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from: NY Sun

Don't Neutralize Franchise Reform

BY PHILIP KERPEN
May 17, 2007

New York is doing the right thing for consumers by deregulating video services, increasing competition and consumer choice. So why in the world would Albany consider doing the exact opposite when it comes to Internet service — imposing new Internet regulations that could dry up investment dollars and stifle competition?

Legislation is pending in both the Assembly and the Senate that would streamline the franchising process so that Verizon and other new entrants don't have to negotiate franchise agreements on a slow and expensive town by town basis. Video franchise reform laws bring the promise of more competition, driving lower prices and more innovative new service offerings. More than a dozen states have passed franchise reform laws and consumers have been pleased with the results.

Unfortunately, the New York franchise reform bills, sponsored by Senator Jim Wright (R-Watertown) and Assemblyman Richard Brodsky (D-Westchester) have a serious flaw that must be fixed. If it isn't then, despite the promise of video franchise reform, pro-growth, pro-consumer legislators must vote against the bills.

The flaw is language that would undermine the promise of competition by regulating the Internet under a so-called network neutrality regime. The "network neutrality" phrase is a marketing masterstroke—who could be against neutrality?—but what it actually refers to is a rigid regulatory regime that would require every piece of information transmitted over an Internet service provider's network to be treated the same way. That means telemedicine consultations with a doctor couldn't be prioritized over teenagers downloading video games and music bootlegs.

Proponents of network neutrality regulations are worried that without such regulations the phone and cable companies will block access to web sites or cause other mischief. But in a competitive marketplace, an Internet service provider couldn't do something like that without losing its customers. Indeed franchise reform itself, by encouraging more robust across the board competition in information services makes the net neutrality mandates unnecessary.

Such regulations would undercut infrastructure investment. Advanced networks cost billions of dollars to deploy and Wall Street is already sceptical about the returns on major network deployments. Network neutrality regulations would require that the full cost of deploying these networks be paid by end consumers, most of whom would balk at the high bills that would result. This could undermine the major infrastructure upgrades necessary to offer next-generation services and to keep up with growing Internet traffic.

To justify such investments Internet service providers need to have the flexibility to reach agreements with Internet content companies, such as movie-download services and teleconferencing services, to offer them guaranteed bandwidth and quality-of-service.

Some network neutrality proponents are open about the fact that the market structure they envision—with Internet service providers reduced, in effect, to owning big, dumb pipes through which they would transmit all information on an equal basis—would fail to provide an adequate incentive for new network capacity to be built. They call for outright government subsidization, even government ownership of the networks. Of course government control, substituting bureaucratic whim for market rationality, is the surest way to shut down the Internet as an engine of innovation and economic growth.

Even proponents of federal network neutrality requirements should see the fundamental flaw in the proposal for action on the state level. It's hard to think of anything more plainly falling under the heading of interstate commerce than Internet traffic. Whether the requirements would be struck down in court on that basis or not, they would send a very clear signal to cable and phone companies that New York should be at the bottom of the list for new investments. That's exactly the opposite of what the franchise bills are intended to accomplish.

Legislators in Albany have an opportunity to clear away the regulatory tape that prevents so many New Yorkers from having their choice of video, voice, and data providers competing for their business based on price, quality, and convenience. But they must be careful to avoid the well marketed but poorly reasoned regulatory regime known as network neutrality.

Mr. Kerpen is policy director for Americans for Prosperity and a senior fellow for the Internet Freedom Coalition.

May 17, 2007 Edition > Section: Opinion