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Monday, November 3, 2008

Tech Policy Trick or Treat
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The day before Halloween was slated for a long-awaited "Technology Policy Smackdown" between the McCain and Obama camps. The event was hosted by the New America Foundation in recognition of the fact that although connectivity and technology are a pervasive part of our economy, these issues had been generally overlooked in the (seemingly endless) 2008 presidential campaign. Like many other Washington policy wonks, I headed over to NAF to see it for myself (and partake of the very tasty "free lunch" provided). Unfortunately, as has been widely noted, Douglas Holz-Eakin, Chief Economic Advisor to the McCain campaign had to cancel at the last minute and the campaign was unable to provide a substitute. An early Halloween trick? The absence of a McCain representative turned the putative debate into a forum for one of Senator Obama's technology policy advisers, former FCC Chairman Reed Hundt, to present an uninterrupted picture of how technology policy might proceed under an Obama administration. There were many unexpected treats.

It is well known that Senator Obama's technology policy includes support for "network neutrality" as a means to "protect the openness of the Internet." As stated in the candidate's technology plan:

Barack Obama strongly supports the principle of network neutrality to preserve the benefits of open competition on the Internet.

Event moderator, Nicholas Thompson, Senior Editor, WIRED Magazine, described net neutrality as the "third rail" of tech policy. He asked Hundt whether broadband network providers should be required to treat every packet equally. What was most interesting about Hundt's response to the question is how he framed it. After joking that the short answer on net neutrality is: "I'm for it; Doug's against it," Hundt continued by saying: "Let me start with the reality-based observation that somebody has to pay for these networks" and that for the most part, these networks ought to be run on a "for-profit basis." Hundt then stated: "We are not about to nationalize broadband networks."

Not wanting to "nationalize" broadband networks is an interesting way to phrase the candidate's tech policy, and one that is nearly identical to a statement made by another Obama campaign representative, Larry Irving, former Administrator of NTIA, at a similar event earlier that same morning. Irving reportedly reiterated Senator Obama's support for the net neutrality principles, "making sure that the Internet is open, available and accessible by any person," and stated: "No one wants to nationalize the Internet." Irving is also reported to have said that Democrats don't want to regulate the Internet in a way that discourages investment in new technologies, while indicating that net neutrality rules may be necessary. Thus both campaign representations made clear the candidate's support for net neutrality principles, while stressing the need to refrain from regulating in a manner that suppresses investment.

In fact, Hundt's answer to nearly every question eventually included a statement of the paramount need to get investment flowing to upgrade broadband networks for the next generation of service in order to move past the current financial crisis and get the economy as a whole going again. Hundt made clear several times the overwhelming preference for broadband to be provided for profit in a competitive environment and the pressing need for significant capital investment by all sectors of the broadband industry in the next generation of network technology. In Hundt's words, we want "wave after wave" of technology innovation which will take "wave after wave" of capital investment, none of which will occur if the investment cannot be made with the prospect of returns. Hundt cited estimates he had heard indicating that the cable industry would need to spend about $15 billion to upgrade to the next generation of broadband, and that comparably large amounts would be needed by Verizon for its FiOS network and by joint ventures such as New Clearwire. He linked this need for investment to the harsh reality of today's severly frozen debt markets and observed that no one is investing in "anything big" in the United States today in any sector.

If we solve this financial crisis in an aggressive manner, and incentivize investment in networks, then increased network capacity and competition will overcome most net neutrality issues -- in Hundt's words, they will become "easy to solve." Specifically, the problem of the extreme "bandwidth hog" is the easy case to solve -- that person will not have the government step in and say "we'll subsidize you." And the hard case? The hard case will be "incentivizing this wave of investment" in telecommunications, an investment that is needed to help return the larger economy to health. In short, increased competition and capacity should solve most of the ills for which the "cure" of net neutrality regulation has been prescribed.

It was only in the context of a follow-up "what if" question -- what if we don't get that investment and have only a few providers -- that Hundt's response included reference to a need for a regulatory mandate about net neutrality. In Hundt's view, that mandate need not include legislation because he believes the FCC has the authority to adopt net neutrality rules if it so chooses. It is unclear exactly which powers of the FCC Hundt was referring to, but if this was a reference to the agency's "ancillary jurisdiction" to regulate matters not expressly delegated to it by Congress, reasonable minds may differ. Hundt also failed to elaborate on the nature or scope of the net neutrality "mandate." But more importantly, he immediately stressed that "the main thing" is that if we don't get the capital flowing, we don't have an adequate solution. In other words, job number one is to get the money flowing and get the next generation broadband networks built. Hundt returned to this theme in answer to a question of what should be the correct regulatory framework for fiber-to-the-home networks. After acknowledging that network unbundling, both here and abroad, had earlier introduced intra-modal competition for DSL-based broadband networks, Hundt said that no government has demonstrated a workable answer for fiber networks. Although he acknowledged the need to think about this in an open and collaborative manner, Hundt again used the question to return to the pressing need to get investment flowing to achieve an economic turn-around. In Hundt's view, tech has to be one of the "micro-economies" that thrives in order to achieve a thriving "macro-economy."

If the primacy of the goal of attracting significant network investment described by Mr. Hundt is shared by the candidate, it would be surprising, as some reports have indicated, to find an Obama administration choosing to make net neutrality regulation a priorty. At any rate, it was certainly an unexpected treat to hear such a strong focus on the costs of building next generation networks and the need for those investing huge amounts of capital in these networks to have a reasonable prospect of return on their investments in the context of a discussion about net neutrality. So, treat yourself: listen to Mr. Hundt's complete remarks on these very important issues via MP3 audio file of the event on the NAF website, or watch the video on the "tech for Obama" website.

posted by Barbara Esbin @ 8:43 AM | Communications , Events , Net Neutrality

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