users from interfering with other Broadband or Internet Users' use of their Internet connections, including but not limited to neutral limits on bandwidth usage, limits on mass transmission of unsolicited email, and limits on the distribution of computer viruses, worms, and limits on denial-of-service-or other attacks on others;

(4) Ensure the quality of the Broadband service, by eliminating delay, jitter or other technical aberrations;

(5) Prevent violations of the security of the Broadband network, including all efforts to gain unauthorized access to computers on the Broadband network or Internet;

(6) Serve any other purpose specifically authorized by the Federal Communications Commission, based on a weighing of the specific costs and benefit of the restriction."