OPINION
How to Solve the Net Neutrality Issue

The Federal Communications Commission (FCC) recently voted to move forward on a rule-making process that could lead to new government regulations for the Internet. That is what the FCC and some activist groups want, although they claim to be supporting only "neutrality." Even key players seem confused.

The Open Internet Coalition (OIC) says neutrality "is about keeping the hands of several powerful network operators -- AT&T (NYSE: T), Verizon and Comcast (Nasdaq: CMCSK) -- off the Internet, preventing them from taking steps to change the basic open nature of the Net that has led to its success."

That's a strange statement, given that without those companies, the Internet wouldn't function. Yet, restricting these communications firms sounds good to most Silicon Valley investors and CEOs, since they view them with suspicion as old companies, averse to change and detrimental to the growth of the Net.

No wonder, then, that a bunch of prominent venture capitalists and tech CEOs signed OIC letters last week urging the FCC to protect the "open nature" of the Net.

After all, who could possibly be against an open Internet? Unfortunately, asking the FCC to "protect" the Internet means inviting government oversight, which injects more politics -- not less -- into the operation of the Net.

FCC to Set Prices?

Tim Draper, one of Silicon Valley's prominent venture capitalists, said he signed the OIC letter because he is worried that the phone companies want to "muscle in and create some sort of monopoly" over the Internet. He and others are concerned that if they don't stand up, then the Internet will become captured by special interests that lobby government for favors. However, when asked if the phone companies are a greater threat than government regulation, Draper responded with a strong "no."

"I hope that they (government regulators) leave it alone," Draper said. "The Internet is working beautifully as it is."

Many in Silicon Valley share that view, yet the Open Internet Coalition has something else in mind.

Its Web site claims Net neutrality would "give regulators a limited role to protect the openness of a national network," and it laments the 2005 Supreme Court ruling that struck down a decision forcing cable companies to share their networks with competitors at government-approved prices.

In other words, the OIC wants the FCC not only to become a watchdog, but also possibly to get involved in managing and pricing Internet services.

Anyone who has followed how well the FCC "managed competition" in telecommunications gasps with horror at the thought that a similar fate might await the Net. Indeed, even the left-leaning Electronic Frontier Foundation is worried about the FCC's move toward Net neutrality regulations since, as EFF staff attorney Corynne McSherry correctly argues, "experience shows that the FCC is particularly vulnerable to regulatory capture and has a history of ignoring grassroots public opinion."

Hope Is Not Enough

Ashwin Navin, cofounder of BitTorrent, also says he doesn't support government regulation of the Net, even though his name appears on an OIC letter. He says he'd rather see Internet service providers come up with a self-regulatory plan based on a pledge to keep the Net open and the creation of a third body to arbitrate. Indeed, Navin says that his own company's scuffle with Comcast was ultimately solved without formal rules after a netizen noticed that Comcast was degrading service and brought the matter to the public's attention.

"The problem is disclosure," Navin says. "Consumers need to know if the ISP, which is the most invisible layer in the stack, is responsible for an improved or degraded experience for any of the services they use."

That is a very good point -- one that the telcos and cable companies would be silly to ignore.

Tim Draper is right that the Internet is working beautifully as it is. However, experience teaches that it's not enough to hope government regulators will leave it alone. If the tech industry and the major ISPs want to avoid government regulation and keep the Internet thriving, they need to come up with a way to solve the disclosure problem on their own in the marketplace.

Verizon has already started taking steps toward a more constructive stance by co-signing a letter with Google (Nasdaq: GOOG) supporting an open Internet. Now it is time for all companies involved to take it to the next level. If that happens, U.S. innovators will be much safer from the claims of militant rent-seeking activists and regulators who want to get their hands on the Net.

The creation of TRUSTe helped the tech industry mobilize and avoid heavy-handed privacy regulations like those that befell Europe. Now it is time for ISPs to support an independent, private body to monitor neutrality issues. Such a move would deflate the pro-regulation lobby and allay the concerns of the industry that is driving U.S. growth.