Tuesday, August 10, 2010

VerGoogle's Plan to Lochnerize the Internet

Frank Pasquale

There has been a lot of insightful commentary on the new Verizon/Google framework proposal; Marvin Ammori's post is a good place to start. Here are my "two cents" on the larger implications of this move from business cooperation to lobbying alliance.

1) The companies' CEOs have stated that, in their view, "A provider that offers a broadband Internet access service complying with [basic net neutrality] principles" should be able to "offer any other additional or differentiated services" free of net neutrality regulation. The key question here is the quality and cost of the "broadband Internet access service complying with [net neutrality] principles," as compared with the "additional services" that can be offered without net neutrality. In the best case scenario, most people use the compliant service for most traffic, and run "additional services" on top of it in order to access special content/apps. Unfortunately, I think it's far more likely that the net-neutrality-compliant service will gradually decline in quality, so that it's vestigial (like public broadcasting) or a poor program for poor people (ala Medicaid).

2) Whatever the details of this proposal, I believe that carrier/search engine business alliances will proliferate in the future. The more ISPs like Verizon can characterize what they do as "search like," involving technical genius and editorial discretion, the better a chance they have at evading utility-style regulation. Search is basically a "no man's land" regulatorily. Just as key actors in the finance sector engaged in regulatory arbitrage to make their "innovative financial products" not merely unregulable but also unmonitorable, the big ISPs are likely to do the same by recharacterizing their services as "search like." This affords them three big advantages:

a) More extensive trade secrecy: The same obstacles to holding Google accountable (including trade secret protection for its ordering algorithms) may also interfere with network neutrality regulation. As Jonathan Zittrain noted in the NYT yesterday, the details of "'peer arrangements in which I.S.P.s agreed to carry each other’s traffic . . . are typically trade secrets." Like search engines, carriers face an information overload problem, with spam, viruses, and high-demand applications threatening to overwhelm their networks. In the long run, they are likely to make key network-management practices as confidential as search engine rankings. Even many broadband penetration stats are now trade secrets (see B.W. Cramer, The Secrecy of FCC Broadband Infrastructure Statistics, 31 Hastings Comm. & Ent L.J. 339, 340, 347 (2009)).

The larger business/PR strategy here is to make carriers look as inventive and innovative as search engines do, so that they also face very little regulation, and get excused for doing things secretly. The more ISP's and carriers integrate services, the more convincing this characterization becomes. I talked about early moves in this direction here.

b) First Amendment protections: Search engines claim that their results are like the output of media organizations, and therefore deserve First Amendment protection. They've won several cases on this basis. Expect to hear more of this argument from carriers as they fold search technologies into their network management practices. If this line of argument succeeds, the net will basically get Lochnerized, and we'll be biding our time till some FDR of the 2030s can scare the Supreme Court into acting more reasonably. If you thought Citizens United was scary, just wait until Justice Roberts gets to wax eloquent on the need to free our corporate John Peter Zengers to speak truth to power (or power to truth--whatever works).

c) Selling user secrets for cash: For years ISPs have grumbled that they were unable to monetize user data to the extent Google can. Again, by basking in the brand appeal and goodwill of Google, Verizon will move closer toward the status it needs to start capitalizing on this data stream.

3) So that's one look at the road ahead: vertical integration of the physical, app, social, and content layers of the internet, driven by the regulatory arbitrage opportunities pioneered by search engines in their dual assertion of trade secrecy (to prevent scrutiny of their ranking practices) and First Amendment protection (to deflect any efforts to regulate the results they provide). Expect internet behemoths to buttress their tradde secrecy claims with national security/cyberwar rationales for state secrecy, too. Both the warrantless wiretapping controversy and the Google/NSA response to Chinese hacking presage the increasing integration of the internet sector with Top Secret America.

4) We've seen this regulatory arbitrage story before in the financial sector: think of the opaque dealmaking that sunk big banks, and the rating agencies' First Amendment immunity from liability for utterly conflicted assessments of mortgage-backed securities. The dual assertion of trade secrecy and First Amendment protection may be a cornerstone of crony capitalism for years to come.

Whatever transpires from the present VerGoogle alliance, we are likely to see increasing integration of internet service and search in coming years. That will raise some difficult questions about the very possibility of democratic accountability for internet regulation and governance. The net may soon be as much of a "black box" as the iPhone, Enron, or the NSA.

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