The U.S. Justice Department Opposes Net Neutrality

The Justice Department has filed comments opposing network neutrality with FCC. See http://www.freepress.net/docs/doj225767.pdf. These comments do not respond to a formal request for comments as had occurred previously,
see http://fjallfoss.fcc.gov/edocs_public/attachmatch/FCC-07-31A1.pdf.
Instead they are unsolicited ex parte comments which raises questions why the Justice Department saw the need to weigh just now.

The comments are incredibly simplistic and offer further proof of how sponsored research and questionable statistics become the basis for policy, regulations and law. In a nutshell the Justice Department buys the laissez faire view that the marketplace can resolve all potential problems and no real problem has arisen.

The Justice Department can make its case only by ignoring unsponsored research, that point to real potential for problems, statistical compilations that show the broadband marketplace in the U.S. as comparatively inferior to best practices both in terms of price and quality, and the practical consequence of a cable/telco duopoly in Internet access.

By the Justice Departments reasoning it should follow that because of deregulation and commensurate marketplace competition in the wheeling of electricity and packets there could be no potential market manipulation by any single player or group in either industry. We know that in the electricity marketplace Enron traders managed to create bottlenecks, run up the spot market price and generate false congestion.

I am willing to speculate that Enron-type tactics can occur in the wheeling of packets. The fact that a Title II regulated common carrier, telephone company (Madison River Communications, LLC) could not get away with absolute blocking of packets—without detection and punishment—says nothing about the ability of unregulated or lightly regulated Title I information service providers to engage in harmful and unlawful bit discrimination.

I have stood midway in the debate on network neutrality and have identified plenty of instances where price and QOS discrimination make economic sense and do not violate applicable laws. See http://papers.ssrn.com/sol3/papers.cfm?abstract_id=893649;
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962181. But I cannot buy the Justice Department’s preoccupation with the virtue of discrimination, having absolutely no regard for the real potential for undetected or unremediable discrimination.

I hate to think—as others have—that “the fix is in” and this nation’s Justice Department files paper on behalf of specific stakeholders such as AT&T. But as the Network Neutrality debate plays out I increasingly believe that “Bellhead” investment recovery, pricing and billing mindsets will reshape the Internet to become a hybrid of the Public Switched Telephone Network, an outcome I predicted in 2001; see http://papers.ssrn.com/sol3/papers.cfm?abstract_id=29012.

Recommended Reading

I stongly recommend The radio and the Internet written by law Professor Susan Crawford:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1007221.

Professor Crawford skillfully examines how prevailing political motivations, including accommodating incumbent dominant wireless and Internet access carriers, largely dominate how the FCC will auction choice 700 MHz spectrum.

Professor Crawford concludes by stating if the FCC "get[s] this wrong, the consequences will be severe." Regretably I think your last sentence should read "The FCC got this wrong and we will suffer in the competitive global information marketplace."

I can't get over feeling that as usual the fix is in. Sponsored researchers seem to have greater credibility and reach than Professor Crawford and me. They appear to have gained traction in explaining why forcing wireless carriers to accomomdate any handset ("wireless Carterfone policy) is unnecessary, bad policy and illegal. For example, Robert Hahn, Rober Litan and Hal Singer claim that Carterfone made economic sense only in a vertically integrated uncompetitive wireline marketplace, and that it would be ill-advised if not illegal for government to receive auction revenues and impose confiscatory regulatory conditions. See http://papers.ssrn.com/sol3/papers.cfm?abstract_id=983111.

After I recover from painful knee ligament reconstruction Monday 9/10 I hope to follow up with an explanation why vertical integration was not the primary reason for Carterfone and certainly does not constitute a condition precedent for applying the policy wirelessly. Besides even without strict vertical integration, the wireless oligopoly surely can leverage market power to foreclose a resale/secondary market for handsets by collectively blocking the benefits in refusing to offer lower rates for subscribers who "bring their own phones" and do not receive a handset subsidy.