--- begin forwarded text Delivered-To: rah@shipwright.com Delivered-To: clips@philodox.com Date: Thu, 4 May 2006 16:12:01 -0400 To: Philodox Clips List <clips@philodox.com> From: "R.A. Hettinga" <rah@shipwright.com> Subject: [Clips] Who Owns the Internet? Reply-To: rah@philodox.com Sender: clips-bounces@philodox.com <http://www.mises.org/story/2139#> - Mises Institute Thursday, May 04, 2006 Who Owns the Internet? by Tim Swanson [Posted on Thursday, May 04, 2006] [Subscribe at email services and tell others] The "Net neutrality" debate has many similarities with that unbundling cul-de-sac. Both raise the question: Is innovation better served by undermining the property rights of network owners, or by reinforcing them? - The Wall Street Journal Editorial, March 8, 2006 Before you can answer who owns the Internet, you must answer what the Internet is. Is it a jumble of random wires and duct tape? Is it a software packet, a computer, or a router? While some may argue that it is one big snuff collection, in truth it is an amalgamation, an assortment of heterogeneous computer systems with varying capabilities linked together by various protocols.[1] Last week, a congressional committee voted down a provision calling for increased regulation and oversight of the Internet from the FCC. The issue in a nutshell is this: Internet service providers such as AT&T have mentioned that they may charge variable prices for different types of traffic that move throughout their infrastructure. In theory, AT&T can lower the quality of the data transferred across the network, they can charge companies such as Google or eBay a higher price for letting them use their network, or they can simply block the data altogether. In its defense, AT&T notes that it is their network and they can charge any price structure they deem appropriate. One of the catalysts for this new mindset is that the large telecommunication firms are trying to finance infrastructure upgrades - such as fiber optic rollout - and are facing lower margins due in part to disruptive technologies (e.g., wireless, satellite).[2] In addition, another opportunity the management teams at the telecom firms have hit upon for generating additional revenue is rolling out their own version of IPTV and voice-over-IP.[3] Because of this, executives at the established telecom firms have mentioned that in the future, they might charge third-party developers such as Google, Yahoo, and Skype higher rates. And because they control large swaths of network pipeline, they have the leveraging ability to discriminate. Uncle Sam to The Rescue Unsurprisingly, content providers such as Amazon, Microsoft, Google, and others have been lobbying Congress to prevent this from occurring under a scheme called network neutrality. This would not be the first time government interference has been solicited. Throughout the 20th century, State intervention and regulation of the communication industry has been an assumed role.[4] The Communications Act of 1934 created the Federal Communication Commission, a politically-appointed entity that has overseen and gerrymandered the licensing of radio waves and otherwise dictated who can and cannot communicate electronically on both a commercial and non-commercial basis. The main issue is not a matter of bit discrimination, multiple tiers, or even denial-of-service; rather it is a fight over private property and who owns the cornucopia of wires, cables, fibers and network infrastructure spanning the continent. Unfortunately due in large part to State intervention throughout the past century, this is a somewhat vague and nebulous area with many seemingly gray regions. The only reason AT&T (formerly SBC), BellSouth, Cox Communications, and other incumbents have the large user bases they currently do is because they were granted geographic monopolies for communications.[5] [6] They were legally insulated from outside competition for much of the past century. And, by and large, this protected status still continues unabated, shielded by the current FCC regulatory regime.[7]

From Qaddafi with Love

In the movie The Aviator, Senator Owen Brewster adamantly opposed competition in international flights deeming that it was in the national interest to support only one provider. This was a canard. The same argument has been continually used in creating and protecting geographic monopolies for a host of resources including utilities such as telecom service providers. Vladimir Lenin called these resources the "commanding heights" of the national economy - too important to be left to the whims of the private sector. Unfortunately, many proponents of net neutrality miss the forest for the trees when promoting their nationalization of network pipelines.[8] [9] The real recipe for reform is not yet another round of reregulation or confiscation of private property,[10] rather it is the abolition of State machinations involved in the telecom industry as a whole. Many users mistakenly believe that the current radio spectrum and telecom regime is the product of the free-market. It is not. The FCC did not create the radio spectrum nor does it have some homesteading claim to the near-infinitesimal ranges found within it. It is, simply, a bureaucratic sophistry, which oddly enough believes it can distribute something it does not own.[11] Market intervention begets yet more market intervention: the State caused the problem in the first place, and is now called into action to fix it.[12] It is a history of folly that has been studiously chronicled and its only cure is cold-turkey abstinence. Geographic Monopolies Throughout much of the country, individuals, families and companies have usually only one or two choices for accessing the Internet: through the cable company or the telephone company. Similar to utilities such as water and electricity, the reason for this is that the State intervened and gave certain companies a geographic monopoly for offering these services. This is misleading and a sham for it alone has put content providers in the bind, in between the proverbial rock and hard place. Several pundits-cum-activist, including science-fiction author Doc Searls advocate a net neutrality policy akin to the communal farms of command economies. For instance, Mr. Searls recently compared Internet access to natural resources such as rivers and seas, asking if any of these should be private. His is a public goods argument, an argument that conflates natural resources that have been homesteaded with endeavors that have been created through confiscation (taxes). One of the chronic problems plaguing public roads (i.e., road socialism) is traffic. There is no pricing mechanism to discriminate between off-peak and on-peak times; the roads are a clear illustration of the tragedy of the commons.[13] Internet traffic experiences a parallel phenomenon: throughout the work week, network traffic peaks during the day and declines at night - a cycle also found on public streets. Whether or not proponents of net neutrality want to acknowledge that scarcity exists, it does. Despite continued increase in bandwidth capacity, a router can only handle a certain amount of traffic. Just like a four-lane highway, it can only supply a certain threshold of traffic and is therefore inherently limited.[14] Fluctuating Prices, Mercurial Rates Numerous cell phone companies have created a business model that illustrates this principle in true form, the differentiation of minutes. Sure, the bits of information that are sent across the airwaves and through the network backbones are essentially the same no matter the time of day, but the amount of traffic varies. Therefore various pricing packages include variables ranging from the daytime, evening, weekends, and even roaming. Some even discriminate based upon whom you call (e.g., free calls to someone using the same phone service). This phenomenon of adapting to supply and demand is also seen in other markets, such as sporting events. Many baseball teams now offer ticket packages that vary according to whether a game is held at night, against a specific team, or during a particular month.[15] Additionally, rates change according to the type of seat (e.g., sky-boxes), location of the seat, and group discounts. Several commercial airline providers, most notably Northeastern-based JetBlue, have successfully used variable pricing based upon how far in advance you booked, the level of demand for a particular flight, weekdays versus weekends, and so forth. There is no shortage of empirical examples illustrating profitable business models that embrace variable pricing. However, it is neither the job nor obligation of the taxpayer to finance, or in any manner subsidize, any business entity. The chief concern for both individuals and corporations alike has been the role of the State. If either side had their druthers, the State would intervene; it is a win-win situation for government intervention - a role whose legitimate jurisdiction has been left unquestioned. In reality, both sides are at fault. If the legislative proposals lobbied by the content providers are enacted, the FCC will ultimately be allowed to regulate and intervene more than it currently does. It will be setting a foreboding precedent and granting a level of authority that Leviathan has historically been reluctant to relinquish. Similarly, if the legal monopolies protecting service providers continue without deregulation, then the censorship fears imagined by some could become a reality. It is not a matter of having regulatory oversight - checked or unchecked the intervening State apparatus and its subterfuge obfuscate and remove accountability that private property and contracts would otherwise resolve. Tim Swanson is a graduate student at Texas A&M University. He would like to thank DJC|TANSTAAFL and Andy Stedman for their comments and suggestions. Send him mail. Comment on the blog. Notes [1] The research and development efforts at Stanford Research Institute and Xerox PARC should not be understated. While SRI originally operated in part through government financed grants, due to anti-war sentiments throughout its organization and on campus, it later became a non-profit organization divorced from DARPA funding. The totality of PARC was funded privately. In addition, it was through the private commercial efforts of Apple to incorporate many of these ideas into practical everyday computing applications (e.g. Ethernet and the GUI). See also the "Mother of All Demos" as well as this vintage technical documentary covering the original ARPANET design methodology circa 1972. [2] To the chagrin of John Dvorak, see also: Bower, JL & Christensen, CM. "Disruptive Technologies: Catching the Wave." Harvard Business Review. (January-February) 1995: 43-53. [3] While numerous telecom firms have indeed begun rolling out "Triple Play" services, in reality it would be counterproductive and inefficient for them to build their own search engines and web applications. They already specialize in certain areas, none of which involves this particular division of labor. Arguably, their efforts could be as ineffective as the joint national Franco-German affair in creating their own subsidized imitation of Google. [4] While some urban legends claim the original purpose for ARPANET was to allow institutions to communicate with one another in the event of disastrous war, this is a myth. Charles Herzfeld, who was director of ARPA at the time, has noted that it was designed to effectively and efficiently manage and utilize relatively scarce computing resources across the country. [5] The hypocritical irony of the Sherman Anti-Trust Act is that the government only applies the strong-arm tactics when it is in their best interest - they penalize the private industry for acts they themselves perpetuate. See also Dominick Armentano, "Antitrust: The Case for Repeal" and "Antitrust and Monopoly." [6] This monopoly was granted in exchange for the promise of "universal service" (like "universal education"). It has served to subsidize rural and residential customers at the expense of urban and business use. Arguably we might have very different patterns of land use if this subsidy never existed ("the seen and unseen"). And like all rights artificially concocted by the State, it set forth the disingenuous precedent that everyone has an invented right to service regardless of location - which was taxing enough in the days of POTS let alone broadband. [7] While some vary by degree, without exception, regardless as to the political party in control of Congress or White House, FCC commissioners are always pro-State - less government is still government intervention. See also: "Now On The Auction Block" and "The Baptists Are The Bootleggers." [8] Speaking of trees, in 1958, Leonard Read detailed the complex processes of pencil construction. From chopping down the cedar trees and transporting them to mills, to mining graphite and refining it to certain grades; to locating and squeezing rubber into the familiar cylindrical shape, to identifying and applying the exterior color. No one entity orchestrated the plethora of variables involved in each meticulous step from beginning to end; from excavating Earthen elements to placement on the store shelf. Rather it was through the independent entrepreneurial actions of the market that coordinated the supply and demand through prices - not a federal commission. See: I, Pencil. [9] While somewhat tangential, in the early 1970s Libyan Colonel Muammar Qaddafi nationalized oilfields owned by foreign firms. The Hunt family is historically seen as "sacrificial lambs" due to resisting theft and extortion imposed from his brand of socialism. [10] Some techno-pundits point to South Korea as a modern success story. While cities such as Seoul may indeed be more wired, with larger capacity connections, what is glossed over or ignored entirely is how this was achieved. In a word: subsidies. The South Korean government took tax revenues and redistributed the wealth - at least $24 billion worth - to broadband endeavors. In their mind, the ends justified the means. [11] With land-line Internet connections today, firms have the ability to add near-limitless bandwidth without little FCC oversight. As Declan McCullagh has pointed out, if net neutrality as enshrined by individuals like Doc Searls is legislated, the FCC would gain the ability to install, monitor and otherwise control the network. See also this collection of op-eds and editorials from the National Journal's Policy Council. [12] For instance, the government's anti-spam solution, enacted through legislation has failed by nearly all objective measurements. The management of top-level domains through ICANN, whom is granted the monopoly by the Department of Commerce, has been criticized due to seemingly vague governing procedures - there is a disconnect between its central mission, to bring about more TLD space, and its relatively glacial pace in doing so (see the cases of .xxx and .web) - and non-compete bids with Verisign. [13] See also, Thomas DiLorenzo: Why Socialism Causes Pollution. [14] Among other analogies, a toll-road has been used to negatively describe the throttling mechanism the telecom companies might employ. While this is possible and even plausible, it is risky from a PR stand point. They would not just punish the provider who does not pay them off; they would also alienate the end user who wants content that does not have favored status - and those are customers too. In the end however, it is still their network and their property to use as they wish. [15] For a good overview see: "Case 7.1: Variable Ticket Pricing, Should the Minnesota Twins Catch the Wave?" The Business of Sports: Text and Cases on Strategy and Management. Stanford University Graduate School of Business. 2001, 304-313. Ludwig von Mises: "Nothing could by more mistaken than the now fashionable attempt to apply the methods and concepts of the natural sciences to the solution of social problems." - Omnipotent Government -- ----------------- R. A. Hettinga <mailto: rah@ibuc.com> The Internet Bearer Underwriting Corporation <http://www.ibuc.com/> 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire' _______________________________________________ Clips mailing list Clips@philodox.com http://www.philodox.com/mailman/listinfo/clips --- end forwarded text -- ----------------- R. A. Hettinga <mailto: rah@ibuc.com> The Internet Bearer Underwriting Corporation <http://www.ibuc.com/> 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'