...adverse consequences of market power, including unreasonable discrimination. History gives credence to network neutrality advocates' concerns about abusive practices by network operators but, equally, the history also provides assurance that government will step-in to remedy any serious abuses. With militant internet advocates and huge network-dependent businesses ready to expose any threat to network neutrality, it is difficult to imagine that government won't be aware of any systemic abuse by network operators. So, the network neutrality debate is really more about the pros and cons of ex post and ex ante regulation than some sort of new and unexplored issue of abusive discrimination. Under the current circumstances of no demonstrated abuses by network operators, it is highly likely that most if not all government agencies in the United States will adopt a "wait and see" (ex post) attitude. However, "network neutrality" is inevitable either because the government will not permit abusive non-neutrality or because the network operators won't "cross the line" and behave in a manner that causes the government to impose onerous regulation. This will leave a "gray area" where some people will object strenuously to network operators' behavior, but the misbehavior will not be great enough to stimulate government intervention.

Key words: Network neutrality, discrimination, Computer Inquiries,

* What is "network neutrality"?

First, what is "network neutrality" (or net neutrality)? As the Congressional Research Service (CRS) observed:

"The move to place restrictions on the owners of the networks that compose and provide access to the Internet, to ensure equal access and nondiscriminatory treatment, is referred to as "net neutrality." There is no single accepted definition of "net neutrality." However, most agree that any such definition should include the general principles that owners of the networks that compose and provide access to the Internet should not control how consumers lawfully use that network; and should not be able to discriminate against content provider access to that network." (1)

First, it is important to note that this general description of "net neutrality" is quite similar to the traditional obligation of telecommunications common carriers to serve the public without discrimination. (2) It is also important to appreciate that the CRS explanation requires network operators to be "neutral" toward the two distinct groups that typically constitute an internet-enabled connection: individual consumers and application or content providers. Similarly, the CRS concept of "neutrality" encompasses two distinct aspects: unfettered access by consumers and non-discrimination among application and content providers. One Wall Street analyst summarized the network neutrality issue in the following terms:

"The carriers' ace in the hole is their control of last-mile broadband access--the ability to create an advantage for their own voice and video services through various means: pricing, traffic prioritization and segregation--depending on what regulation and the marketplace allow--and to reestablish themselves as gatekeepers. (More extreme approaches involving traffic blocking and impairment appear to be off limits, at least in the U.S.)". (3)

Another investment analyst agreed, also pinpointing the source of the potential problem as the network operators' "market power" as the result of their control of the "last-mile" connection between the Internet and the consumer:

"Telco and cable broadband network owners are looking to claim more of the economic value that has flowed to edge providers of Internet Protocol (IP) services, such as Google, Yahoo!, Amazon, and eBay. ... We believe the battle is largely about market power and the extent to which Bells and cable can use their dominance in last-mile and local broadband access to extract premium returns." (4)

"Market power" derived from "last mile" bottlenecks has been a recurring theme throughout the history of telecommunications in the United States. And, it continues as a recurring theme in the network neutrality debate: stakeholders that believe network operators possess "market power" seek network neutrality regulations to counter that perceived market power while parties that oppose network neutrality regulations don't see a "market power" problem and naturally resist what they see as crippling restrictions.

Is the sort of market power discrimination feared by the proponents of network neutrality regulations more than a theoretical possibility? Broadly speaking,

"To shift value, the telcos and cable could try various strategies, which roughly fall into three categories: (1) blocking or degrading traffic; (2) managing their networks in ways that improve overall operations but also complicate some edge services; and (3) requiring payments for providing preferential service to edge traffic. In order for such tactics to work, they must be technically feasible, not subject to significant market bypass, and not be objectionable to the government." (5)

It is highly likely that government would not tolerate the easily detected, most intrusive and obviously anti-competitive tactics for which there is no "fair" justification. Literally blocking traffic or diverting it would be an example. Such activity could be prohibited ex ante but the inevitability of swift and severe government intervention will discourage the worst behavior, making such ex ante prohibitions unnecessary as a practical matter. Indeed, in the most notable case, so far, where a carrier attempted to block consumers from accessing a competitive service (a Voice over Internet Protocol--VoIP--service), the FCC acted very quickly to compel the carrier to end the practice. (6)

A few network operator tactics, such as reasonable network management tools needed to keep the network available to all, are not likely to raise serious neutrality concerns. Other tactics might be acceptable because they provide clear consumer benefits, such as providing more bandwidth or better quality of service or prioritizing traffic (for example, to give remote medical monitoring traffic higher priority than web surfing) for a higher fee. But many tactics that could be used by network operators can be both perniciously anti-competitive and beneficial at the same time and will therefore be subject to case-by-case, generally ex post, weighing of such factors as anti-competitiveness, commercial reasonableness and fairness, and consumer benefit.

* Network neutrality concern is not surprising: there is a long history in the United States of telecom "discrimination" (that is, "market power") problems, and periodic government reactions

Concern about discrimination by network operators with market power now being raised by network neutrality proponents is nothing new. There is long history in the United States of actual discrimination by network operators followed by government reactions that eliminate or at least mitigate the adverse consequences of market power, including unreasonable discrimination. This history gives credence to network neutrality advocates' concerns but, equally, the history should provide assurance that government agencies will step-in to remedy any serious abuses. From this perspective, the network neutrality debate is more about the pros and cons of ex post and ex ante regulation.

The following review of some previous market power and discrimination problems in the United States is intended to be illustrative and certainly not exhaustive.

Common law's "common carrier" nondiscrimination

Historically a common carrier is a: "Transporter who holds himself out to...

NOTE: All illustrations and photos have been removed from this article.



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