Net Neutrality: The Numbers Don't Add up

Have you heard the news? Passing Net neutrality rules will result in the loss of 340,000 jobs in the broadband industry and up to 1.5 million jobs overall by 2020. If you don't believe it, I have a fancy-schmancy report that says as much. Per IDG News' Grant Gross:

If the FCC adopts the net neutrality rules it is now considering, close to 1.5 million jobs across the U.S. economy could be put in jeopardy by 2020, and revenue growth in the broadband industry would slow by about one-sixth during that time frame, said the study, by Coleman Bazelon, a telecom economist with The Brattle Group.

Bazelon predicted that spending in the broadband industry would decrease by US$5 billion in 2011 if the FCC passes formal net neutrality rules, with the number growing in subsequent years.

[ Also on InfoWorld: Cringely laments the federal court's decision against the FCC in "Broadband monopolies 1, Net freedom 0" | Stay up to date on all Robert X. Cringely's observations with InfoWorld's Notes from the Underground newsletter. ]

Who paid for this report? A telecom lobbying firm called Mobile Future, which sports a weird hodgepodge of member organizations, including Alligator Planet, Climate Cartoons, Goomzee, and the League of United Latin American Citizens. But the most recognizable name on the list is AT&T. Color me surprised.

You can tell the report is going to be a bit slanted when it declares U.S. broadband "a success story," parroting the same lines Verizon CEO Ivan Seidenberg put out a few weeks ago and conveniently ignoring multiple reports that conclude U.S. broadband is both slower on average than that of more than a dozen other developed nations and more expensive.

It gets worse. That 23-page report PDF, filled with impressive-looking charts and dire projections, is based entirely on a single assumption: Regulating U.S. telecoms in the late 1990s and early 2000s hurt them to the tune of about 15 percent per quarter, relative to the cable companies. Thus, Bazelon's conclusion that broadband revenues would slow by one-sixth, slashing revenues and jobs by a proportionate amount.

What exactly was this onerous government regulation? It was a requirement, written into the 1996 Telecommunications Act, that the Baby Bells had to open their Central Offices to competitors like Covad and Northpoint who wanted to provide high-speed Internet access over the Bells' own copper lines. Congress passed this legislation in part because the Bells were dragging their heels bringing broadband to the masses.

Not that they did this willingly -- in fact, the Bells seemed to do everything in their power to avoid complying. In 1999 and 2000, Covad filed antitrust suits against Bell Atlantic (now Verizon) and BellSouth (now part of AT&T) for practices relating to this runaround.

There are many reasons why DSL languished compared to cable in the early years of broadband. Delivering DSL over copper lines involves more variables and more barriers -- including a customer's proximity to a central office, the quality of their phone service, the amount of non-DSL-compatible fiber in the ground, and the Baby Bells' own bureaucratic intransigence. This process was widely known as "DSL hell," and it's why the DSL Reports site was created and continues to flourish.

In any case, it's hard to see how government regulation was the problem when the Bells largely refused to comply with it. You'd think being forced to share aging copper lines with startups would have encouraged the Bells to invest in better, higher-speed networks, not the opposite. Extrapolating from that regulatory situation to Net neutrality is like taking laws regulating manure production by draft horses to make projections about the future of the space shuttle.

Meanwhile, Brett Glass, who for many years had a popular column in InfoWorld (and now runs a small ISP in Wyoming), begs to differ with me on several key issues around Net neutrality.

His main point: Net neutrality rules as currently written are not actually neutral. They benefit Google in particular because it owns its own backbone and, thus, can prioritize and manage its own traffic at will, free from any government constraint.

Glass has published his own set of Net principles PDF -- which to my mind aren't that much different than the FCC's. They include the notions that freedom of speech should be guaranteed and anti-competitive behavior by network providers prohibited, but ISPs should be free to manage traffic as they see fit, including banning bandwidth-hogging P2P networks. He writes:

In any event, the key point to make about "network neutrality" is that it's really a battle of the titans: Google against all ISPs. And the stakes are huge: small, competitive ISPs such as the one that I am now operating wouldn't be able to survive under those regulations. I'd have to sell (if I could) or fold. And my customers would be very disappointed if I did either.

There's lots more to say on this topic, but I've exhausted this space for now. Several Cringesters wrote me detailed, highly cogent emails on this subject, which I'll get to in a future post.

Bottom line: If we could trust network providers to self-regulate and play by rules we can all agree upon, that would be a better way to go than government regulation. But history tells us we cannot.

Got another point of view on Net neutrality? Shoot me an email: cringe@infoworld.com.

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