Obama's FCC pick: a full-employment act for litigators?

President-elect Obama has chosen Julius Genachowski to head the FCC. Genachowski is widely regarded as smart, capable and experienced. Unfortunately, he also seems to be an advocate for some sort of net neutrality regulation.

This is troublesome for many reasons which I've rattled on about in the past. But let's get specific about why such well-intended regulations will inevitably be a problem.

First, it puts moves the technical structure of the Internet out of the hands of engineers and consumer-accountable companies and into the hands of government. Infrastructure companies can now be sued for technical decisions.

In this litigious country of ours, the merits of a lawsuit are a very small barrier to initiating expensive litigation. This means that, with new, exploitable regulations on the books, we can expect a new flood of lawsuits by those who feel that they should be getting more from their Internet providers (and would accept a nice settlement as compensation). For telecoms lawyers, this is a godsend.

Building infrastructure and acquiring customers now becomes a much riskier proposition -- each new customer or mile of fiber now carries a non-zero threat of a lawsuit. This reduces the overall ROI of building new pipes, thus diminshing new initiatives.

A corollary of this is that companies now must devote more resources to lawyering and lobbying -- moving resources away of building more bandwidth.

Ironcially, this dimishes competition instead of enhancing it. Ask yourself -- who has the means to staff up of lawyers and lobbyists? Certainly not any would-be startup that might compete with the telecoms dinosaurs.

No, it's the dinosaurs themselves who have such means. New regulations thus entrench existing players instead of opening markets.

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A secondary concern of mine is this: Mr. Genachowski comes from Silicon Valley (as I do). Now, this is great for understanding how a certain sector of the tech industry works and where innovation comes from.

But Silicon Valley consists almost entirely of "content" companies -- those that sell web sites and services -- as opposed to infrastructure providers who build the pipes to carry them around the country.

Silicon Valley's support of net neutrality regulation coincides nicely with their bottom line, by effectively inducing price controls on the bandwidth providers.

Students of economics (and the 1970's!) will recognize that price controls diminish investment and cause scarcity. I am sorry to conclude that corporate proponents of neutrality regulation are acting primarily out of self-interest, at the expense of the rest of us.

All signs are that Mr. Genachowski is open to valuing issues on their merits. I hope that he can put his Silicon Valley bias behind him to recognize that we need to build infrastructure, not legal teams.

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