[Clips] Who Owns the Internet?

[R.A. Hettinga]

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  Delivered-To: rah at shipwright.com
  Delivered-To: clips at philodox.com
  Date: Thu, 4 May 2006 16:12:01 -0400
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  From: "R.A. Hettinga" <rah at shipwright.com>
  Subject: [Clips] Who Owns the Internet?
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  <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


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  R. A. Hettinga <mailto: rah at ibuc.com>
  The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
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  "... however it may deserve respect for its usefulness and antiquity,
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  experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
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-- 
-----------------
R. A. Hettinga <mailto: rah at 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'