Broadband Cable Association of Pennsylvania

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May 15, 2013

Should Congress Overturn the Net Neutrality Rules?

Yes: The Rules Don't Help Consumers-They Hurt Them
by Thomas W. Hazlett, professor of law and economics at George Mason University in Fairfax County, Va.

Fans of net neutrality could learn a lot from the 1992 Cable Act-a textbook example of the potential for perverse consequences of "consumer protection." In 1992, Congress imposed rules on cable-TV operators that consumer activists and television stations hailed as a remedy for the rising rates charged by monopoly cable systems. Price hikes did slow, but cable subscriber growth-which should have increased-plummeted. Cable operators shifted investments to unregulated premium packages and stopped adding popular new program networks. In short, customers were worse off. The Federal Communications Commission capitulated, abandoning the regulations in late 1994. Subscriber growth quickly returned. Despite the presence of a monopoly, the price controls were a bust.

Internet service providers have produced rich innovations. AOL, for example, created much original content for subscribers within its "walled garden" of the mid-1990s. When abundant rival sources of news and entertainment appeared, the walls melted away. Both of AOL's approaches were efficient adaptations to its environment at the time. The lack of regulation prevented lock-in, allowing AOL to adjust to customer preferences. The premise of net neutrality, alternatively, is that there is only one efficient business structure: ISPs should provide a "dumb pipe." This supposedly will give app developers and others maximum scope for innovation. If the ISPs are allowed to have their own apps, or to strike deals with content partners, the theory is they might favor their own products, deter competition and suppress the vibrant ecosystem of an "open Internet."

In fact, while my opponent claims net-neutrality rules help ensure new Googles, Amazons and eBays will arise in the future, each of these companies rose to fame and fortune without net-neutrality regulations. As the FCC's 2010 order repeatedly states, the framework for an open Internet was developed not by policy makers but by business practices emerging in an unregulated marketplace. After initial concerns about overloading its network, AT&T last year decided to drop plans to restrict use of Apple's FaceTime, a free video-calling service that uses lots of data. It is curious to cite as a regulatory success, as the other side does, a case where the rules weren't used. Avoiding FCC delays and bureaucracy-generally an excellent idea. Where an ISP action is anticompetitive, such acts already are illegal under antitrust law. Hence, net-neutrality regulations are superfluous. They impose a blanket prohibition on a large class of business models that are highly efficient.

In 2011, several consumer-advocacy groups complained to the FCC that MetroPCS Communications was offering a plan, at a discounted price, that excluded video streaming, which hogs bandwidth. The offer did, however, include unlimited YouTube downloads which, thanks to that firm's data compression technique, avoided congestion. But the complaint alleged MetroPCS discriminated against other video services. Wham! For innovatively crafting a low-price product and protecting subscribers from network slowdowns-while also offering a popular service-a small ISP lacking any plausible market power is accused of violating net-neutrality rules. Allowing ISPs to operate without burdensome regulations does not deter the development of the Internet. It unleashes dynamic economic forces that continually discover new and better ways to compete. Mind-boggling innovation is the product of truly open markets-an unregulated, "non-neutral" space of incredible scope and promise. That is what we have had. New regulations do not protect that model, but abandon it.

No: The Rules Add Certainty, and That Leads to Innovation president and chief executive of Public Knowledge, an open-Internet advocacy group based in Washington, D.C.
by Gigi Sohn, president and chief executive of Public Knowledge, an open-Internet advocacy group based in Washington, D.C.

Despite dire predictions about the effects net neutrality would have on the Web and on Internet service providers, the industry has flourished. Profits are up at Comcast and Time Warner Cable . Investment in networks continues apace at companies like AT&T. Consumers, too, are getting the protection they need. Last year, for example, AT&T, citing network issues, announced it would restrict use of FaceTime, a popular Apple app for free video-calling. Under pressure from my group and others, citing the move as a possible violation of the net-neutrality rules, AT&T reversed its decision in a matter of months. Net neutrality contends that the company that connects you to the Internet does not get to control what you do on the Internet. That core principle was actually baked into the Internet's design by its founders. As a result, the Internet has been the greatest driver of economic growth, innovation and creativity the world has ever known. Companies that are now household names-Google, Amazon, eBay-were small businesses that became hugely successful because an open Internet allows innovation without permission.

Compare the openness of the Internet with the way the cable industry operates. Your cable operator decides what television networks it will offer, and on what channel. The cable companies often take financial interests in those networks in exchange for carriage. If Internet service providers had the same level of control, even big companies like Netflix and Skype, which offer services that complete with those of the ISPs, would be at risk of slower speeds and lower-quality service. Small, independent innovators wouldn't have a chance. The cable market is far from perfect. But the 1992 Cable Act, far from being a misstep, as opponents suggest, is a model for pro-consumer, pro-competitive government intervention. Without it, the satellite-TV industry wouldn't exist, and Verizon and AT&T would not be able to sell competing video services.

But while the act requires that cable systems not engage in anticompetitive behavior toward independent programmers, there is no requirement that a cable operator carry any particular independent programmer. Cable still decides what its customers see and when they see it. We don't want the Internet to operate like that. Net neutrality rules prohibit Internet service providers from blocking, favoring or disfavoring content or services for reasons other than what is necessary to responsibly manage their networks. This is not a case of big government trolling the Internet, but of ensuring that the Internet remains free from anticompetitive behavior. Even if MetroPCS Communications was trying, as my opponent says, to protect subscribers from network slowdowns when it offered cellphone customers a lower-priced plan that blocked video streaming but allowed YouTube, it didn't have to grant exclusivity to one video service.

And arguing that antitrust laws are the only protection necessary is like saying environmental or safety regulations should be gutted because tort law is enough. Antitrust laws also are written in broad terms. While this can be a strength, it also means they can be ill-suited to dealing with the competitive harms that can come up in specific industries. The net-neutrality rules are straightforward. They save everyone time and money. They give Internet service providers, app developers and other Web services the certainty they need to invest and create an even more robust Internet ecosystem. Congress apparently agrees, since it rejected an attempt to repeal the rules in early 2012. The federal government should discourage any further such attempts and help ensure that the Internet remains a vibrant source of economic growth, innovation and creativity. Wall Street Journal

Americans are at a "tipping point" as it regards their monthly pay-TV bill and should be given the option of purchasing channels individually instead of as a bundle with hundreds of channels, Arizona Sen. John McCain told a Senate panel Tuesday. "I truly believe that a lot of Americans are fed up with their cable TV bills," said McCain, speaking to a Commerce subcommittee exploring the status of the TV and video industries in the United States. McCain was speaking to rally political support for the Television Consumer Freedom Act of 2013 that he proposed last week. It would give pay-TV providers incentive to sell channels individually or a la carte, instead of as bundles. McCain, who has publicly supported a la carte for years, cited the soaring cost of sports programming and cable-bill inflation since the mid-1990s for the legislation.

Michael K. Powell, the former chairman of the Federal Communications Commission and now president of the cable industry's trade association, said the industry had "profound doubts" that a la carte selection would lead to lower cable bills. Programmers would have to boost the price of individual channels if they had to sell them separately, Powell said. Powell said that cable companies had invested heavily in their networks and that the bundling of channels allows a diversity of programming that might not be supported if channels were sold individually. The rising cost of cable was one of several video-related topics at the hearing. Others were whether the 1992 Cable Act needs to be overhauled because of the Internet and other new technology, and the future of broadcast TV.

The broadcast industry fears that the government could take its wireless spectrum for broadband and has been promoting the importance of local TV stations for news. "Broadcast television is as relevant today as ever before," said Gordon Smith, president of the National Association of Broadcasters. Responding later to a question, he said, "Our spectrum comes with public-service obligations that others don't provide." The hearing was attended by about 50 TV officials and lobbyists. It was one of several being held on industry topics by the new chairman of the communications, technology, and Internet subcommittee, Sen. Mark Pryor, an Arkansas Democrat.

Others speaking at the hearing were John Bergmayer, staff attorney with the nonprofit Public Knowledge, and R. Stanton Dodge, general counsel with Dish Network, the nation's third-largest pay-TV provider. McCain, a Republican and former chairman of the Commerce Committee, was not officially scheduled to present at the hearing but was allowed to make his presentation before the scheduled speakers. He did not take questions. In his remarks, McCain said that cable-TV bills had risen about 6 percent annually since the mid-1990s. Citing Nielsen research from 1995, cable companies sold subscribes bundles averaging 41 channels, of which they watched just 11, McCain said. In 2008, the last year for which statistics were available, the figures were 130 and 18. Philadelphia Inquirer; in the Los Angeles Times, ESPN not worried about a la carte

The Pennsylvania Cable Network will air live coverage of the funeral service for former Pennsylvania Gov. George Leader beginning at 10:30 a.m. Thursday. Coverage will re-air on PCN at 9 p.m. Leader died May 9. He was 95. A York County native, Leader served in the state Senate before becoming the 36th governor of Pennsylvania. Taking office at the age of 37 in 1955, Leader remains the second youngest governor is state history. Following the coverage of the funeral service at Derry Presbyterian Church in Hershey, PCN will be joined in the Camp Hill studio by Ken Wolensky, author of "The Life of Governor George M. Leader: Challenging Complacency," and Terry Madonna, director of the Center for Politics & Public Affairs at Franklin & Marshall College. They will provide a retrospective discussion on Leader's contributions and legacy. Coverage also will be available online at http://pcntv.com/pcn-plus/. pennlive.com

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