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 A heated dispute erupted in late 2002 betweencorporate giants in the high-tech sector over how the networks owned by cable and telecom compa-nies will be governed in the future. Several majorsoftware and e-commerce firms have formed theCoalition of Broadband Users and Innovators topetition the Federal Communications Commis-sion to adopt rules ensuring that cable and tele-phone industry broadband operators will not usetheir control of high-speed networks to disruptconsumer access to websites or other users. In thename of preserving “network neutrality” andInternet “openness,” CBUI members argue thatthe FCC must adopt preemptive “nondiscrimina-tion safeguards” to ensure Net users open andunfettered access to online content and services inthe future. CBUI claims such preemptive, prophy-lactic regulation is necessary because the currentmarket is characterized by a cable-telco “broad-band duopoly” that threatens Internet users.Such rhetoric and calls for preemptive regula-tion are unjustified. There is no evidence thatbroadband operators are unfairly blocking accessto websites or online services today, and there is noreason to expect them to do so in the future. Nofirm or industry has any sort of “bottleneck con-trol” over or market power in the broadband mar-ketplace; it is very much a competitive free-for-all,and no one has any idea what the future marketwill look like with so many new technologies andoperators entering the picture. In the absence of clear harm, government typically doesn’t regulatein a preemptive, prophylactic fashion as CBUImembers are requesting.Moreover, far from being something regula-tors should forbid, vertical integration of new features and services by broadband networkoperators is an essential part of the innovationstrategy companies will need to use to competeand offer customers the services they demand.Network operators also have property rights intheir systems that need to be acknowledged andhonored. Net neutrality mandates would floutthose property rights and reject freedom of con-tract in this marketplace.The regulatory regime envisioned by Net neu-trality mandates would also open the door to a great deal of potential “gaming” of the regulato-ry system and allow firms to use the regulatory system to hobble competitors. Worse yet, itwould encourage more FCC regulation of theInternet and broadband markets in general.
“Net Neutrality” 
 Digital Discrimination or RegulatoryGamesmanship in Cyberspace? 
by Adam D. Thierer
_____________________________________________________________________________________________________
 Adam D. Thierer is director of telecommunications studies at the Cato Institute, www.cato.org, and coauthor, withClyde Wayne Crews Jr., of 
What’s Yours Is Mine: Open Access and the Rise of Infrastructure Socialism
(Cato Institute, 2003).
Executive Summary 
No. 507January 12, 2004
 
Introduction
 Allegations of discrimination have gener-ated many heated intellectual debates andcountless legislative and judicial squabbles in America. Regardless of the veracity of theaccusations in any given case, the charges areoften quite sensitive and serious. Has some-one lost a job because of the color of his skin?Should one’s sexual orientation be consid-ered when one tries to join the Army or theBoy Scouts? Was there discrimination at thepolls when certain individuals sought to vote? And so on. It’s easy to understand why tensions run high when such questions arebeing debated.Sometimes the word “discrimination” getsthrown around in a very cavalier manner by parties seeking to enlist the support of gov-ernment in a dispute in which it doesn’tbelong. A good recent example of that comesfrom the field of Internet policy. A heatedindustry catfight has erupted between majortechnology companies over how Internet con-tent should be accessed through high-speedbroadband networks owned by cable or tele-phone companies. A new group called theCoalition of Broadband Users and Inno- vators—which counts among its membersMicrosoft, Amazon.com, Apple, Disney, E-Bay, and Yahoo!—has petitioned the FederalCommunications Commission to adopt rulesto ensure that cable and telephone broadbandservice providers (BSPs) will not use their con-trol of high-speed networks to disrupt con-sumer access to websites or other users. TheCBUI proposal, or variations of it, has typical-ly been labeled “Net neutrality” or “digitalnondiscrimination.”Despite the absence of evidence that net-work operators are currently imposing “dis-criminatory” restrictions on Internet users,CBUI members claim the FCC must adoptpreemptive “safeguards” to ensure “that con-sumer access to Internet content is full andunfettered” in the future. In filings with theFCC, CBUI members claim that cable andtelephone companies are forging a “broad-band duopoly” that will “define the Internetfor some time, and [allow] network operatorsto infringe or encumber the relationshipsamong their customers or between their cus-tomers and destinations on the Internet.”
1
Stanford University law professor Law-rence Lessig—famed for leading a similar anti-discrimination antitrust crusade againstMicrosoft—has endorsed the CBUI Net neu-trality proposal, arguing, “The network owneris increasingly in the position of picking andchoosing how the Internet gets used.”
2
Others,such as FCC commissioner Michael Copps,speak of the issue in far more apocalypticterms: “I think we are teetering on a precipice.. . . We could be on the verge of inflicting terri-ble damage on the Internet. . . . I am worriedthat we could be witnessing the beginning of the end of the Internet as we know it.”
3
What proponents of Net neutrality suchas Copps, Lessig, and CBUI members fear isthat BSPs will leverage their supposed mar-ket power to force customers to accept a vari-ety of unsavory limitations on their use of thenetworks owned by BSPs. For example, accessto specific sites might be blocked, the attach-ment of certain technologies or devicesmight be forbidden, or additional networksmight not be allowed to develop at theperiphery, or edge, of the network (i.e., whereconsumers interface with the network). Forexample, BSPs might seek to curtail theattachment of Wi-Fi (wireless fidelity) devicesor networks by consumers.It is certainly plausible that BSPs mightdeny consumers access to Internet content orprohibit attachment of various devices or net-works at the edge of the system. Althoughthere are few examples of BSPs engaging insuch activities today, there may exist situa-tions in which it is perfectly sensible for a net-work owner to impose use restrictions or dif-ferential pricing schemes on its broadbandcustomers. Network owners may want to dis-courage the use of certain devices on their net-works to avoid system crashes, interference, or“signal theft.” They may want to price servicesdifferently to avoid network congestion orcapture greater revenues on bandwidth-inten-sive services. They may want to vertically inte-
2
Sometimes theword “discrimi-nation” getsthrown around ina very cavaliermanner by partiesseeking to enlistthe support of government in adispute in whichit doesn’t belong.
 
grate content and conduit on their systems,or partner with other firms that can helpthem reach new customers and offer superiorservices. And there might exist scenarios inwhich blocking access to certain sites makessense for network operators. They may wantto block access to certain controversial web-sites that contain material some subscribersmight find objectionable, or they may want toblock sites simply to avoid running the ads of a leading competitor.Consumers will consider some restric-tions, such as a prohibition on the release of  viruses on a broadband network, trivial andentirely acceptable. Other restrictions, suchas a restriction on access to the website of a competitor or a specific advertiser, will beconsidered an intolerable restraint by many.But the important question here is whetherany of this should be considered illegal dis-crimination and prohibited by law. Must reg-ulators adopt regulations governing theunderlying infrastructure of broadband net-works or the overall architecture of theInternet to ensure that “openness,” “neutral-ity,” and the “end-to-end” character of theInternet are preserved? And what would theimpact of such regulations be in terms of theeconomic incentives for current and futurebroadband operators to innovate and investin expensive new networks? Do the property rights of network owners come into play here? Do high-tech network operators evenhave property rights in this case?Those are complicated questions thatdeserve extensive exploration before policy-makers rush to adopt supposedly simple Netneutrality regulatory guidelines. In the end,the real question in this debate can be simply stated: Who decides? That is, who will call theshots—the network owners or someone else—when it comes to questions about the use of digital infrastructure in the Information Age?For the reasons outlined below, it wouldbe wise for policymakers to allow the entitiesthat own and operate broadband networksthe freedom to experiment with various busi-ness models to better serve consumers. Thealternative of preemptive, prophylactic gov-ernment regulation has far too many down-sides. Discrimination in this context isremarkably difficult to define and open tomuch subjective wrangling. Disputes overwhat constitutes discrimination will lead toendless regulatory proceedings and open thedoor to a great deal of mischief by companiesor organizations that feel they should havegreater say over how broadband networks areoperated, either in a good-faith effort toimprove the operation of those networks orin a more self-centered effort to “game” theregulatory system to their own advantage.Net neutrality regulation also flouts theproperty rights BSPs possess in the infrastruc-ture they own and operate. Worse yet, by ignoring property rights and opening thedoor to increased regulatory meddling, Netneutrality regulation threatens to retard inno- vation and investment in new broadbandfacilities. Instead of being so preoccupied withmaximizing consumer welfare within the con-fines of existing systems, proponents of Netneutrality—especially the impressive list of well-heeled companies that are part of CBUI—need to put more thought and energy into thequestion of how the networks of the future aregoing to be funded and built. The principlethat CBUI members seem to ignore is that
competition in the creation of networks is as impor-tant as competition in the goods and services that get  sold over existing networks
.Finally, proponents of Net neutrality alsotend to ignore the fact that network capacity use and the profit motive will provide very powerful checks on overly restrictive carrieractivities. Carriers make money only by carry-ing more traffic. “Capacity utilization” is oneof the most important concepts in the net-working business. A broadband networkwithout subscribers is like a plane withempty seats: a recipe for financial disaster.BSPs will
not 
want to restrict traffic flows orencumber Net-surfing activities for fear of diminished capacity use as frustrated con-sumers “consume” less of those networks, orleave the network altogether. That is why cable operators do not configure their set-topboxes to meddle with consumer access to tra-
3
Who will callthe shots—thenetwork ownersor someone else—when it comes toquestions aboutthe use of digitalinfrastructure inthe InformationAge?
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