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Press Release

    Denied! Three State Legislatures Say No to Net Neutrality Mandates

    07/30/2007

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    INTRODUCTION

    For the past two years, a number of businesses and interest groups have been lobbying for greater regulation of the internet, calling for mandated “net neutrality” at both the federal and state level. Although a vague concept, net neutrality typically requires open and nondiscriminatory access to the internet. Ultimately, this requires new regulatory authority to define and regulate access to the internet. In particular, many advocates want to ban access-tiering, or charging different rates for different services provided. These new mandates would impose a significant burden on broadband providers and may delay the deployment of new, high-speed networks.

    While proponents of net neutrality contend they are protecting internet freedom, they are, in fact, proposing the largest expansion in government control of the internet to date. Net neutrality would require a number of new regulations to ensure “open access,” however defined by the government. This would require a government definition of access, as well as new rules to monitor activity regulate prices to ensure no discrimination has occurred. In effect, broadband providers would become a common carrier, plagued with the problems that affect all regulated industries, including potential harm to consumers.

    Net neutrality mandates entail costs that reach well beyond broadband providers. Importantly, the price controls endorsed by many advocates of net neutrality would impose the costs of the system squarely on end users, eliminating pricing flexibility and making the internet a commodity that offers few margins for real competition. Without meaningful competition and the ability to manage broadband resources effectively, there will be little incentive to put capital at risk and invest in expensive new high-speed broadband networks.

    The internet has become an important tool for both consumers and businesses, and the way the internet is used has changed dramatically over the last 10 years. New applications and a growing online population will only intensify these changes and put greater demands on the internet. Streaming video is replacing the static web page and the sheer volume of information flowing across the internet is increasing at a rapid rate.

    In fact, the internet is showing its age, and new technologies will be required to ensure its development. Unfortunately, net neutrality mandates impede the deployment of such technologies; in fact, in some instances, these mandates may actually prohibit the adoption of improved technologies. Despite the high-dollar lobbying campaigns, lawmakers have been leery about imposing new mandates on the internet, and net neutrality mandates have had little success at the federal level. In November 2006, network neutrality proponents faced a discouraging dilemma. Earlier in the year (June 8, 2006) Congress rejected a net neutrality provision in a telecommunications reform bill by a 269-152 vote . As a result, net neutrality proponents changed their game plan, turning their attention and considerable resources to passing net neutrality mandates through other means.

    At the federal level, there has been a new effort to include open access mandates as a requirement in upcoming spectrum auctions. In effect, this would require the winning bidder to adopt net neutrality mandates on the use of this spectrum (and possibly throughout their entire network). New restrictions on the use of spectrum would hamper innovation and reduce the rate of broadband deployment. In addition, there are proposals to create open access requirements for wireless providers as well. These efforts are tantamount to backdoor net neutrality mandates that would harm consumers while stifling the development of the next generation internet. Given the challenges that proponents of net neutrality face at the federal level, many have turned to a state level campaign as well. Although net neutrality backers were unsuccessful at passing legislation in both California (by Senator Kevin Murray, CA SJR 24 ) and New York (by Assemblyman Richard Brodsky, NY Bill A11549 ) earlier that year, there has been a continued push to pass such mandates on a state-by-state basis.

    A Nov. 28, 2006, Los Angeles Times story confirmed the change in course:   Fortunately, such efforts have not generated new state-level net neutrality mandates. As commenters have noted, the internet is truly an example of interstate, if not global, commerce. State impediments to such activities raise important legal questions and have the potential to harm consumers and impede technological innovations.

    Net Neutrality Mandates Hamper Innovation and Reduce Competition

    FreedomWorks believes everyone has a stake in ensuring that the internet develops without excessive regulation and taxation. In keeping with that belief, we have actively opposed net neutrality mandates and made it a priority to educate our members and the public on this important issue. We have successfully mobilized our activists, first at the federal level, and then in the various states where legislation has been introduced.

    This issue remains a priority for FreedomWorks and our 850,000 activists will continue to play a key role opposing net neutrality mandates throughout the nation. Any legislation that introduces new net neutrality mandates would expand government control of the internet. In effect, regulators would control the physical architecture on the internet, and by extension, gain the potential power to control what gets said to whom. Currently there are no principles of network neutrality that have been codified into law. Contrary to what many have stated, there never have been. So, theoretically, internet service providers are already free to block or favor content as they please. It is telling to note, however, that none of them have blocked content. In fact, no proponent of network neutrality can cite an existing problem for which new net neutrality mandates would be a solution.

    At the same time, mandatory network neutrality is bad for business. Unlike the narrowband phone lines of the twentieth century, broadband pipes are being built with billions of dollars of unsubsidized investment in a competitive environment. Broadband providers make investments on the assumption they can recover the costs and earn a reasonable return. As such, broadband lines are not the “public resource” with a guaranteed rate of return that monopoly networks were in the past. Companies that own high-speed lines reasonably expect to recover the costs when other parties use those lines to transmit high-bandwidth, revenue-rich services of their own. If network neutrality is enacted, broadband providers will not have the same prospects for a return on their substantial investment, thus seriously hampering incentive to build new pipes. The result is that consumers will have fewer choices and a less robust internet experience.

    Network neutrality is also bad for competition and reduces consumer welfare. Consumers will be better off if companies have the ability to offer them a variety of choices—from pricing to content to offering a “neutral” network if that’s what the consumer wants. In fact, a more diverse internet would actually provide greater benefits. When companies have the ability to tailor services to consumer demand, the consumer and the companies fare better.