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The Wall Street Lesson for Net Neutrality

Art Brodsky

As the institutions of Wall Street continue to crumble one after another, there's a lesson to be learned for those of us who want to make sure the Internet remains as free and open in the future as it has been in the past.

The collapse of Fannie Mae, Freddie Mac, Bear Stearns, Merrill Lynch, Lehman Brothers, AIG and the rest didn't happen overnight. The situation has been brewing for years. The subprime mortgage crisis may have precipitated the immediate tragedy, but underpinning the whole mess is a philosophy about business and government. That way of thinking posits that deregulation is the best path for the economy, and that government is best when it's out of the way to let the private sector do what it wants. That's the thinking that led to the collapse of the savings and loan industry in the 1980s, and was revived ten years later to apply more broadly to the financial industry.

Now we're seeing the results of an industry out of control, and the damage isn't confined to Wall Street, as retirement plans all over the country take a hit when the market tanks and the federal government loads up the bail-out wagon.

Into the midst of this debacle, the fact that there is even a debate over Net Neutrality seems foolish, and the fact that the Federal Communications Commission (FCC) is being criticized for taking a stand against Comcast's throttling of BitTorrent traffic (and lying about it) seems oblivious at best.

The laws regulating the telecommunications world and those regulating the financial world have a joint history. The Communications Act of 1934 wasn't passed in a vacuum. It was part of a new generation of laws that passed after the Depression, including the Securities Act of 1933 and the Securities Exchange Act of 1934. A law was passed in 1935 giving the Federal government the power to regulate interstate electricity, which updated a 1920 law governing water power much as the Communications Act updated the Federal Radio Act of 1927.

The Communications Act, as with the laws of the same era, was passed with the intent of protecting the public from the abuses of private industry. The basic tenets of non-discrimination were written into that law. If regulators do their jobs, everyone wins — the industry makes money and provides services, and consumers aren't harmed. If regulators don't do their jobs, and/or if a compliant Congress passes laws allowing for an industry to run wild by taking away federal regulation, then it's a different story. That's what happened in financial services and in telecommunications the last few years, and now we're suffering the results.

We're seeing that last scenario play out now on Wall Street, as firms acted unwisely with no government oversight, and the public ends up losing, whether from the taxpayer perspective, the loss of jobs, or the dumping into the toilet of retirement plans based on the stock market.

We don't want to see it play out online as well by giving the telephone and cable companies carte blanche to close off the most open medium ever devised and by allowing them to leverage their duopoly power for anticompetitive purposes. The telecom industry has reconsolidated, has eliminated most regulatory protection, and is taking aim at the Internet. Net Neutrality, at a minimum, is necessary to prevent the network owners — the telephone and cable companies — from taking the control of the Internet away from its users, and putting that control in their own hands. In the name of "network management," these companies want the government to keep their hands off of the networks, and allow whatever discrimination or anti-competitive activity might happen to occur. That's only the start of the games which could be played.

Usage caps that would at some point restrict the ability of consumers to see Internet video, but not curtail video from a cable system or the telephone company equivalent, could be used to give the home-field advantage to the network owner.

And yet, even as Business Week is proclaiming that government oversight is "looking a lot better," the network companies and their defenders, in and out of government, stand out as the last bastion of the old faith. They still don't want to recognize the need for government to protect the public and preserve creativity and innovation through the universal principle of non-discrimination.

The need to preserve the open Internet is real to any number of people whose livelihood depends on it. One such group are independent filmmakers. Earlier this week (Sept. 15), I participated on a panel at IFP's Independent Film Week in New York with film producer Ted Hope (who has a new movie, Towelhead, and also produced 21 Grams and American Splendor).

Hope totally gets that independent filmmakers will need the Internet to make sure consumers will be able to view the films independents make. For Hope, Net Neutrality is nothing less than "The Key Issue In The Entire History Of Independent Film" because distribution of independent film will depend on being able to get online. At the panel, Hope and industry consultant David Rosen were passionate in their assertions that between media ownership, bandwidth caps and the Net Neutrality debate, the future of independent film hangs in the balance. As Hope wrote on his blog, "I am by no means an expert on it, but I do recognize that my opportunity as a Content Creater (aka Film Producer) to access audiences hinges on it. As a general audience member too, I relish my ability to watch what I want, when I want it, and resist anyone telling me what to watch (without me first selecting that curator that is) or restricting my or anyone's ability to access it. It is precisely this open access that I love about the Internet. And it is this that the TeleCo's and others wish to end."

Perhaps with the realization that regulation can help to protect the public, Hope's fears won't be realized.

This post reproduced here with kind permission from Public Knowledge.

By Art Brodsky, Communications Director for Public Knowledge
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Can you do better, Art? Milton Mueller  –  Sep 19, 2008 9:19 AM PDT

Art, I think we've moved beyond this simple-minded "government is all good" vs. "all bad" dichotomy. Reagan is dead, get out of the '80s. This kind of ambulance chasing with respect to the financial crisis is kinda cheap rhetorical opportunism and contributes nothing to the NN debate or to our understanding of the proper role of govt in the telecom sector. FYI, Anyone with a real grasp of what is happening on Wall St. cannot avoid seeing that the collapse was stimulated by govt action, namely the overstimulation of the economy via artificial creation of negative real interest rates for many years, which gave Wall St a powerful incentive to loan money recklessly. There were also changes in accounting rules that have made the crisis worse. And tell me, Art, do you consider Fannie Mae and Freddie Mac paragons of unregulated free market government inaction? And since there is strong govt action to bail out these jerks at taxpayers expense, should we be cheering? Hmmmm. Pardon me if I stay in my seat.

I like the concept of Net neutrality but please don't equate it with some blanket endorsement of "government regulation" and please don't try to lobotomize us into overlooking the absurdities and rigidities of 70's style communication regulation. You can't complain about the broadcast flag, DMCA, FISA surveillance, and other forms of out-of-control govt regulation in one breath and praise the govt as the savior of the little guy and the entire economy in the next. I hope you develop a more consistent political philosophy, your case for NN will become much more convincing

A Tired Argument Tom Amontree  –  Sep 19, 2008 12:50 PM PDT

Wow - talk about twisting this week's news to fit a tired argument.  The broadband industry in America is thriving.  The author's ill-founded perspective is trumped by what the facts tell us - that broadband is key to solving some of America's biggest challenges.  Outside of broadband leading to job creation and economic growth, it is a game-changer when it comes to advancing health care, a cleaner environment and educational opportunity.  We need robust networks that can inject optimism and promise into the American psyche and guess what - we have good news on that front.  This year alone America's nearly 1,400 broadband service providers will invest about $60 billion into infrastructure upgrades across our nation.  They have the confidence to make these substantial investments thanks to the vibrancy of an open marketplace. 

If any connection does exist between broadband Internet service and today's financial environment, it's this: innovation in broadband and the Internet will help strengthen our economy.  Let's not impose regulations to tie the hands of this key element in the solution to today's financial turmoil.

Tom Amontree
Senior Vice President, Communications and Industry Affairs
USTelecom - The Broadband Association

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