 Welcome to Free Thoughts from libertarianism.org and the Cato Institute. I'm Trevor Burrus. And I'm Aaron Powell. Joining us today is Baron Soca, President of Tech Freedom. Prior to that, Baron was a senior fellow and the director of the Center for Internet Freedom at the Progress in Freedom Foundation. Welcome to Free Thoughts, Baron. Thanks. You know, everyone always gets tied up on that particular set of nouns. Yeah, these are all in a row. Center for Internet Freedom at the Progress in Freedom Foundation. Yeah, there we go. Got it. So when I emailed you to ask you to come on and I said, would you like to talk about net neutrality? You responded by saying, yes, provided that we only use the word net neutrality once during the show. Now, that may be difficult because that's what happens once or twice. I know. I've already violated the rule. Why did you say that in response? Right. Well, because the debate really hasn't been about that term for a long time and that term has really confused everyone. So on the highest level, that is really an abstraction. It's an empty vessel into which people pour all of their hopes, dreams and frustrations about the Internet. So when you ask people about it, everybody says they're in favor of it, just as they would say they're in favor of privacy and competition and free speech. It's not a really meaningful question. So let me try to unpack that by giving you what I think are the levels of this conversation, what we should actually be talking about. So that term, that term, which shall not be mentioned, was coined by Tim Woo, Internet Law Professor. I happened to be in his Internet Law class at the time back at the University of Virginia back in 2002. And he had a very specific meaning for that term, which was essentially something similar to the way that railroads were regulated traditionally. Now, he meant it in a very narrow sense about giving prioritization to traffic on the network. To make a long story short, and I'll unpack some of this, that concept, that paper eventually was turned into regulations in 2010. The FCC lost on its first attempt to regulate before it had issued formal regulations in 2010. So it then issued a formal order. That order was struck down last January. And so the debate we're having now is about the FCC's second attempt to write regulations. So that's the point there just to be really specific is that an abstract concept was turned into written rules in 2010 that boiled down to three things. That broadband providers should be transparent about how they operate their networks, that they shouldn't block content, and they shouldn't unreasonably discriminate. So that's the core of what has traditionally been meant by that term. The FCC has gone well beyond that. And so today, the debate that we're having, even if that's what you want, those three things, we're well past that point. So the debate we're having today is about not only a set of rules that go well beyond that, but an underlying claim of legal authority by the FCC that has far more vast implications. And so the debate that we're having today is primarily about the legal basis that the FCC has used to implement those rules and to expand those rules in the new order that it issued earlier this year. And that's my concern is really first and foremost about the FCC's broad claims of authority, which will end up leading to broader regulation of the Internet and a host of negative unintended consequences, things that pretty much everyone would agree are negative like taxes on broadband, for example. It seems like the Internet is pretty convinced that the system we have in place doesn't work to prevent bad things from happening. And by the Internet, I mean basically Reddit and tech blogs and Silicon Valley and everyone who expresses loud opinions, it seems, including so John Oliver, who it seems like the Internet thinks is second only to Neil deGrasse Tyson in terms of the pantheon of Godhood. But is this, is it the case that the rules we've had in place aren't good enough that we need to move forward with enforcing this term we don't want to use even more? I mean I'm thinking of the instances of what was Comcast was throttling Netflix or at least that's what it looked like. Is there a legitimate concern here regardless of what the rules are in place or is this something that we just shouldn't even really be worrying about in the first place? So the question is again what this is and my main point and I'll keep hammering this is no one is really clear in terms of people who talk about this what this is. They mean a lot of different things. So let me start by I think the most valid thing that everyone actually means where I think there is a lot of consensus and where we could actually have a very constructive conversation. So for example when you ask even among Republicans, 80% of Republicans will say they support quote net neutrality. Well what they mean by that is I think to a very large degree what most people mean by that is they want more broadband competition. So let me just digress for a moment on this because this is really important and I think for libertarians in particular this is the area where we really should be upset where the state has gotten things wrong and you have to understand how it got them wrong how it's tried to fix them and what remains to be done. So as briefly as I can put this so most people today think that cable has a monopoly over broadband service. You'll even hear people like Rand Paul say that. That hasn't been true for a very long time. That was actually true at one point because at one point so we use the term broadband today. Broadband used to mean just high capacity networks and so there was a time in the 70s and 80s and even early 90s when you use the term broadband what you were talking about was the ability to carry cable television essentially instead of just video traffic. So once upon a time for a very long time local governments gave exclusive franchises also known as monopolies to cable companies and the deal was basically that they agreed to serve the entire footprint of an area the entire entire city, entire county whatever the area was in exchange for getting a monopoly and essentially they were cross subsidizing because they were serving some users who wouldn't be profitable to serve at the same rates that everyone else was paying so that some users were paying essentially for other users service. That was conceptually the same thing that happened with the traditional telephone monopoly. That's how we got universal service since 1913, 18T was given a legal monopoly. Cable basically had the same thing. To make a very long story short in 1996 Congress finally decided that that traditional system of having two regulated monopolies was not the way to go and we should instead try to pit those companies cable and telephone companies against each other and encourage them to compete in building high capacity networks broadband to deliver both television service and internet service. Until 1996 telephone companies were barred by law from delivering video service because there was a concern that they were going to leverage their monopoly and telephone service. So as I said trying to simplify 2000 so 1996 it becomes legal for competition to happen. It then takes about 10 years for a lot of the details to get worked out things like those local franchise monopolies. And finally by about 2006 you have what I consider to be the beginning of the new era where Verizon decides they're going to upgrade their traditional telephone network to fiber to the home so they start deploying file service. And that took a long time and required a huge amount of investment but it is now the case that in I think about 75% of Verizon's footprint which is basically the northeast. You have Verizon and cable competing and offering increasingly fast services. It's a very competitive market. Now that is not true everywhere. There are lots of parts of the country where you don't have fiber to the home service but the situation is much better than most people think. The point is we actually have in most areas two companies competing with each other. If they're not competing more vigorously it's in large part because government is making it difficult. And if there isn't a third provider like Google Fiber the problem to a large degree lies with government. So the reason that Google Fiber chose Kansas City and Austin was not just that they like those cities or that Austin is weird. It's that those cities were willing to work with Google Fiber to remove some of the barriers to deployment. So that's just a threshold answer to give you that we could have more broadband competition. We could have two or three potentially pipes to the home and we could have faster wireless service as well but in significant part the problem is and always has been government. So the answer there is we could have more competition and it would largely deal with those problems. And this is the interesting conceptual point and we'll have to put a link up in the show notes to a podcast you do with Peter Van Doren which was more about general public utility regulation but where public utility regulation could be needed is directly related to how much competition there is, correct? Yeah. So let me put it this way. The idea that something should be utility is often tossed around when people think there isn't enough competition but deciding that something is going to be utility is kind of one of those game over moments. In other words, once you do that, you're giving up on competition. You're saying that it's not going to work. Economists would say essentially that you're saying it's a natural monopoly. You're never going to have more than one. You shouldn't try. It would be inefficient to do so. It's not going to happen. The only way to protect consumers is have one company deliver service and have the government heavily regulate that company. You know, that actually may be appropriate in some circumstances. I mean that's essentially – we do that in a way for roads. We do have private roads but they are essentially regulated in many ways like utilities and I think here there is some of that. So the thing that I think is potentially a natural monopoly here that is potentially – you could argue should be subject to that kind of regulation is the underlying infrastructure, the pipes and tubes if you will. And people make fun of Senator Stevens for having said that but the Internet – where he was wrong is the Internet isn't itself a series of pipes and tubes. It flows through a series of pipes and tubes. So quite literally under the streets, along highways and then along poles, those telephone poles you see along the side of the road, those are all government land. Sometimes the poles are owned by private providers but it's the government granting a monopoly and there is a tube through which information flows. That – sure, that probably is a natural monopoly. It's probably not efficient to have more than one. You're very rarely going to get more than one but that's not the Internet and it's not even broadband networks because this is the key difference. So imagine if you will that you could have a subway system with multiple companies running their trains through the subway system and there wasn't really a practical limit on how many companies could do that. Well, obviously that's not very realistic because in the world of atoms, trains take up a lot of space. It doesn't really work. So you might say that you should only have one company running a subway system or one company running the roads. But with conduits and poles you could have multiple strands of fiber running under a road through a conduit over a set of poles. It's not going to be 20 but it could certainly be two. It could probably be three. It could perhaps be more. So right there to answer your question it's not a natural monopoly. I mean we've already demonstrated that the thing that's the natural monopoly is the dumb part of the network. It's not the fiber. It's not the equipment. It's not managing all of that. And this is our vision is if government has a role here and should be doing something it should be building that smart infrastructure which is for example San Francisco right now. They're replacing all the water mains in the city and when they do that they're installing these conduits so that those will be available for private companies to lease and that way you could get multiple private companies deploying broadband in the city in a city that right now doesn't have a fiber to the home network at all. But if we've only got two or three large companies supplying your internet access your broadband to your home in some area what's to stop even those I mean from talking to Netflix talking to Amazon and saying hey you know pay us more to accelerate your stuff. I mean it doesn't they all would be interested in getting their hands on a little bit of that money and if they're all doing it there's not going to be really any competition between them keeping them from doing it. Right well fair question. So first of all if that were the question we were asking if we were actively having a conversation about promoting broadband deployment and then asking how we regulate an imperfect market even that would be progress over where we are today because where we are today is people assuming that there is a monopoly or ignoring evidence that in fact the market is more competitive than they think it is and moving to a system of regulation that is a recipe for monopoly right there is no way in the long term to have both utility regulation in the traditional model and even two providers. Well you eventually get something like Marbelle I mean that's precisely what we have with telephones. That form of regulation which is exactly what the FCC has embraced and then tried to back away from in ways I can explain later that form of regulation is a self-fulfilling prophecy. So to answer your question so the question is okay so what's the role for government? Well I think to start if you believe in competition you shouldn't want the role for government to be something that makes competition impossible so the starting place should be what can we do that will not lead to a monopoly that will not discourage new broadband providers from entering the market. How can we craft a form of regulation to deal with that? That is the debate that we should be having and unfortunately we haven't really had that debate because if we had had that debate where it would have started would have been with the case that really I think put us off the rails here was back in 2007 Comcast was accused of slowing or throttling bit torrent traffic on its network most of that traffic was copyright infringement but not all of it and it appears to be although we'll never really know because the issue wasn't resolved appears to be the case that Comcast was in fact throttling that traffic and was deceiving its users about it. So right there we have a problem what should be done about it? Well so the way that I've just described this problem to you probably not recognize the internet. Well amen. It's a limited problem. And we didn't even get there quickly. So what could have happened is the Federal Trade Commission which is the general regulator of essentially every company in America other than common carriers and banks the Federal Trade Commission had jurisdiction could have brought an investigation and could have said hey look you're at a minimum you're deceiving your customers and what you're doing is probably unfair because it's harming users they could have brought that investigation turns out that actually there was a bipartisan consensus on the Federal Trade Commission at the time both the Democrat who became chairman and the Republican who was the chairwoman at the time wanted to bring that investigation and they didn't and this to me was the fundamental mistake where this entire discussion went off the rails what happened instead was the Federal Communications Commission chairman Kevin Martin who embodied I think all of the the things for which the Bush administration is most remembered all of those attributes whatever you want to call them and I'll let you decide for yourselves what they are fill in the blank is right and and he was a Bush loyalist who had been on the Florida recount team and got to be FCC chairman because of that he insisted that like George W. Bush he was the decider and he was going to address this issue no matter that the FCC really didn't have any clear legal authority he was going to resolve it and so he said in motion the FCC's first loss in court where the FCC brought an enforcement action against Comcast and the DC circuit in 2010 said sorry you don't have any legal authority you haven't even issued any rules here you can't do this and was at that point that the FCC issued its first set of rules so that that was what so a the conversation that should have happened would have been how do we deal with this using laws of general application which would have been unfairness deception competition law trying to craft a multi-stakeholder code of conduct which today if you ask broadband companies they would all agree to what the FCC tried to do in 2010 there isn't I'm not aware of any company broadband company in America that would not agree to be held by the Federal Trade Commission or even for that matter if Congress said so by the FCC to be transparent about how they manage their networks not to block user traffic not to throttle the only questions have been about the FCC's authority and about the difficult question of how do you deal with discrimination or with prioritization because that gets into these questions that sound simple at first like you asked the question everyone always asks which is what if Comcast wants Netflix to pay it but actually turned out to be pretty complicated because a lot of those deals really could be quite good for users and you don't want a hard and fast rule that discourages all of them you want a flexible rule that discourages the kinds of conducts that really harm consumers so in a nutshell that's what this debate is really about it's about what's the right model for regulating changing technologies when the conduct at issue is sometimes good and sometimes bad and you're not sure in advance how do you craft rules that deal with that so let's go back to 2007 because I want to bring the rhetoric on this the social justice the kind of which I think is a pretty good way of describing it you get 2007 you hear about this throttling you start getting I think that the net neutrality debate then gets mixed up with kind of anti-corporate type of attitudes that it's bad to have anything that's not egalitarian to have rich people be able to pay more for faster versus not be able to get your website out there so you get this idea of fast lane and the slow lane which is like a big part that people know about this which you kind of mentioned but as you mentioned sometimes it would probably be good for you to be able to pay more for certain things like the U.S. Postal Service has a fast lane as Express Mail and they have a slow lane if you want to pay more you get the fast lane so does the fast lane slow lane thing does that make sense or is that mischaracterizing something and sometimes is it good for people to be able to pay pay for faster things it absolutely does sometimes makes sense and for the simplest sort of statement of this I'll just point you to our explanation of why tech freedom intervened in the current litigation we're leading a group of internet independence entrepreneurs investors and a hosting company called carry.net all of whom make exactly that point in other words they all say that the FCC's regulation that their attempt to completely ban any payment for prioritized treatment actually will stop them from doing things that make users better off and the simplest example I can give you of that is one of our individual investors Silicon Valley entrepreneurs has been developing a way of unbundling wireless service so today we all understand that cable is being unbundled you can watch shows on the internet you don't have to buy the entire package well his concept is you can do the same with wireless service it's a little hard for building their own wireless package every month and you would decide what you wanted instead of buying a plan that just gave you a certain amount of data so you would buy like Netflix, Facebook and Wiki that would be one way to do it it's a little hard frankly to explain because it's a very different paradigm from what we're used to just like we were all used to cable we're all used to getting an all you can eat package up to a certain amount for wireless service he thinks that many users would be better off they could build their own plan starting from the bottom up and that they would pay less and whether that would work in the marketplace or not isn't really the point the point is what he wants to do is paid prioritization it's giving users the ability to decide what they want the FCC specifically was asked to allow at least user directed paid prioritization and they wouldn't really do that so that's just to illustrate that the FCC is writing these rules in a way that is vastly over broad that goes after conduct that could potentially be very good for consumers and this is the point that I should have said earlier to answer the question that was just asked the fundamental problem here is the FCC's writing rules that have real harms because they ban practices that could be good for users or for a variety of other reasons in order to deal with largely phantom problems so apart from the Comcast BitTorrent case which as I already said could have been addressed by existing laws applied by another agency the FCC has a handful of examples all of which could have been resolved by other agencies under existing law or were resolved in the marketplace very quickly like just for example one situation that is often cited is Verizon was asked to issue a short messaging code to an abortion rights group and it is often said Verizon said no and that's an example of a net neutrality violation well that's not actually what happened there was a contract attorney who got the request over the weekend looked at and thought gee this looks controversial I don't think we should do this and said no and I believe within 24 hours I think on Monday when the actual employees at the company saw this and said oh gosh now that's something we do we don't make those editorial decisions and they reversed themselves in other words those are the examples that are pointed to of there being a problem what about the Comcast Netflix one which Aaron mentioned and it's featured prominently in the John Oliver video that has 10 million views that they were using it as a negotiating tactic against them so as I said I think the moments where this debate went off the rails were number one back in 2007 we should have had this resolved by another agency number two there was an effort in 2006 and again in 2010 to get Congress to resolve the issue with narrow authority for the FCC to write narrow rules the third moment was this moment where Reed Hastings who run Netflix who runs Netflix decided that he was going to use this issue for a variety of purposes that are frankly a little hard to understand but he was essentially going to show maybe he wanted to show Hollywood that he could really bring companies to their knees and he could rally mass opinion but he was very successful because it was only when Netflix got involved early last year that this became the kind of issue that got John Oliver's attention that became something people could understand and it was painted in the most misleading terms possible so what Netflix wanted has never been considered a net neutrality issue that nothing to do with how your network works it had to do with Netflix wanting to get interconnection with broadband networks for free which has never happened before make a long story short when your broadband network interfaces with another company that is not another broadband network that does not exchange roughly equal amount of traffic which is called peering you have to pay right that's never been free what he was trying to do read Hastings was to get something for free that frankly is actually peanuts in terms of what it cost Netflix Netflix was asked about this last year at an event here in DC someone said well gee if Verizon is charging you to carry traffic to their customers why don't you just add a little bit of charge onto the bill that your customers who are on Verizon's network pay so that you can just pass the cost through and oh it wouldn't even be worth doing that it's too small I mean it's literally pennies on the dollar Netflix costs or content costs it's not this but Netflix decided to try to get that for free and in the course of doing that they so confused this debate that the FCC was persuaded to expand the concept of that neutrality to include something that was never contemplated in 2010 it was never in the definition that now is part of this quote strong net neutrality so does this mean that Netflix's traffic was actually never being slowed down by the service providers I'm just I mean this is purely anecdotal like I can remember a period a few years back when Netflix all the sudden got slow for me and then at about the time this resolved it got fast again but Amazon Prime always seemed to work so here's what happened so what you said is exactly right Dan Rayburn is an independent media industry consultant he's written about this extensively essentially Netflix made a huge mistake last year when they started to move to higher quality levels of streaming and they underestimated demand and they just they weren't ready they didn't have enough capacity and as a result their service slowed down for all of their users and quite frankly they decided to point the finger elsewhere they blamed Comcast and other companies right and so they were able to portray this as Comcast screwing them when in fact if you look very carefully at the data and if you have show notes I can send you a link to this because Dan Rayburn's written this up very very well the data actually show pretty clearly now what they were doing and that they really had the power to resolve this issue the entire time themselves so we've been talking about how this fast lane is something that presumably if it were allowed the consumer could choose to pay extra for faster access to you know I want I want Netflix to come in at a higher bit rate I want Spotify to come in faster and so I'm going to pay a little bit extra but isn't I mean the concern and maybe this is future looking you know this is we don't have good examples of this now but the concern you see expressed on the blogs and in the tech blogosphere is instead that this is all going to be hidden from the consumer that you'll never get the opportunity to pay extra for Netflix instead what happens is these back room deals and that the problem with that is not necessarily that these big companies these big streaming companies are going to be paying some extra money but that if if they can afford to pay it then when the small guys come along and can't afford to pay it then as a result I'm not going to see that like oh these small guys their service is terrible because there's these back room deals going on instead I'm just going to say well clearly this isn't as good as Netflix because it's simply the video stutters all the time right again what we're talking about isn't that neutrality doesn't mean it's not a valid concern but to the extent that that is our concern you could craft regulation to deal with that and in fact the FCC's the only one of the FCC's regulations that stood up back in 2010 was a transparency mandate frankly I could live with that and the FCC was given or would have been given the authority to issue exactly such a regulation in congressional legislation in 2006 was passed by a veto-proof majority of the House of Representatives installed in the Senate again in 2010 there was legislation considered to do just that we could deal with those problems if that's the concern and this is why I keep coming back to this point that the question here is not whether we regulate the question is how and what I'm arguing essentially is that we should look first to existing laws like the antitrust laws and consumer protection laws and then if those prove inadequate I don't think they have but if you argue that they had this is the kind of thing that you'd want to turn to next it would be regulation by transparency and I have to say if there's one thing that in the long term those of us who want smarter better generally less regulation will look back at this administration fondly for it's the thing that has gotten perhaps the least attention over the last few years which is Cass Sunstein really has revolutionized from the left the way that people think about regulation so he ran Oira the office that has to review every regulation and he made very powerful arguments for relying first and foremost on transparency as a means of regulating markets he got that in executive orders it's all there it has Obama's name on it that's exactly right that's how we should be handling all of these problems and yet that was not part of this debate at all the SEC instead of embracing that very forward-thinking 21st century model of smart regulation instead fell back on 1934 regulations written for the 18 team monopoly that were based on how railroads were regulated in the 1880s so if we are ultimately talking about a problem that hasn't really been a problem in the past that the instances that people point to have not been what they think they are that's unlikely to be a big issue and that in fact if we allow it might have consumer benefits and could be addressed with fairly simple rules or much narrow regulation why is the internet again so angry about this and also I mean I'm struck by among techies this doesn't seem to be it seems like the answer to this is obvious the like public utility regulation treating everything as just a dumb pipe not allowing any sort of changes in service or prioritization that this seems like the obviously right thing to do that the only people who would disagree with them are you know, stooges for the cable companies or whatever else like they're just there seems to be no nuance and no debate going on at this level which seems way out of whack with the way that you're describing it so a few answers one there's a kernel of truth to all of their concerns which is what I laid out about broadband competition there's a lot that could be done today at primarily at the local level so at the federal level and there are a lot of people who are who are just frustrated so that's a legitimate concern but then there are two other factors that I think intersect to lead us to where we are today so one is the advocates of quote net neutrality up until 2010 quote strong net neutrality today and title to regulation that 1934 approach to regulating the telephone network they are so much better organized and so much more effective than anyone on our side is and just to give you some sense of this this this only has become clear in the last few years the Ford foundation and the Soros foundation have poured something like $200 million into this area and are planning to pour hundreds of millions of dollars more they have funded an array of extremely effective advocacy groups that really grow out of the media access movement of the 1960's and 70's which was an attempt to turn the first amendment into a sword for government action not a shield against it precisely right it's that movement and the campaign finance movement they're all the same people I mean quite literally Larry Lessig for example went very very directly from the net neutrality movement over to campaign finance he's been the leader in both movements that the list of overlap is quite strong the point is they have had a strategy and it's frankly it's Gromsche's strategy so his Marxist strategy for achieving the revolution was to capture the key institutions of society and he was focused on universities well this movement has captured law schools everyone who goes to law school in America and studies tech policy reads Larry Lessig and his disciples like Tim Wu and they're presented a holistic world view and there are very very few exceptions to that so there's literally thousands of people who come out of schools every year who go into work for companies on the hill in policy in journalism who all think the same way and the same has been true of journalism I mean there is no area of journalism in America that I'm aware of that is where the idea of objectivity has been as abandoned as it has been in tech policy journalism where almost everyone is writing as an editorialist so they're presenting one side of everything in all of these debates and as you say they don't do nuance they're not interested in having a conversation about subtlety they're interested in maniche and dualism where the enemy is cable which by the way seems to include the telephone companies that are vigorously competing with cable so I wish it weren't that way but the reality is that we lost this debate a long time ago and if anything to me as a lesson for libertarians and people who care about free markets and classical liberalism this just validates the importance of education if you give up on educating and changing the culture and especially if you allow the other side to claim the language of freedom which is what's happened here where if you ask people about internet freedom they will think you are talking about regulation if you do that you lose it is a pretty good side of hand that they performed here internet freedom means public utility basically that's exactly what they've done so we end up talking about public choice issues a fair amount on this show and we talk about bootlegger and baptist problems and most of the people that you just described sounded like the baptists on the other side of the equation so I'm wondering in the push for really strong regulation who are the bootleggers who are the people who stand to gain financially from this we talked about like Netflix doesn't want to pay stuff so they would stand to gain something but are there other people besides maybe the streaming providers? Well just remember this idea about Netflix not wanting to pay something that's a new issue that was not the net neutrality debate in 2010 so bootleggers have changed over time so until 2010 there was a set of companies they were arguing for a narrow set of net neutrality rules and frankly again rules that broadband companies don't really have a problem with I wouldn't even necessarily call them bootleggers although some of them might have seen some advantage in that the real baptist and bootleggers story I think starts really in the last year and a half Netflix is at the top of that list as I said they were trying to get something for free that they always had to pay for that everybody always has to pay for and they were trying to make things easier for themselves and frankly to make it harder for other companies to compete because the reality is there's nothing neutral about the internet Netflix is actually a wonderful example of how non neutrality works on the internet they have their own proprietary network that's embedded deeply within partner broadband providers to make sure that you get content that's cached locally near you on their servers Netflix has been trying to get an advantage from all this there are a few other companies who've pushed regulation more recently and I'll give you an example of where it's not exactly clear cut Sprint and T-Mobile which are the two smaller of the four nationwide wireless carriers both of them when this debate was happening said to varying degrees that they didn't object to or could even see changes to the FCC invoking Title II regulation of the internet the common carriage model and the digital left trumpeted that and said well look they're big companies that proves that this can't be bad for investment well first of all that's like you hear that all the time that's the oh even the big companies are for this which should make you terrified well first of all it's worth noting that neither one of them provides wire line service like AT&T and Verizon do that they're both taking service to your home so you have to think about their business models well it turns out to make a long story short that a big part of their cost structure is you know they have all these towers around the country or actually in many cases they don't even have their own towers they have to put their antenna on a Verizon tower or an AT&T tower and even when they do have their own towers they're reliant on other companies fiber to connect those towers and sometimes that fiber is owned and AT&T that's called special access in other words they there's a way that the rates are regulated for that so then the question is well what do we think about that well they are trying now and just in the last few days the FCC chairman has started to follow through on what appears to be the quid pro quo where in exchange for supporting title to he was going to make things easier for them he was going to essentially lower the prices they were paying for that special access so let me go back to what I was saying earlier the fundamental problem there is that in some sense there is a bit of a market failure it's very difficult for Verizon and AT&T in the first place to wire their towers but they were able to do it in large part because they have legacy networks now T-Mobile and Sprint don't have that but if we had even part of the effort that has gone into net neutrality so called into instead talking about smart infrastructure let's say five years ago when the idea was first proposed if we had started having federal highways in this country include conduits so that T-Mobile and Sprint could very cheaply install fiber they could have wired their own towers in other words there is a market solution that could come from smarter government policies that are not necessarily regulation so that's an example just to say where I think they are a bootlegger but they are responding to some of the imperfections of the world I mean we are all talking here about very high fixed cost capital intensive industries where the companies are reliant on government rights of way and this is a problem that libertarians don't like to talk about it's very awkward for us it's very difficult they are never going to be any clean or simple solutions but there are some fairly elegant ones here dig once conduits are a great idea that it's an idea that's come from democrats been supported by cable companies and it's never really gone anywhere unfortunately because the people who should be pushing for it are instead pushing for their ultimate objective really which is government ownership of networks they want local governments to build networks state governments to build these middle mile networks that connect small towns and wireless towers instead of getting what would be the practical more market oriented solutions so to me that is as much of a failure of the discourse and the way that journalism has covered this as is the way that net neutrality has been distorted and presented without nuance I'm curious about another issue that I've been noticing more in the news which is I think it's Internet.org Facebook's it's a several companies but Facebook seems to be the one that's most prominent among it that has the same groups of people upset for similar sorts of reasons and this one as I understand it is Facebook wants to set up networks to bring Internet access to people who wouldn't have it otherwise so this isn't about controlling the you know messing with the traffic that those of us who are lucky enough to already have broadband have but this is like people in third world countries and whatever and there seems to be this similar level of anger in that we can't let the corporations control to the point of I mean as I understand it basically saying these people shouldn't get access if it's going to come via Facebook is that is that a potentially concerning thing as well or and is that is are they wrong about this for similar reasons that they're wrong about the broadband issue so let me just clarify what Facebook and Google and other and Wikipedia and so on are doing they are giving away versions of their service where your use of that service the data you used is not counted against your monthly data plan so that's called zero rating it means that your use of that service is is counted as zero against your monthly plan right and this really matters in as you say in developing countries where data is very expensive and people pay by the the megabyte or the gigabyte so and there are as you say there are lots of radicals here in the United States absolutists who have said in almost as many words that they would rather that these people that these underserved populations not get internet access if it isn't pure and what they want is pure internet access to be deployed to everyone everywhere so my first comment is these are ivory tower elitists who are living in fantasy land who and I literally been at meetings in the old executive office building where we've sat down to talk about how to promote broadband deployment around the world and the the consensus among the room is well everybody everywhere just needs fiber to the home right not understanding even remotely what the infrastructure situation in these countries is like and that in fact what's really happening is it's a struggle just to build that wireless service and it's happening and there's a lot we could do to make it work better but you know that's in other words their model of progress is everyone is brought to American standards tomorrow right it's a complete fantasy so let me back up and unpack your question so Facebook isn't running the networks they're not providing service they're partnering with a local wireless company and think about the situation that a wireless company is in on the one hand you have a supply and demand problem right so on the supply side you have to figure out how do you build how do you get your spectrum from the government right that's another government problem very difficult in the United States even even harder in most countries around the world because governments don't like to give up the spectrum make it very difficult if you get your spectrum how do you put up towers how do you keep them secure how do you provide that that fiber connection to the tower or otherwise connect the tower so traffic can be carried around even if you can solve all those problems which is very difficult then you have to figure out the demand side which is how do you get people to start using your service which is it's difficult in the United States it's even more difficult in places where people don't have regular power connections people can't afford phones people don't know what to do with the service there isn't a lot of local content or content in your language these are all very difficult problems and essentially the way to think about zero rating is Facebook is going to and Google and other services are going to those carriers and saying let's do a joint marketing agreement we will help you market your service and achieve scale you know get people on board and and we're going to do it by giving them the thing that that always helps people get on board which is local content which is part of the thing that gets packaged into internet.org or into other versions of the Facebook zero around the world and also social networks because social networks as the word implies have network effects if you if your son moves to America and you want to keep in touch with him chances are pretty good he's going to be on Facebook so you might get on Facebook and then you might want to get your aunt on Facebook it's a very powerful way of achieving adoption of any service so there's a reason that Facebook is doing that it's the same reason that for example T-Mobile I really always like to tell this story so T-Mobile and Sprint as I said are the number three and four carriers in the United States today well there was a number five carrier there used to be called Metro PCS which has now been bought by T-Mobile but back in 2011 after the first FCC rules were issued they tried to do a version of this zero rating where they were going to offer a $40 a month plan that offered a limited data use because that's the expensive thing for them to provide back back in 2011 but unlimited YouTube use because they wanted to get urban populations online and they wanted to give them a compelling reason to buy the smartphone in the first place and they figured out a way to make it work on their network they didn't they didn't get paid by Google to do that but they did it anyway and they were so demonized by net neutrality fanatics and absolutists who brought complaints to the FCC that before the FCC could even act on this and it was almost certainly not illegal Metro PCS abandoned the idea and decided that if they couldn't do that kind of marketing to go for their niche markets which is underserved people minorities especially in America cities they couldn't cut it as an independent carrier and so they sold out to T-Mobile so in other words we've had this debate about innovative business models and potentially getting a non-neutral experience in the United States in developing worlds and we see the same absolutist response from net neutrality fanatics and I'll just close by saying you asked is there a potential concern here? Yes there's always a potential concern in any of this that consumers might be screwed or that there might be anti-competitive behavior you could imagine a scenario where for example this hasn't happened but it could where Facebook might use a service like this to try to break into the payment market and maybe that would be anti-competitive but we have a body of law antitrust law that could deal with those concerns and it would weigh costs and benefits and that would be a rational way to regulate on a case by case basis as technology involves instead of saying before we know what the technology or the business models will look like we're not going to allow any form of innovation here because it's not neutral. So let's talk about where we are now and going forward the FCC propose these rules and ask for comments on rules in 2014 and they got four million comments or something like that more than they ever got before and then in February I think of 2015 they came out with that so where are we going for what does it say now is we're going to regulate the internet under Title II and there's also legal challenges correct so what do you see going forward are you concerned I mean first of all if we do create this top-down public utility regulation of the internet you're going to take all these internet companies who are going to start trying to work with Washington unless with the consumers you're going to have more cronyism I would assume or we could possibly overturn it there are legal challenges going on correct so to start with the FCC and congressional democrats have and largely continue to lie through their teeth about the those four million comments chairman many of the democrats you've talked about this said again and again and again that essentially all of those comments supported what the FCC is doing that's not true at least a quarter of those comments and potentially closer to 40% of them oppose what the FCC was doing so I just have to get that out there because I and a lot of other people spent a lot of time trying to raise public awareness of the dangers of the FCC being given broad authority here and it's deeply galling to me that the FCC gets away with very straightforward misrepresentations of simple facts like that one so that's point number one number two as you say the FCC issued new rules that go far beyond it's 2010 regulations so it's net neutrality plus which is to say plus this ban on quote paid prioritization whatever that means which nobody can quite define a incredibly vaguely worded general conduct standard which basically they say as a catch-all it allows the FCC to regulate anything that doesn't fall into one of the other rules when the chairman was asked to explain that rule after it was issued he said and I'm quoting verbatim here we don't really know where things will go next right that's that's positive so the point is that the there's only really one word you need to keep in mind from all this it's discretion the FCC's new order maximizes the discretion the FCC has to regulate the internet and in a number of ways one is that general conduct standard another is regulating interconnection which is the negotiations we talked about earlier between companies like Netflix and Comcast but even more fundamentally I said this earlier the FCC decided they even though the court in 2012 upheld section 706 which was the secure provision of the 1996 telecommunications act the FCC had claimed that that was an independent grant of authority right that's I think ridiculous it's very clearly a command that when the FCC uses other grants of authority that they're supposed to do so in a way that promotes broadband competition and deployment nonetheless the DC circuit in 2012 said that section 706 is an independent grant of authority but that it can't be used to violate specific provisions or limitations in the communications act one of which is you can't impose common carrier status on non-common carriers and so even though the FCC in fact won this huge victory in 2012 in a way that I think will eventually be overturned the FCC decided that they needed to go beyond that grant of authority sweeping as it is because in the one respect in which it's limited they wanted to go further they wanted to impose common carrier style regulation common carriers you have to take all comers and basically no price discrimination so when we talk about utility regulation and common carrier regulation they're not the same thing but they're very close historically and the idea of railroads which is where American common carrier regulation really becomes recognizable in its modern form the idea of the railroad was the railroad had a monopoly because if you were a farmer in a particular area you only had one railroad that would serve you right so it essentially that's in that sense that it's similar to traditional utility regulation where you have only one water system or one electrical system that serves you so has the FCC now done essentially common carrier regulation well yes and no they've invoked title 2 in all of its ugliness and then they immediately say oh but of course we recognize that we need a modernized title 2 for the internet and it's at that point that the FCC having invoked title 2 in order to issue its new expanded net neutrality regulations and a bunch of other regulations then says oh well we're going to forbear from most of it we're not going to apply they say something like three quarters of the sections of title 2 well what they don't tell you is that the ones that they are applying are the core of title 2 the things that they're forbearing from not applying are the unimportant sections the ones that they're applying are the things that were in the interstate commerce act of 1887 that were used to regulate railroads the heart of common carriage regulation so at the end of the day as I said again the key word here is discretion because going forward the FCC has the discretion to do essentially whatever it wants with the sections of title 2 that it is applying I don't see any reason why the FCC can't change its mind in the future and forbear or unforbear and use the rest of those sections and oh by the way this is an area where I think the left should be very worried about the FCC's approach here I think it would allow a Republican FCC if one is elected anytime soon to come in and to use forbearance very broadly to gut the title 2 and pretty much the rest of the FCC's regulations so the point is that's what the FCC has done they really claim discretion to do whatever they want across the board with no limitations other than having to provide some justification to a court saying it doesn't be the best justification but having some potentially plausible argument for their case because their justification for these regulations is laughable they've never done an economic analysis they've refused to do so so did they break the internet the whole idea was to save the internet are you afraid now that writing on the wall says that we're going to see a less dynamic less innovative less customer friendly internet going forward unless we can somehow change what happened so let me say at the outset here that we're always at a disadvantage here because the greatest costs of regulation are always unseen so the first answer to your question is we'll never know what we've lost now that's the very argument the FCC makes they make that argument in justifying regulation by saying that without regulation broadband providers will squelch innovation we'll never see what we've lost well I can just tell you what the FCC has said so their argument essentially is that there's this virtuous circle that when there's openness on the internet that everyone uses broadband more and so there's for your listeners who are familiar with Bastiat you know his entire work is essentially boils down to the idea that antagonism in society and in the economy is the creation of government and without that they're generally economic harmonies that in fact people even competitors in fact although they are competing they in fact are in fundamental harmony over their basic interests well here the FCC essentially is trying to claim that conceptual framing by saying everyone would be in harmony if only we could just regulate just make sure that the broadband providers are not tempted to just tweak the marketplace a little bit because it's not good for them but they might try to do it in being short-sighted and that would actually reduce demand for broadband and everyone would suffer even though the broadband providers don't see it that's their argument they never had any economic analysis for it they refuse to do any but what they did say is essentially that we think and they say this in their economic analysis we think that our regulation of broadband providers will promote investment in broadband by we don't know how much but at least a hundred million dollars a year so in other words they predicted a net positive increase in broadband performance that's the one metric that they've given us well we now have one quarter of results to look at since the the new order came out and what we've seen is a twelve percent drop in investment by the major broadband providers and this doesn't count as I mentioned T-Mobile and Sprint they're in a different category if you include them it's it's only an eight percent drop and now we're getting into a debate about well why did this happen and I think it it's always important to distinguish between correlation and causation it's true that there are always changes in investment cycles and there are other things you can point to this is the first time that there's been a drop with the exception of the dot-com boom crashing and the very very worst of the 2008 reception was against the current economy exactly right so in other words we've seen one point four trillion dollars invested by private providers since 1996 and the trend is upwards and upwards and now suddenly we see a downwards trend and it's not exactly clear you know precisely what's going on or what the exact numbers are and how much of that that twelve percent drop is solely due to the FCC's regulation but directionally the FCC said investment would go up and directionally investment has very very clearly gone down so that right there tells you that something actually is going quite wrong and the part of that analysis that has been left out of this and this is where the lack of nuance in the media discussion bothers me most is remember that everyone always thinks in aggregates it's almost impossible for most people to think on the margins and so here that really matters because when you hear a number like that broadband investment dropped twelve percent you kind of think well ok so maybe that means that my service might be twelve percent slower than it otherwise would have been or something like that well that's not actually how it works what actually happens is that profitable areas probably see their investment maybe it's unaffected maybe it drops just slightly where investment really suffers is in unprofitable areas it's in marginal communities and what that means very specifically is urban areas which means heavily minority area populations and rural areas areas where it's not profitable to deploy high quality service that has always been the concern and if you rewind the tape and you look back at the late nineteen nineties the reason that Bill Kennard who not coincidentally was the first African-American chairman of the FCC and very emblematic of the new Democrats the pro investment Democrats who were trying to rethink regulation of the nineteen nineties the reason that he started to move the FCC away from title two and issued initial report saying it wasn't a good idea to apply to broadband was precisely this that he wanted more investment across the board and in particular that he was concerned about the effects on the margins and to be very blunt about this fact of the matter is that the new Democrats of the nineteen nineties who were worried genuinely worried about social justice and that in economic terms have been displaced by primarily white elitists who are heavy internet users who imagine that everyone is like them who refuse to think in economic terms and who refuse to think carefully about the effects of regulation upon people on the margins of societies rural areas and in cities and that to me is nothing short of tragic and it's again an area where we free marketeers and libertarians have not been telling the story about how capitalism actually helps yes it helps people in suburbs who are well to do and have fast broadband access but it could help people on the margins even more so what's going to happen next so the FCC right now is going to court oral arguments are on December fourth at the DC circuit that's the same court that's already struck down the FCC attempt to regulate here twice I think we'll probably see a decision by May or June of next year could possibly drag out it will very likely go to the Supreme Court then the question is what's the decision going to look like scenario number one is the FCC loses just on procedure court says that the FCC fundamentally changed what they were doing they went from proposing a very mild approach to proposing something based on title two which was not clear in the initial proposal and the FCC has a do over and this this thing goes back to the circus of public opinion and is and is even more demagogued than it was last time and it's a political boon for Democrats because frankly a large part of the purpose here has been for what I call the Tea Party of the Left this radical fringe of activists who are trying to to undo that new Democrat revolution of the 1990s they use this to further gain control of Democratic Party and to push their ideas in the general election that's scenario number one scenario number two is the procedure issue is not the grounds on which it's decided and it's decided just on statutory merits I think the FCC will lose the court will probably say that the FCC can't invoke title two and in that case the courts probably going to leave the door open for the FCC to go back and issue milder regulations under section 706 if that happens I think you'll see a narrow legislative fix it's something that Democrats on the hill at least some of them some of the smarter more moderate ones have been pushing for Republicans have offered such a fix and they were spurned earlier this year when they did it I think we'll see a legislative solution and then finally if the FCC actually wins and it is possible because without getting into the details the courts give broad discretion to agencies if that happens and the FCC is allowed to use title two here I think this issue just festers and it becomes a question of when Congress is willing to rewrite the communications act to fix all these problems but even then it's still going to go up to Supreme Court it's going to be years before we get an answer I think in the end I'm biased but I think it's very unlikely the Supreme Court would ultimately uphold what the FCC does so bottom line whatever happens we're going to spend years fighting about this until we actually get something done in Congress and all the issues that I care about about broadband deployment and so on are not going to get any attention and the situation is just going to continue as it is which is precisely what the Tea Party of the Left the Ford Foundation the short ocean foundation that's what they want they want the fight to go on forever and in that sense I would just say this is a lot like the gay marriage debate where you have activists and radicals on both sides who need the fight to keep going because that's what their livelihood depends on that's what their organizations depend on and that's what gives them political influence