When it comes to the issue of Net neutrality--or what my PFF colleagues more appropriately call "Net neutering"--it seems like a lot of people are forgetting the old lesson that there is no such thing as a free lunch in this world. The latest example of this is summarized in this Reuter's article discussing the possibility of the financial sector potentially gearing up to jump into the "Capitol Hill fight over the future of the Internet [to] stop an effort it says could add billions in costs just to maintain current offerings."
The article mentions that Washington lawyer Philip Corwin, a partner at the law firm Butera & Andrews, has been circulating a memo to financial services industry officials warning that "Net neutrality is an issue that (financial services) firms ignore at their peril" because it would supposedly give Internet service providers a green light to impose big new fees on financial companies. Corwin says "all will suffer" and that today's ISPs will become "gatekeepers" and an "electronic post office." To counter this supposed parade of horribles, the Corwin memo counsels that the financial services sector should immediately push legislation in the House and Senate committees they regularly deal with that would assure the continuation of flat high-speed Internet pricing for online financial services.
What we're talking about here, of course, is price controls for the Internet. Corwin's memo and recent editorial in The American Banker both confirm what I've long suspected: that the entire Net neutering debate is really a debate about pricing freedom. And now, the financial services industry--one of the pillars of the American capitalist system--is apparently thinking about taking this freedom away from another corporate sector to advantage itself.
While no financial services provider has jumped on this 'price-controls-for-the-Net' bandwagon yet, it sounds like Corwin's apocalyptic memo has at least tickled their interest. The Free Press website reports that American Bankers Association (ABA) has received a copy of Corwin's memo along with several other top lobbyists for HSBC, ETrade Financial, AmSouth Bank, UBS Americas and Citigroup. Free Press reports that ABA spokeswoman Laura Fisher said her group has not yet decided whether to seek changes to the House Commerce net-neutrality language but that, "We think net neutrality is a good idea, and we're following the issue. Because so many people use online banking, the future of the Internet is important to bankers."
The future of the Internet is indeed important to bankers and countless other companies and consumers in our new Digital Economy; too important, in fact, to be burdened with price controls and command-and-control government regulation. Let me offer just a few reasons why the financial services industry should resist the urge to join the "Hands All Over the Net," pro-regulation, Net neutering crowd.
First, banks and financial institutions, more than almost anyone else in our modern economy, need the reliable, secure, fast services that only advanced broadband networks can provide. Such networks won't surface in an environment riddled with heavy-handed government regulation and price controls. The Net neutrality debate is really all about the forced commoditization of broadband networks. This is why we here at PFF refer to this policy as "Net neutering;" if all networks are relegated to being just dumb pipes, it destroys the incentive for carriers to create far more sophisticated, robust and reliable networks. Again, those are precisely the sort of networks that financial services providers need to ensure that they can conduct their business properly in the future.
Second, I just have to point out the sheer irony of the financial services industry considering joining forces with a those who rallying under the "network non-discrimination" banner on this issue. For many decades, banks have had to fight off charges of "discriminatory" practices (especially in terms of lending). And now they might be considering using the same regulatory playbook that was used against them against another sector of the economy. If they choose to go that route it will be rank hypocrisy of the absolute highest order.
Moreover, I don't think I need to remind the financial services industry that they too possess vast and quite sophisticated data networks of their own. Consider the ATM networks that millions of us come into contact with on a daily basis. Financial firms operate those networks largely free of meddlesome government regulation. Several years ago, however, when ATMs first started popping up on street corners across America, there were calls to regulate the way they operated in terms of (a) how they interconnected with other financial institutions; and (b) how much the service charge should be per transaction. The industry fought back with a vengeance to avoid a host of new regulations or price controls on their networks and service offerings. Geez guys... do you not see any parallels between your experience then and the fight going on over the Internet services today?!
Finally, let's not forget, broadband providers need financial services companies as much as they need them. After all, who helped finance the $100 billion cable plant upgrade over the past decade? And who is currently lending the telcos the tens of billions they need to finance their new fiber optic networks? So there's a mutual dependence at work here and the broadband providers aren't going to do anything stupid to antagonize the people they rely on for their money!
In sum, the financial services industry needs to step back and take a calm, rational and principled look at this situation. They are being fed a lot of cock-and-bull, Chicken Little stories about how the future of their industry is at stake because another network industry might have the freedom to price broadband services according to market demand. Why in the world should broadband network providers, who have invested billions to create those networks, be denied such pricing freedom?
And if all this comes to pass, and Net neutering regulations are put on the books, the financial services industry better not start moaning in the future about a lack of sophisticated data links they need. And they certainly will have no right to complain when the proponents of Net neutering mandates turn their knives on their sector and demand similar regulations be imposed on financial service systems or networks.