The choice between Uber and uber-regulation

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Last week Uber, the Internet-based private car service, garnered new investments valuing the four-year old firm at $17 billion. Uber is a perfect example of the way the Internet can turbocharge a simple idea and transform an industry – taxi cabs – in the blink of an eye.

WhatsApp, the messaging service acquired by Facebook in February for $19 billion, is another example of the speed with which a simple app, built on the foundation of the Internet, can reach hundreds of millions of people around the globe and in so doing challenge the status quo – in this case, existing telecommunications services.

Silicon Valley is churning out lots of these happy stories these days. As the venture capitalist Marc Andreessen says, information technology is supplying everyone with “superpowers” (0) – seemingly superhuman abilities to access the world’s information and create and combine new ideas and products in endless ways. It is doing so largely because we’ve let the Internet grow in an environment of “permissionless innovation (1),” as Adam Thierer terms it in his new book of the same name.

The never-ending fight over net neutrality, however, is threatening to squash this permissionless superpower machine. Not content with Open Internet guidelines that every ecosystem firm has agreed to, nor even with new Open Internet regulations proposed by Democratic FCC Chairman Tom Wheeler, public interest groups and even some Silicon Valley heavy-weights are calling for a more aggressive approach – the application of old Title II monopoly telephone rules to the Internet.

In an era of serial Silicon Valley superpower success, it’s not clear there is any problem to solve. The Net is booming. Such regulations thus seem unnecessary at best.

Silicon Valley, however, may not have considered a far more dire possibility – regulatory self-destruction. If the pro net neutrality firms succeed in their mission to regulate the Net, many in Silicon Valley will be like the sailor in The Hunt For Red October, who, when the torpedo circles back to destroy their own submarine, exclaims to his captain: “You arrogant ass. You’ve killed us!”

Google is an obvious big loser in any new Title II regime. Google recently said it will expand its fiber optic broadband access networks to 34 more cities. Remember, however, that when it launched its first Google Fiber service in Kansas City, it offered broadband and video but not phone service – precisely because of onerous Title II regulations. “The cost of actually delivering telephone services is almost nothing,” Google’s Milo Medin said at the time (2). Yet Google, discouraged by old phone regulations, declined to offer the service. “In the United States,” Medin said, “there are all these special rules that apply.” Well, Title II would now apply to Google’s broadband networks, and possibly its global fiber network, and its data centers, and more…

Remember, the old Yellow Pages fell under Title II regulation because it was an appendage of the networks Title II governed. Well, in the digital economy, everything is connected via the Internet. It’s easy to see how not only Google’s networks but also its search services (the rough modern analog of the Yellow Pages) would also be swallowed up by Title II. And even if the FCC attempted to unshackle certain technologies or services (through regulatory forbearance), rivals and the public would likely petition and complain, and Google would have to defend itself as a presumptive Title II regulated entity. The initial forbearance process would take years, and the battles afterwards would never end. Title II also invites regulation by the 51 state utility commissions and contains endless privacy rules. Just imagine the implications for the firm with more private information than anyone.

The proposal to expand Title II to cover the Internet is among the very worst policy ideas in the history of bad policy ideas (and it’s a long list).

We might as well resurrect the Interstate Trucking Commission to regulate Uber and aerial drones. Except Title II could reach all these technologies and firms on its own. Title II applies to transmission of information. The Internet avoided Title II regulation because policymakers, on a bipartisan basis, defined the Internet and other computer networks as “information services.” Data storage, processing, and transmission were all considered a collective information service and excluded from Title II regulation of “telecommunications services.”

In a kind of natural experiment, heavily regulated Title II services – the telephone network – have withered and now approach extinction. On the other hand, mostly unregulated information services – the Internet economy – have thrived beyond imagination.

Nearly every info-tech based product, service, and firm – which increasingly is to say every product, service, and firm – has some information transmission component. Remember, you don’t have to own physical networks to fall under Title II. So the reach of Title II in an information economy, where transmission was once again separated from data storage and processing (assuming such distinctions could be made), would be vast.

We have a choice between Uber and uber-regulation, and it’s not even close.



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