Why is the internet communityand now, John Oliverso irate

about the state of the Internet? Berin Szoka says the debate over net
neutrality stopped being about neutrality years ago, and has become a
debate over something else entirely, with nothing less than the very
nature of the Internet at stake.

With the Federal Communications Commissions ruling earlier this

year, are we going to see a less dynamic, less innovative, less
consumer-friendly Internet?

Show Notes and Further Reading

TechFreedoms website is a wealth of information on current issues

in technology policy.

The Tech Liberation Front group blog is also a good way to keep
updated.

This Free Thoughts episode with Peter Van Doren is partially about
common carrier obligations and how the world of public utilities that
we now live in came to be.

Berin mentions this post from Dan Rayburn questioning Netflixs

assertion that ISPs were behind apparent service slowdowns last year.
Transcript

Trevor Burrus: Welcome to Free Thoughts from Libertarianism.org

and the Cato Institute. Im Trevor Burrus.

Aaron Ross Powell: And Im Aaron Powell.

Trevor Burrus: Joining us today is Berin Szoka, President of

TechFreedom. Prior to that, Berin was a Senior Fellow and the
Director of the Center for Internet Freedom at the Progress and
Freedom Foundation. Welcome to Free Thoughts Berin.

Berin Szoka: Thanks. You know, everyone always gets tied up on that
particular set of nouns.

Trevor Burrus: Yeah, theres Center for Internet Freedom at the

Progress and Freedom Foundation. Yeah, there we go. Got it. So when
I emailed you to ask you to come on, 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. That may be
difficult because thats what

Aaron Ross Powell: Youve just used it twice.

Trevor Burrus: I know. Ive already violated the rule. Why did you
say that in response?

Berin Szoka: Right. Well, because the debate really hasnt 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. Its 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 theyre in favor of it,
just as they would say theyre in favor of privacy and competition and
free speech. Its 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

Trevor Burrus: Shall not be spoken, yes.

Berin Szoka: Was coined by Tim Wu, internet law professor. I happen
to be in his internet law class at the time back at 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 will 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 was struck down last January.

So a debate were having now is about the FCCs second attempt to

write regulations. So thats 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 shouldnt
block content and they shouldnt unreasonably discriminate.

So thats the core of what has traditionally been meant by that term.
The FCC has gone well beyond that. So today, the debate that were
having even if thats what you want, those three things, were well
past that point. So the debate were 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.

So the debate that were 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 thats
my concern is really first and foremost about the FCCs 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.

Aaron Ross Powell: It seems like the internet is pretty convinced that
the system we have in place doesnt work to prevent bad things from
happening. 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 hes
second only to Neil deGrasse Tyson in terms of the pantheon of
godhood.

But is this is it the case that the rules weve had in place arent good
enough, that we need to move forward with enforcing this term we
dont want to use even more? I mean Im thinking of the instances of
what was Comcast was throttling Netflix or at least whats 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 shouldnt even
really be worrying about in the first place?

Berin Szoka: OK. So the question is again what this is and my main
point and I will 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. Eighty

percent of republicans will say they support 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 has 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 will even hear people
like Rand Paul say that. That hasnt 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. 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 an entire city, entire county, whatever the area
was, in exchange for getting monopoly.

Essentially they were cross-subsidizing because they were serving

some users who wouldnt 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. Thats how we got universal service
since 1913. AT&T 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 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 theyre going to upgrade their traditional telephone network to
fiber to the homes.

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 percent of Verizons footprint, which is basically the
northeast. You have Verizon and cable competing and offering
increasingly fast services. Its a very competitive market. Now that is
not true everywhere. There are lots of parts of the country where you
dont 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 theyre not competing more vigorously, its in large
part because government is making it difficult and if there isnt 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 they like those cities or that Austin is weird. Its that those cities
were willing to work with Google Fiber to remove some of the
barriers to deployment.
So thats 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.

Trevor Burrus: And this is the interesting, conceptual point and we

will have to put a link up in the show notes too. A podcast to 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?

Berin Szoka: Yeah. So let me put it this way. The idea that something
should be utility is often tossed around when people think there isnt
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, youre giving up on competition. Youre saying that its not
going to work. Economists would say essentially that youre saying
its a natural monopoly. Youre never going to have more than one.
You shouldnt try. It would be inefficient to do so. Not going to
happen. The only way to protect consumers is have one company
deliver a service and have the government heavily regulate that
company.
That actually may be appropriate in some circumstances. I mean thats
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.

People make fun of Senator Stevens for having said that but the
internet where he was wrong is the internet isnt 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 on 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 its the government granting a monopoly and there is a tube
through which information flows.

Sure, that probably is a natural monopoly. Its probably not efficient to

have more than one. Youre very rarely going to get more than one.
But thats not the internet and its 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 it wasnt really a practical limit
on how many companies could do that.
Well, obviously thats not very realistic because in the world of atoms,
trains take up a lot of space. It doesnt 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. Its not
going to be 20, but it could certainly be 2. It could probably be 3. It
could perhaps be more.

So right there to answer your question, its not a natural monopoly and
weve already demonstrated that the thing thats the natural monopoly
is the dumb part of the network. Its not the fiber. Its not the
equipment. Its 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. Theyre replacing all the water mains in the city
and when they do that, theyre 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 doesnt have a fiber to the home network at all.

Aaron Ross Powell: But if weve only got two or three large
companies supplying your internet access, your broadband to your
home in some area, whats to stop even those I mean from talking to
Netflix, talking to Amazon and saying, Hey, pay us more to
accelerate your stuff. I mean it doesnt they all would be interested
in getting their hands on a little bit of that money. If theyre all doing
it, theres not going to be really any competition between them
keeping them from doing it.

Berin Szoka: 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.

Trevor Burrus: Well, you eventually get something like Mabel. I mean
thats

Berin Szoka: Precisely.

Trevor Burrus: We get what we have with telephones.

Berin Szoka: 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, OK. So whats the role for
government? Well, I think to start, if you believe in competition, you
shouldnt 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 havent really had that debate
because if we had had that debate, where it would have started would
have been with the the case that really I think put us off the rails
here was back in 2007, Comcast was accused of slowing or throttling
BitTorrent traffic on its network.

Most of that traffic was copyright infringement but not all of it and its
it appears to be although we will never really know because the
issue wasnt resolved. It 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 Ive just described this problem to you
Trevor Burrus: Probably not nationalize the internet. That would be
like well its a limited problem.

Berin Szoka: And we didnt 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.
At a minimum, youre deceiving your customers and what youre
doing is probably unfair, because its harming users. They could have
brought that investigation.

It 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 didnt. 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
things for which the Bush administration is most remembered, all of
those attributes, whatever you want to call them I will let you decide
for yourselves what they are.

Trevor Burrus: Fill in the blank, yes.

Berin Szoka: Right? 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. He was going
to address this issue. No matter that the FCC really didnt have any
clear legal authority. He was going to resolve it. So he set in motion
the FCCs first loss in court where the FCC brought an enforcement
action against Comcast and the DC circuit in 2010 said, Sorry, you
dont have any legal authority. You havent even issued any rules
here. You cant do this.

It was at that point that the FCC issued its first set of rules. So 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 is Im 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
FCCs 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.

You ask this question everyone always asks which is, What if
Comcast wants Netflix to pay it? But it actually turned out to be
pretty complicated because a lot of those deals really could be quite
good for users and you dont 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, thats what this debate is really about. Its about

whats the right model for regulating changing technologies when the
conduct at issue is sometimes good and sometimes bad and youre not
sure in advance. How do you craft rules that deal with that?

Trevor Burrus: So lets go back to 2007 because I want to bring in the

rhetoric on this, the social justice, the kind of like which I think is a
pretty good way of describing it. In 2007, you hear about this
throttling. You start getting I think that the neutrality debate then
gets mixed up with kind of anti-corporate type of attitudes, that its
bad to have anything thats not egalitarian, to have rich people be able
to pay more for faster internet versus not being able to get your
website out there. So you get this idea of the 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. The US Postal Service has a
fast lane. Theres express mail and they have a slow lane. If you want
to pay more, you can get the fast lane. So does the fast lane slow
anything? Does that make sense or is that mischaracterizing
something? Sometimes is it good for people to be able to pay for faster
things?

Berin Szoka: Yeah, it absolutely does sometimes make sense. For the
simplest shortest statement of this, I will just point you to our
explanation of why TechFreedom intervened in the current litigation.
Were leading a group of internet independent entrepreneurs, investors
and a hosting company called [indiscernable], all of whom make
exactly that point. In other words, they all say that the FCCs
regulation, that their attempt to completely ban any payment for a
prioritized treatment actually will stop them from doing things that
make users better off. 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 dont have to buy the entire package.

Well, his concept is you could do the same with wireless service. You
could let people essentially pay a la carte for building their own
wireless package every month. You would decide what you wanted
instead of buying a plan that just gave you a certain amount of data.

Trevor Burrus: So you would buy like I want Netflix, Facebook and
Wiki or like

Berin Szoka: That would be one way to do it. Its a little hard frankly
to explain because its a very different paradigm from what were used
to. Were all just like we were all used to cable. Were all used to
getting an all-you-can-eat package up to a certain amount for wireless
service. He thinks that many users will be better off. They could build
their own plan, starting from the bottom up, and that they would pay
less.

Whether that would work in the marketplace or not isnt really the
point. The point is what he wants to do is pay prioritization. Its giving
users the ability to decide what they want. The FCC specifically was
asked to allow at least user-directed paid prioritization. They wouldnt
really do that. So thats just to illustrate that the FCC is writing these
rules in a way that is vastly overbroad, that goes after conduct that
could potentially be very good for consumers.

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 is
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 will resolve 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.
Verizon said no and thats an example of a net neutrality violation.
Well, thats not actually what happened. There was a contract attorney
who got the request over the weekend, looked at it and thought, Gee,
this looks controversial. I dont think we should do this, and said no.

I believe within 24 hours I think on Monday when the actual

employees at the company saw this, they said, Well gosh, thats not
something we do. We dont make those editorial decisions. They
reversed themselves. In other words, those are the examples that are
pointed to of there being a problem.

Trevor Burrus: What about the Comcast-Netflix one, which Aaron

mentioned? Its featured prominently in the John Oliver video that has
10 million views, that they were using it as a negotiating tactic against
them.
Berin Szoka: So as I said, I think the moments where this debate went
off the rails were number one, back in 2007, where we could 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 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 Olivers attention and it became something people could
understand.

It was painted in the most misleading terms possible. So what Netflix

wanted has never been considered a net neutrality issue. It had 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.

To make a long story short, when your broadband network interfaces

with another company that is not another broadband network, that
theres not exchange roughly equal amount of traffic, which is called
peering. You have to pay, right? That has never been free. What he
was trying to do, Reed 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 dont you just add a little bit of charge on to the
bill that your customers who are on Verizons network pay, so that
you can just pass the cost through? and Netflix said, Oh, it wouldnt
even be worth doing that. Its too small.

I mean its literally pennies on the dollar. Netflix costs are content
costs. Its 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 net neutrality to include
something that was never contemplated in 2010. It was never in the
definition that now is part of this strong net neutrality.

Aaron Ross Powell: So does this mean that Netflixs traffic was
actually never being slowed down by the service providers? I mean
this is purely anecdotal

Berin Szoka: Yes, it does.

Aaron Ross Powell: Like I can remember a period a few years back
when Netflix all of a sudden got slow for me and then about the time
this resolved, it got fast again. But Amazon Prime always seemed to
work.

Berin Szoka: So heres what happened. So what you said is exactly

right. Dan Rayburn is an independent media industry consultant. He
has 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.

They werent ready. They didnt have enough capacity and as a result,
their service slowed down for all of their users. Quite frankly, they
decided to point the finger elsewhere. They blamed Comcast and other
companies, right?

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 has written
this up 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.

Aaron Ross Powell: So weve 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 I want Netflix to come at a
higher bit rate. I want Spotify to come in faster and so Im going to
pay a little bit extra. But is it I mean the concern and maybe this is
future-looking. We dont have good examples of this now. But the
concern you see expressed on the blogs and in the tech blogosphere is
its said that this is all going to be hidden from the consumer, that you
will never get the opportunity to pay extra for Netflix, that instead
what happens is these backroom deals.

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 they can afford to pay it, then when the small guys
come along and cant afford to pay it, then as a result, Im not going to
see that like, Oh, these small guys, their service is terrible because
there are these backroom deals going on. Instead Im just going to
say, Well, clearly this isnt as good as Netflix because the video
stutters all the time.

Berin Szoka: Right. Again, what were talking about isnt net
neutrality. It doesnt mean its 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 FCCs the only one of the FCCs regulations that
stood up back in 2010 was the transparency mandate. Frankly, I can
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. It was passed by a veto-proof majority in the House of
Representatives, stalled in the senate.

Again in 2010, there was legislation considered to do just that. We

could deal with those problems if thats the concern. 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 Im arguing essentially is
that we should look first to existing laws like the antitrust laws and
consumer protection laws. Then if those prove inadequate I dont
think they have. But if you argue that they had, this is the kind of thing
that you would want to turn to next. It would be regulation by
transparency.

I have to say if theres 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, its 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. He made very powerful arguments for relying first and
foremost on transparency as a means of regulating markets. He got
that an executive order.

Its all there. Theres Obamas name on it. Thats exactly right. Thats
how we should be handling all of these problems and yet that was not
part of this debate at all. The FCC, instead of embracing that very
forward- thinking 21st century model of smart regulation, instead fell
back on 1934 regulations written for the AT&T monopoly that were
based on how railroads were regulated in the 1880s.

Aaron Ross Powell: So if we are ultimately talking about a problem

that hasnt really been a problem in the past, that the instances that
people point to have not been what they think they are. Thats 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
narrower regulation.

Why is the internet again so angry about this? Also I mean Im struck
by among techies, this doesnt seem to be it seems like the answer
to this is obvious, the like public utility regulation. You know, treating
everything is just a dumb pipe, not allowing any sort of changes in
service like or prioritization that this seems like the obviously right
thing to do, that the only people who would disagree with them are
stooges for the cable companies or whatever else. There seems to be
no nuance and no debate going on at this level which seems way out
of whack with the way that youre describing it.

Berin Szoka: So a few answers. One, theres a kernel of truth to all of

their concerns, which is what I laid out about broadband competition.
Theres a lot that could be done today primarily at the local level as
with the federal level and there are a lot of people who are just
frustrated. So thats 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 net neutrality up
until 2010, strong net neutrality today and Title 2 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. Just to give you some sense of 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 moment of the 1960s and 70s, which was an attempt to turn the
First Amendment into a sword for government action, not a

[Crosstalk]

Berin Szoka: Precisely, right? Its that movement and the campaign
finance movement. Theyre 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 has been the leader
in both movements. The list of overlap is quite strong. The point is
they have had a strategy and frankly its [Indiscernible] strategy. So
his Marxist strategy for achieving the revolution was to capture the
key institutions of society.

He was focused on universities while 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 theyre
presented a holistic world view. There are very, very few exceptions
to that. So theres literally thousands of people who come out of
schools every year, who go in to work for companies on the hill, in
policy, in journalism, who all think the same way.

The same has been true of journalism. I mean there is no area of

journalism in America that Im aware of that is where the idea of
objectivity has been as abandoned as it has been in tech policy
journalism. Almost everyone is writing as an editorialist. So theyre
presenting one side of everything in all of these debates.

As you say, they dont nuance. Theyre not interested in having a

conversation about subtlety. Theyre interested in Manichean 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 werent that way, but the reality is that we los 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 has happened here, where if
you ask people about internet freedom, they will think you are talking
about regulation. If you do that, you lose.

Trevor Burrus: It is a pretty good sleight of hand that theyve

performed here. Internet freedom means public utility basically.

Berin Szoka: Thats exactly what theyve done.

Trevor Burrus: Yeah.

Aaron Ross Powell: So we end up talking about public choice issues a

fair amount on this show and we talk about bootlegger and Baptist
problems. Most of the people that you just described sounded like the
Baptists side of the equation. So Im 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 doesnt want to pay stuff. So they would
stand to gain something. But are there other people besides maybe the
streaming provider?
Berin Szoka: Well, just remember this idea about Netflix not wanting
to pay something, thats a new issue. That was not the net neutrality
debate in 2010. So the bootleggers have changed over time. So until
2010, there was a set of companies that were arguing for a narrow set
of net neutrality rules and frankly, again, rules that broadband
companies dont really have a problem with.

I wouldnt even necessarily call them bootleggers although some of

them might have seen some advantage in that. The real Baptist and
bootlegger 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.

They were trying to make things easier for themselves and frankly to
make it harder for other companies to compete because the reality is
theres 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 thats embedded deeply within
partner broadband providers to make sure that you get content,
because its cashed locally near you on their servers, right?

So Netflix has been trying to get an advantage from all this. There are
a few other companies who have pushed regulation more recently and
I will give you an example of where its not exactly clear-cut. So
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 didnt object to or could even see some advantages to the
FCC invoking Title 2 Regulation of the internet, the common carriage
model.

The digital left trumpeted that and said, Well, look, theyre big
companies. That proves that this cant be bad for investment. Well,
first of all

Trevor Burrus: Thats like the you hear that all the time. Its the
oh, even the big companies are for this. It should make you terrified.

Berin Szoka: Well, first of all, its worth noting that neither one of
them provides wire-line service like AT&T and Verizon do. Theyre
both taking service to your homes. 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 they have all these towers around the country or actually
in many cases, they dont even have their own towers. They have to
put their antenna on a Verizon tower or an AT&T tower. Even when
they do have their own towers, theyre reliant on other companies
fiber to connect those towers.

Sometimes that fiber is owned by Verizon and AT&T. Its called

special access. In other words, theres a way that that the rates are
regulated for that.

So then the question is, Well, what do we think about that? Well,
they are trying now 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 2, 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.
Its 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 dont have that. But if we have diverted
even part of the effort that has gone into that neutrality, so-called, into
instead talking about smart infrastructure, and we had lets say five
years ago when the idea was first proposed. If we have 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
thats 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
were all talking here about very high fixed costs, capital-intensive
industries, where the companies are reliant on government rights of
way.

This is a problem that libertarians dont like to talk about. Its very
awkward for us. Its very difficult. There 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 has come its an idea that
has come from democrats. It has been supported by cable companies
and it has 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 is covered thats as is the way that net neutrality has been
distorted and presented without nuance.

Aaron Ross Powell: Im curious about another issue that Ive been
noticing more in the news, which is I think its is it Internet.org?
Facebook its several companies but Facebook seems to be the one
thats most prominent among it. It 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 wouldnt have it otherwise.

So this isnt about controlling the messing with the traffic that those
of us who are lucky enough already with broadband have. But this is
like people in the third world countries and whatever. There seems to
be this similar level of anger in that we cant let the corporations
control to the point of I mean as I understand it, basically saying
these people shouldnt get access if its going to come via Facebook.
Is that a potentially concerning thing as well or is that are they
wrong about this for similar reasons that theyre wrong about the
broadband issue?

Berin Szoka: So let me just clarify what Facebook and Google and
Wikipedia and so on are doing. They are giving away versions of their
service where your use of that service, the data you use, is not counted
against your monthly data plan. So thats called zero rating. It means
that your use of that service is counted as zero against your monthly
plan, right?

This really matters in as you say, in developing countries where data

is very expensive and people pay by 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 underserved populations not get internet
access if it isnt pure.

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 Ive literally been at meetings in the
old executive office building where weve sat down to talk about how
to promote broadband deployment around the world. The consensus
among the room is, well, everybody everywhere just needs fiber to the
home.

Not understanding even remotely what the infrastructure situation in

these countries is like and that in fact whats really happening is its a
struggle just to build that wireless service. Its happening and theres a
lot we could do to make it work better. But thats in other words,
their model of progress is everyone is brought to American standards
tomorrow, right? Its a complete fantasy.
So let me back up and unpack your question. So Facebook isnt
running the networks. Theyre not providing service. Theyre
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? Thats another
government problem. Very difficult in the United States, even harder
in most countries around the world because governments dont like to
give up the spectrum and 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 fiber connection to the tower or otherwise
connect the towers 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 its difficult in the United
States. Its even more difficult in places where people dont have
regular power connections, people cant afford phones, people dont
know what to do with the service. There isnt 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, Lets do a joint
marketing agreement. We will help you market your service and
achieve scale. You know, get people onboard and were going to do it
by giving them the thing that always helps people get onboard which
is local content, which is part of the thing that gets packaged into
Internet.org or into other versions of Facebook Zero around the world
and also social networks because social networks, as the word implies,
have network effects.

If your son moves to America and you want to keep in touch with him,
chances are pretty good hes going to be on Facebook. So you might
get on Facebook and then you might want to get your aunt on
Facebook. Its a very powerful way of achieving adoption of any
service. So theres a reason that Facebook is doing that. Its the same
reason that for example T-Mobile I 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 MetroPCS, 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 thats the expensive thing for them to provide 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 didnt get paid by Google to do that. They did it anyway and
they were so demonized by net neutrality fanatics and absolutists who
brought complaints to the FCC. Before the FCC could even act on
this, it was almost certainly not illegal. MetroPCS abandoned the idea
and decided that if they couldnt do that kind of marketing to go for
their niche markets, which is underserved people, minorities
especially in American cities, they couldnt cut it as an independent
carrier. So they sold out to T-Mobile.

So in other words, weve 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. I will just close by saying you asked, Is
there a potential concern here? Yes! Theres 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 hasnt happened but it could where Facebook
might use a service like this to try to 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. 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, were not going to allow any form
of innovation here because its not neutral.

Trevor Burrus: So lets talk about where we are now and going
forward. The FCC proposed these rules, asked for comments on rules
in 2014 and they got four million comments or something like that,
more than they ever got before. Then in February I think of 2015, they
came out with a rule that so what is where are we going forward?
What does it say now? It is so were going to regulate the internet
under Title 2 and there are also legal challenges, correct?

So what do see going forward? Are you concerned I mean first of

all, if we do create this top-down public utility regulation of the
internet, youre going to take all these internet companies are going
to start trying to work with Washington and less with the consumers.
Youre going to have more cronyism I would assume or we could
possibly overturn it. There are legal challenges going on, correct?

Berin Szoka: So to start with, the FCC and congressional democrats

have and largely continue to lie through their teeth about those four
million comments. Chairman many of the democrats who have
talked about this said again and again and again that essentially all of
those comments supported what the FCC is doing. Thats not true. At
least a quarter of those comments and potentially closer to 40 percent
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
spend a lot of time trying to raise public awareness of the dangers of
the FCC being given broad authority here. Its deeply galling to me
that the FCC gets away with very straightforward misrepresentations
of simple facts like that one. So thats point number one.

Point number two, as you say, the FCC issue new rules that go far
beyond its 2010 regulations. So its net neutrality plus which is to
say plus thats banned on paid prioritization, whatever that means,
which nobody can quite define. An incredibly vaguely-worded general
conduct standard which basically they say its a catch-all. It allows the
FCC to regulate anything that doesnt fall into one of the other rules.
When the chairman was asked to explain that rule, after it was issued,
he said Im quoting verbatim here, We dont really know where
things will go next.

Trevor Burrus: Thats positive.

Berin Szoka: So the point is that the theres only really one word
you need to keep in mind from all this. Its discretion. The FCCs 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 that
they even though the court in 2012 upheld section 706, which was
this obscure provision of the 1996 Telecommunications Act, the FCC
had claimed that that was an independent grant of authority, right?
Thats I think ridiculous. Its very clearly a command that when the
FCC uses other grants of authority, that theyre 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 cant be used to violate
specific provisions or limitations in the Communications Act, one of
which is you cant impose common carrier status on non-common
carriers.

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 its limited, they wanted to go
further. They wanted to impose common carrier style regulation.

Trevor Burrus: Common carriers, you have to take all comers and
basically
Berin Szoka: Exactly.

Trevor Burrus: The price combination

Berin Szoka: So when we talk about utility regulation and common

carrier regulation, theyre not the same thing but theyre very close
historically. 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 its essentially in that sense that its similar to traditional utility

regulation. We have only one water system or one electrical system
that serves you.

Trevor Burrus: So has the FCC now done essentially common carrier
regulation?

Berin Szoka: Well, yes and no. Theyve 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. Its 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, were going to forebear from most of it. Were
not going to apply they say something like three-quarters of the
sections of Title 2.

Well, what they dont tell you is that the ones that they are applying
are the core of Title 2. Its the things that theyre forbearing from, not
applying are the unimportant sections. The ones that theyre applying
are the things that were in the Interstate Commerce Act of 1887 that
were used to regulate railroads. Its the heart of common carriage
regulation.

So at the end of the day, as I said again, the keyword 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
dont see any reason why the FCC cant change its mind in the future
and forbear or un-forbear and use the rest of those sections.

Oh, by the way, this is an area where I think the left should be very
worried. The logic of the FCCs approach here I think 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 FCCs regulations.

So the point is, thats what the FCC has done. They really claimed
discretion to do whatever they want across the board with no
limitations other than having to provide some justification to a court
saying it doesnt have to be the best justification but having some
potentially plausible argument for their case because their justification
for these regulations is laughable. Theyve never done an economic
analysis. Theyve refused to do so.

Trevor Burrus: So did they break the internet? The whole idea was to
save the internet. I mean are you afraid now that the writing on the
wall says that were going to see a less dynamic, less innovative,
less customer-friendly internet going forward unless we can somehow
change what happened?

Berin Szoka: So let me say at the outset here that were always at a
disadvantage here because the greatest costs of regulation are always
unseen. So the first answer to your question is we will never know
what weve lost. Now thats the very argument the FCC makes. They
make that argument in justifying regulation by saying that without
regulation, broadband providers will squelch innovation. We will
never see what weve lost.

Well, I can just tell you what the FCC has said. So their argument
essentially is that theres this virtuous circle that when theres
openness on the internet, that everyone uses broadband more and so
theres for your listeners who are familiar with Bastiat, his entire
work is essentially boils down to the idea that antagonism in society
and in the economy is the creation of government. Without that, there
are generally economic harmonies that in fact people even
competitors in fact, when 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 its not good
for them. But they might try to do it in being short-sighted. That
would actually reduce demand for broadband and everyone would
suffer, even though the broadband providers dont see it. Thats their
argument. Theyve 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 will of
broadband providers will promote investment in broadband by we
dont know how much, but at least $100 million a year. So in other
words, they predicted a net positive increase in broadband
performance. Thats the one metric that theyve given us.

Well, we now have one-quarter of results to look at since the new

order came out. What weve seen is a 12 percent drop in investment
by the major broadband providers and this doesnt count, as I
mentioned, T-Mobile and Sprint. Theyre in a different category. If
you include them, its only an eight percent drop and now were
getting into a debate about, Well, why did this happen? I think its
always important to distinguish between correlation and causation. Its
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 has been a drop with the exception of
the dotcom boom crashing and the very, very worst of the 2008
recession

Trevor Burrus: A drop that was against the current economy.

Berin Szoka: Exactly, right. So in other words, youre seeing $1.4

trillion invested by private providers since 1996 and the trend is
upwards and upwards and now suddenly we see a downwards trend.
Its not exactly clear precisely whats going on or what the exact
numbers are and how much of that 12 percent drop is solely due to the
FCCs regulation, but directionally, the FCC said investment will go
up and directionally investment has very, very clearly gone down.

So that right there tells you that something actually is going quite
wrong. The part of that analysis that has been left out of this and this
is where the nuance, the lack of nuance in the media discussion
bothers me most, is remember that everyone always thinks in
aggregates. Its almost impossible for most people to think on the
margins.

So here that really matters because when you hear a number like that,
broadband investment dropped 12 percent, you kind of think, Well,
OK. So maybe that means that my service might be 12 percent slower
than it otherwise would have been, or something like that.

Well, thats not actually how it works. What actually happens is that
profitable areas probably see their investment. Maybe its unaffected.
Maybe it drops just slightly. Where investment really suffers is in
unprofitable areas. Its in marginal communities. What that means
very specifically is urban areas, which means heavily minority area
populations, and rural areas, areas where its 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 1990s, 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 are trying to rethink regulation of 1990s, the reason
that he started to move the FCC away from Title 2 and issued initial
reports saying it wasnt 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.
To be very blunt about this, fact of the matter is that the new
democrats of the 1990s who were worried, genuinely worried about
social justice and thought about it 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.

That to me is nothing short of tragic and its 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.

Trevor Burrus: So whats going to happen next?

Berin Szoka: So the FCC right now is going to court. Oral arguments
are on December 4th at the DC circuit. Thats the same court that has
already struck down the FCCs attempt to regulate here twice. I think
we will probably see a decision by May or June of next year. It could
possibly drag out. It will very likely go to the Supreme Court. Then
the question is, Whats 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 2, which was not clear in the initial proposal and the FCC has
a do-over and this thing goes back to the circus of public opinion and
is even more demagogued than it was last time, and its a political
boom 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 undo that new democrat revolution in the
1990s. They use this to further gain control of the democratic party
and to push their ideas in the general election. Thats scenario number
one.

Scenario number two is the procedure issue is not the grounds on

which its decided and its decided just on statutory merits. I think the
FCC will lose. The court will probably say that the FCC cant invoke
Title 2 and in that case, the courts are 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 we will see a narrow legislative fix. Its

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 will see a legislative solution.
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 2 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, its still going to go up to the Supreme Court. Its going
to be years before we get an answer. I think in the end Im biased
but I think its very unlikely the Supreme Court would ultimately
uphold what the FCC does. So bottom line, whatever happens, were
going to spend years fighting about this until w actually get something
done in congress.

All the issues that I care about, about broadband deployment and so
on, are not going to get the attention. The situation is just going to
continue as it is, which is precisely what the tea part of the left, the
Ford Foundation, the Soros Foundation, thats what they want. They
want the fight to go on forever. In that sense, I would just say this is a
lot like the gay marriage debate where you have activists and radical
on both sides who need to fight to keep going because thats what
their livelihood depends on. Thats what their organizations depend on
and thats what gives them political influence.
Trevor Burrus: Thank you for listening. If you have any questions,
you can find us on Twitter, at FreeThoughtsPod. Free Thoughts is
produced by Evan Banks and Mark McDaniel. To learn more, find us
on the web at www.Libertarianism.org.