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

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 " 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.

A proposal that was bad to begin with -- broadband Internet access is nowhere close to a monopoly -- becomes infinitely worse when applied to other innovative companies in the tech ecosystem.

Former FCC Commissioner Robert McDowell during a recent Congressional hearing noted that Title II contains over 1,000 requirements for those under its purview -- a far cry from today's light-touch regulation. Reclassification would be "yet another attempt to thread the eye of a tiny legal needle with a fat regulatory rope."

Is this the world we want, a hyper-regulated Internet, mired in years of complex litigation? Or should we rather continue with the same light-touch regulatory regime that has made possible these innovations in the first place?

For most people, the question answers itself. But some activists press on, unaware of the very real threat to the current open, innovative Internet.

The danger here is real. That's why the Telecommunications Industry Association has reaffirmed its "long-standing position that the Internet must continue to remain free and open, allowing for the connectivity of devices and access to information," by once again rejecting "utility-style regulation" on Internet Service Providers. If those who wrote Title II intended it to apply only to monopolies, why would we want to subject innovative, edge companies to this burdensome regulation, harming investment and innovation?

Commissioner McDowell has it right: "The term 'net neutrality' seems to morph almost daily, but ultimately all of the arguments for it translate into 'please regulate my rival ... but not me!' in order for the politically favored to gain a competitive advantage through regulatory arbitrage."

That's a terrible way to run a railroad, as the phrase goes, and it's an even worse idea to burden some of the world's greatest technology companies with the same kind of regulation the railroads faced 100 years ago.

Bruce Mehlman served as Assistant Secretary of Commerce for Tech Policy from 2001 to 2004 during the administration of George W. Bush. He is the founding co-chairman of the Internet Innovation Alliance, a pro-business group based in Washington D.C.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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