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Does Network Neutrality Stifle Innovation Or Boost It?

The sky is falling, to hear the incumbent carriers and their industry association shills, because the FCC under new chairman Julius Genachowski is going to enforce network neutrality provisions.

Most of what Genachowski is proposing to codify isn't even new -- it's based on four principles of network neutrality espoused in 2005 by former FCC chairman and wireless industry fanboi Kevin Martin, namely:

Network operators cannot prevent users from accessing the lawful Internet content, applications, and services of their choice, nor can they prohibit users from attaching non-harmful devices to the network.

What's gotten the carriers into a hairball bigger than a tangle of iPod headphone wires are two new principles Genachowski wants to throw in for good measure:

The fifth principle is one of non-discrimination -- stating that broadband providers cannot discriminate against particular Internet content or applications… This means they cannot block or degrade lawful traffic over their networks, or pick winners by favoring some content or applications over others in the connection to subscribers’ homes.

And then there's the sixth principle, which simply states that "providers of broadband Internet access must be transparent about their network management practices."

What's the big deal? Well, The Competitive Enterprise Institute called the fifth principle an "incoherent abhorrence."

NetCompetition.org stated that the regulations will "discourage cooperation and exclude networks from the Internet freedom to innovate and invest."

And according to wireless industry association trade group CTIA, we've done just fine so far, as "competition within the industry has spurred innovation, investment, and growth for the U.S. economy."

Finally, Senator Kay Bailey Hutchinson (R-Texas) introduced an amendment to an unrelated funding bill prohibiting the FCC from promulgating these rules.

So if everyone is so concerned with the plight of innovators and entrepreneurs, I thought I'd ask one what he thought.

And since they've been so vocal, I figured I'd talk to AT&T CEO Randall Stephenson or Verizon Wireless CEO Lowell McAdam. But then I realized that neither of them are either entrepreneurs or innovators, so instead, I spoke with Skydeck founder and CEO Jason Devitt, who actually is one. (Skydeck provides services to help users organize their wireless communications and contacts.)

Devitt told me he's an "ardent supporter" of the view that incumbent carriers shouldn't be allowed to use their networks to discriminate against service or content providers. "Entrepreneurs should not require permission in order to set up a business or bring a new product to market," he told me.

Well, I asked him, how about the fact that the incumbents invested all that money on the pipes upon which he wants to piggy-back? It seems logical that if they built the network, they should be free to decide who gets to use it.

Ah yes, except that they're called incumbents for a reason. They were handed the right to build the infrastructure (and tear up our streets) and enjoy the numerous benefits of incumbency, "with the understanding that the public reserves the right to impose certain conditions on them in the future in return for granting them this huge privilege."

To the idea that rivals should simply go build their own networks, "the reality is you can't -- local communities won't allow 30 different companies to dig up streets… The compromise is that we grant a handful of companies the privilege to all this pipe, subject to other services being able to use the pipe as a shared facility."

Sort of like other common carriers, like railroads, who get to charge for this service, and who are exempted from liability for criminal or fraudulent behavior (like piracy) committed on their networks by third parties.

According to Devitt, Skydeck would have a much greater range of services to offer consumers were it not for the fact that carriers act as gatekeepers of the network. "With every new feature we're thinking about, every new product we're bringing to market, we have to think about what the implications are from that perspective," he lamented.

And if the current state of affairs is bleak for entrepreneurs, it's not much better for U.S. consumers.

Everywhere else in the world, subscribers get discounted rates if they bring their own phone to the network. Not only isn't that the case with AT&T, but Verizon Wireless won't even allow you to bring your own feature phone to its network, because it wants absolute control over the features you can use on its network.

The restrictions are less severe for smartphones, but the 80 percent of U.S. consumers who have feature phones don't have the choice that the incumbent carriers claim they'll lose if the FCC has its way.

"In a free market, that choice should be available; the fact that it isn't demonstrates that carriers are successfully excluding a whole set of phones from the market… If they control the phone, they can restrict what you can do with the phone," Devitt told me.

The CTIA, the incumbent carriers, and the "think tanks" they sponsor tell you the current state of affairs is preferable to one regulated by broad neutrality and anti-discrimination provisions. Are you going to believe them, or your own lying eyes?

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