What Ajit Pai Should Have Said About Killing Net Neutrality... And Why It Still Would Have Been Wrong

from the but-he-didn't,-which-says-it-all dept

As you've probably heard, today's the day that the fairly straightforward and non-onerous net neutrality rules put in place in place by Tom Wheeler back in 2015 are officially taken off the books. We've posted a ton about net neutrality and will post a lot more, but I've been thinking about a few things related to how all of this went down that seem worth discussing. As background reading, it might help to first read why I changed my mind about net neutrality -- from originally being against the FCC setting any rules to eventually being for a fairly limited set of rules. However, what really inspired this post was the podcast conversation I had with Barry Eisler back in December about the lost art of productive debate. One of the points that Barry made was that it's especially easy in these crazy social media-driven times to argue against someone by taking the absolute worst or most extreme version of their argument and then destroying that. As he notes, as a former practicing lawyer, it's the kind of thing he was trained to do. However, he suggested that the more intellectually honest way of holding a debate is to actually reframe the argument and present back to the person what their best argument appears to be, and then debate that.

That can be difficult to do -- but let's take a shot. Because the arguments that Pai and his supporters have given so far for wiping net neutrality off the books really don't make any sense.

The core of Pai's argument to date has been that the net neutrality rules that were put in place in 2015 created a massive regulatory burden on broadband access providers, leading them to decrease their investment. In a new interview he suggests that decreasing the regulatory burden on broadband access providers will have some sort of trickle down effect on everyone else: "I think ultimately it’s going to mean better, faster, cheaper Internet access and more competition."

But if that's actually the case, it seems that Pai should back up that statement with a further explanation. The broadband market is about infrastructure, and if you understand the economics of infrastructure there are a number of different factors at play. For example, it seems quite reasonable to point out that both the net neutrality rules and the lack of net neutrality rules create some winners and losers. And it would be reasonable to point out that the FCC shouldn't be the ones picking those winners and losers (though, that would be a tough sell, given the FCC's entire charter is basically to be doing that). An intellectually honest description of the net neutrality rules would note that there are multiple competing interests at play: the interests of broadband infrastructure players (big telcos/cablecos), the interests of upstart competitors (smaller ISPs), the interests of big services on the internet, the interests of small services on the internet, and the interests of the public. And you could (and perhaps should) look at the impact on each of those and note who is likely to benefit and who is not.

And then, if we were having an honest debate, Pai could note that he believes, strongly, that empowering the biggest broadband infrastructure players with leverage to create differentiated services on their network would provide benefits that outweigh the damage that might do to others. Pai sort of tries to make that argument with his statement about "better, faster, cheaper Internet access and more competition", but he fails to describe any real mechanism for that to actually happen -- other than suggesting that merely removing the regulations will magically lead to it. So, let's try to create the mechanism by which this might happen. You could say that... due to a lack of regulations, it will allow the big broadband providers more leeway to experiment with alternative business models and new technologies, which will create a faster and better internet, including different types of access and different levels of service for different users. And maybe you could then argue that this would also somehow allow for new entrants, because they could attack the market in disruptive ways.

Another argument Pai could have -- and perhaps should have -- made would be looking into questions about how the market for broadband works. Last year, in posting the free market case for net neutrality, we noted that there are cases where even the staunchest free market economists out there have recognized that government intervention can make some sense, mainly in getting uncompetitive markets unstuck. Pai could have tried to rebut the various assumptions in that piece as well. For example, he could argue that broadband is not, in fact, a natural monopoly, and present some evidence for why the market was increasingly competitive -- and even argue that knocking out net neutrality rules would enable brand new broadband infrastructure investment to occur by enabling brand new competitive forms of internet access.

If he said all of that, then we could be having an honest debate about getting rid of the net neutrality rules. So, now, let's point out why even if he said all of the above, he'd still be incorrect (this may be why he didn't say all of the above, because he understands these arguments don't hold up to much scrutiny, and it's much easier to stick with a voodoo trickle-down "broadband regulation bad!" form of argument -- but that's getting away from the intent of this post). So, first let's tackle the "get rid of regulation to help everyone" argument.

As we've discussed at length, the one argument that Pai has made strongly -- that broadband investment is down because of net neutrality -- is not even remotely close to true. Just looking at broadband companies and their Wall Street statements (in which they face serious penalties for lying), you find that there is no decline in broadband investment due to the net neutrality regulations, at all. So the idea that removing these "barriers" will somehow lead to an increase in investment doesn't make any sense.

Second, even going beyond the pure "less regulation means more investment" argument, if the market is not at all competitive (and it is not), then what incentive do the broadband players really have to invest and innovate here? As we've seen time and time again, the real incentive for innovation is greater competition. But we're actually seeing less and less competition in the broadband market, which means that broadband providers have greater and greater incentive to just protect their own monopolistic position and cheap out on customer service and innovation.

Third, if we look at the various players in the market, it's disturbing that Pai only seems to take into account the interests of the largest broadband providers. The smaller broadband providers have made it clear that net neutrality actually improves competition because, without it, the largest broadband providers are better positioned to cut the necessary deals with Netflix, Amazon, Google, Apple, Facebook and others, while the smaller players won't be able to do so. That means that the bigger players will be able to contractually make smaller broadband companies provide a worse overall experience to their users, again further cementing the lack of competition. And while Pai claims that net neutrality harms smaller ISPs, the FCC's own data shows the opposite.

Fourth, so much of the argument that we have to focus on broadband infrastructure investment of the largest players is a broken windows fallacy. As I pointed out in a post last year, if broadband infrastructure investment is the only metric we're using here, the FCC's best plan would be to physically destroy the internet. After all, that would stimulate an awful lot of new investment. You just have to ignore all the costs it would create for everyone else.

And that's the part that's most disturbing here. Pai seems to be deliberately focusing only on the big broadband players and what this means for them -- without caring about what it means for everyone else. Having clear and simple net neutrality rules in place helps lots and lots of internet services, because it means they get to compete on a level playing field against the Googles, Facebooks, Amazons and Netflixes of the world. Those companies can pay to get preferential treatment. The startups cannot -- and Pai has yet to explain how this state of affairs helps those startups. Just saying, "well you'll have more internet," isn't an answer.

Indeed, a strong argument can be made that harming the ability of smaller companies on the network to compete, in favor of granting much greater discriminatory power to the large networks themselves, does much more harm to competition and a free market than having a set of very limited net neutrality rules in place that give all of the internet companies and entrepreneurs certainty that they can actually build their own businesses.

As for the argument that the market is more and more competitive -- that is clearly not at all true. Pai himself telegraphed this fact by trying to downgrade the definition of broadband to make the market look more competitive.

So, what are we left with? Pai's key argument appears to rest on the broken windows fallacy, by only focusing on broadband infrastructure investment and ignoring all of the investment a layer up on the network and how much that will be harmed by this move. He also is misrepresenting what is happening with infrastructure investment and the level of competition in the market.

In the end, we're left with no real argument at all for why we've just wiped out net neutrality, other than a blind faith that "regulation is bad." That may get some people excited, but hardly seems like a real exploration of the topic. And that's going to matter, because one of the key things that Pai is going to need to defend in court during the various challenges is what material change had happened that required this repeal. And simply falsely claiming that broadband infrastructure spending had dropped is hardly convincing.

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Filed Under: ajit pai, broken windows, competition, fcc, investment, net neutrality, regulations

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  1. This comment has been flagged by the community. Click here to show it
    Anonymous Coward, 11 Jun 2018 @ 11:07am

    "One of the points that Barry made was that it's especially easy in these crazy social media-driven times to argue against someone by taking the absolute worst or most extreme version of their argument and then destroying that."

    Like when everyone here constantly accuses those like me of advocating total deregulation and anarchy just because they did not like NN under Wheelervision? I don't think I have seen you once come to the rescue of any poster being deluged by that tripe.

    Heck this is in fact the goto argument always made in favor of regulation in general, is that capitalism is going to %100 create a monopoly and that is a real fear so instead of letting the capitalist make one, lets let government bless their creation instead and then regulate them as such.

    "That can be difficult to do -- but let's take a shot. Because the arguments that Pai and his supporters have given so far for wiping net neutrality off the books really don't make any sense."

    I agree, they don't make any sense, but neither do the arguments FOR NN either? The entire NN debate is nothing more than two monolithing ideology fighting over how the internet should run. Both HATE the free-market with a menacing passion and battle for anti-free market monopolistic capitalism or anti-free market government regulatory capture. Those are the only two "end-result" choices.

    "If he said all of that, then we could be having an honest debate about getting rid of the net neutrality rules."

    Honest debate is never possible when humans are involved and double so if any human involved participates in or supports a political party of any kind.

    I told you guys that you were going to lose no matter what happened to NN.

    "Having clear and simple net neutrality rules in place helps lots and lots of internet services, because it means they get to compete on a level playing field against the Googles, Facebooks, Amazons and Netflixes of the world."

    This is called stumping for something that does not exist. The current NN would not create this possibility either, so why are you advancing the notion in this way?

    The current NN rules by Wheeler vision are better than NOTHING, I hate them and I can admit that. The problem is squarely withing the confines of who the entire debate has been framed.

    Those for NN have squarely accepted market defeat handed to them from the Capitalists so they now believe they can obtain recourse through that all caring efforts of persons that are not voted into office but somehow reasoned to be able to create laws!

    Those against NN have squarely assumed that removing NN by Wheelervision will somehow activate the Free-Market controls while intentionally ignoring all the regulations that are anti-free market ensuring that these incumbents have monopolies in multiple ways that will keep new challengers completely side lined.

    We need to stop fighting for/against NN and start fighting the Monopolies instead! As long as they can keep for fighting here... they don't even have to fight you there! That is how they have you all playing this game to the benefit of the telco's whether you support them or not!

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