Net neutrality: Obama's FCC puts Internet, American innovation at risk

The Federal Communications Commission (FCC) released its disastrous new network neutrality rules earlier this month, officially signaling to the world that the U.S. will adopt a policy destined to stifle technological advancement and put network investment into neutral.

By heeding President Obama's call to make the Internet a government-regulated public utility, the FCC has adopted a system equipped to regulate public utilities and monopolies, not the dynamic and fast paced Internet economy.

Worst still, it is doing so under a guise to impose price regulation on the Internet and grant unfair advantages for Silicon Valley companies like Netflix and Google which account for nearly half of all U.S. Internet traffic.

At such an important time for this industry, now is not the time to stall investment -- something this ruling is bound to do. For a prosperous future of high-speed Internet services, it needs to go full speed ahead.

Put simply, this brand of rigid net neutrality would bring to a screeching halt a trillion-dollar program of network expansion and upgrades marked by the move to cloud computing.

As Peter Thiel's masterly new book "Zero-to-One" demonstrates, every real innovation creates a monopoly. The Internet is a multifarious engine of real innovations, launching new and transitory monopolies with every new phase of its tumultuous growth. An unnecessary effort to suppress every monopoly would bring all this innovation to a halt.

How the Internet functions -- from business deals with consumers to business deals with peers in the Internet ecosystem -- is no legal problem; it is a technical and financial challenge that will be met not with mandates but with profits. By disallowing companies the ability to negotiate business arrangements on their own terms -- something needed but prohibited by utility-style regulations -- the FCC has put forth network neutrality price caps and controls destined to produce a static, zero-sum Internet. Such an environment will actually result in the conditions of zero-sum scarcity and oligarchy that network neutrality seeks to remedy.

A crucial enabler for the funds being raised for the current transition has been the FCC's treatment of new technology as a new frontier that should not be burdened by legacy regulation.

Investors have acted on the assurance that regulators would refrain from imposing on the Internet the anti-investment regime of utility-style laws, with its mazes of rules and tariffs.

The core of the FCC's new rules is to regulate monopolies and it is riddled with onerous regulations like price controls, tariffs and provisions that require a company to seek permission to offer or discontinue services. Yet the Internet's existing regulation-lite "information services" classification has freed Internet traffic to flow across an un-tariffed set of dynamically advancing global webs, rather than a U.N.-regulated telecommunications carrier.

The Telecom Act of 1996 followed 60 years of suffocating regulation that led to somnolent telecom service with virtually no innovation beyond the invention in 1959 of the many-colored Princess phone. This archaic regime still requires telecommunication companies to spend half their working capital maintaining obsolete legacy copper landlines.

Unbeknownst to many, network neutrality can shift Internet progress and control to nations outside the U.S. At a moment of critical transition for all world networks, the U.S. administration is joining global critics of U.S. Internet influence: our content and search providers, our datacenter leviathans, our global net address and domain name registrars, our fiber optic worldwide webs.

As a public utility telecom, the Internet would fall under the sway of U.N.-administered treaties and agreements, as specified by the constitution of the International Telecom Union (ITU).

Subjecting the Internet to this style of utility regulation sends a strong signal to the rest of the world -- including nations like China and Russia seeking greater control of the Internet -- that more regulation of the Internet is a wise path.

But what happens in Washington does not stay in Washington. Power-hungry, anti-American governments are deeply suspicious of the clout and coverage of U.S. Internet players such as Google and Apple. Russia and China have been urging the international community for stronger regulations on the Internet pushing for things like Internet censorship among others. Does the U.S. administration really want to join them?

Taxing and regulating the Internet like it was 1934 would be the surest way to stifle investment and innovation, turn increasing bandwidth abundance into bandwidth scarcity and nullify the Internet's contribution to U.S. economic growth and world leadership. The FCC has chosen the wrong path.