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Don't Turn Back the Regulatory Clock to Invigorate Tech Innovation

Stocks in this article: CSCO

WASHINGTON (TheStreet) -- While consumers clamor for cool new apps just as fast as tech innovators can develop them, the policy professionals in Washington return to the burning question of whether 21st century data services should face the same rules and regulations as telephone monopolies did back in 1934.

The D.C. Circuit's decision earlier this year overturning the Federal Communication Commission's proposed Open Internet order brought the issue back to life, prompting the FCC to rule that it would propose reclassifying broadband Internet access under Title II (common carrier) regulation.

The Republican-led House Judiciary Committee recently voiced its concerns about such a rule, arguing that consumers should be very afraid of this proposal. The FCC invited public comment on May 15. Here's mine: It's a terrible idea.

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Activists now plow ahead, even though no economic studies exist to support the supposed harm that reclassification would remedy. Instead, the voices of real Internet experts warn that the implications of reclassification are vast -- and would end up hurting everyone who uses the Internet.

Reclassification would lead to extreme uncertainty.

Regulatory uncertainty is the enemy of investment and innovation. Cisco (CSCO) CEO John Chambers recently wrote the FCC that his company "...is deeply troubled by the proposals" for reclassification, warning that $60 billion a year in broadband investment could be threatened.

Chambers argues that "If Title II regulation is brought to broadband Internet access services, investment in new infrastructure will be severely hamstrung. New, innovative services may not be brought to market because entrepreneurs fear telecommunications regulation."

Here's the basic problem: As technology advances and as companies work ever harder to meet growing consumer demand, the old distinction between companies that focus on "transmission" and those that focus on "content" is vanishing. Each can own networks; each can (and often does) provide data and voice services. Convergence and cross-platform competition are the order of the day, yet Title II would shackle ISPs and some of the world's most innovative companies with a regulatory regime designed for the 1930s telephone monopoly. It makes no sense.

As Chambers asks, "Will we have rules that only seek to protect innovation on the edge of the network by imposing onerous regulation on the core of the network? Or will we take a balanced approach that encourages innovation everywhere in the Internet ecosystem while protecting consumers and competition?"

Former Clinton administration official David Balto agrees, explaining: "Reclassification would subject edge companies, those who provide Internet based apps and services, to other regulations -- a terrible outcome for consumers. Other firms, such as sellers of connected devices like e-readers, social networks offering messaging, search engines and Internet backbone companies could all be reclassified a telecommunications services and be regulated."

Similarly, Robert Litan of the Brookings Institution noted, "[t]here is a very slippery slope . . . to having to include other forms of Internet transmissions as well because they arguably use 'telecommunications services', the legal hook in Title II for its application." Anyone who buys wholesale wireless service for content delivery purposes, for example, could become a regulated "reseller" of telecommunications services. The same is true of connected devices, such as car navigation systems and others, even potentially e-health applications.

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