Martin Geddes left a great comment on the entry below that I'd like to promote to primary blog fodder.  (His very good blog is here.)  I'd like to take the chance to talk about internalizing externalities (what did you have for dinner tonight?).  Martin is a very clever guy, and I'm listening carefully to him.  He says:

Where common carriage means "no discrimination between destinations within a service type", it would be reasonable to start charging telcos who don't provide this for rights of way. Rather than compaigning for network neutrality, you can then campaign for a telco tax, which should find plenty of happy takers in Congress -- there's no shortage of public debt to service. In fact, reframing this around "no right-of-way subsidies to telcos" makes a lot more sense than "network neutrality".

I think common carriage means offering service on a nondiscriminatory basis, neutral as to use and user.  If the innkeeper's customer has red hair, he shouldn't charge him more than his blond customers.  These are just bits we're talking about.  Making them into "service type" decides the question up front -- they're not services until the carrier decides to call them that.  And it also seems to me that if the second customer speaks more quickly than the first customer (because he's done the equivalent of hiring Akamai or some other private middleman to help him out), the innkeeper also shouldn't discriminate. 

But discriminating between classes of application (or even specific applications) is a different think. Lumping it into "common carriage" doesn't make sense to me.

It does to me.  Martin continues:

And if they want to price discriminate between them, what's the big problem with sending out "Monopoly rents over here -- come and get it!" price signals? Why pass laws that entrench the status quo forever by undermining the scope of possible competing business models that may rely on such application price discrimination?

Ah, but in the U.S. we just don't have competition for broadband access.  Americans don't have real choices in this area, and the upfront costs of starting an alternate national network are too high for anyone to do it realistically (unless Sascha Meinrath has his way and we all start forming ad hoc local networks right and left).  Monopoly rents won't be an occasion for competition to arrive -- monopoly rents will just be monopoly rents.  And we'll all be paying them.

And what if your assumptions on how networks are run and finances slowly become obsolete, just as the definitions of the '96 Telecom Act became? (Think of how different Skype Zones are from traditional network payment methods, for example -- should this be illegal? I don't think so.)

Aha.  This is where we get to the internalizing externalities point.  Telcos want to be sure to be able to monetize their networks by discriminating in favor of particular services and applications, and claim that if they do that they'll have incentives to build more broadband in the U.S.  In other words, they want to internalize the externalities created by these networks. But the network neutrality side of things doesn't think this makes sense.

The theory behind internalizing externalities (or spillovers), is that if property owners are both fully liable for third party costs (the burdens their property creates, like pollution) and entitled to appropriate all the benefits of their property, their interests will magically align with those of society, and they'll make efficient decisions.  They'll have all of our best interests at heart, and their private welfare will line up with general social welfare.  If you believe this theory, you think that spillovers (values that aren't captured by property owners) are bad because they get in the way of these optimal decisions.  These un-appropriated spillovers won't give enough signals of what consumers want.  (There's a recent paper called Spillovers by Lemley and Frischmann that explains this in a very clear way.)

But, in fact, spillovers can be good!  Route 128 failed and Silicon Valley succeeded, because the Valley allowed things to move around and allowed other people to make value out of initial innovations.  There are lots of social values created by internet use that aren't adequately "paid for" by individual internet subscribers, and aren't appropriately appropriated by network owners.  Innovation is one of those positive spillovers that we don't want to allow a single property owner to own forever, because the second innovator might do a better job with the idea.  Same thing online -- the network owners shouldn't necessarily be allowed to internalize all of these externalities, because we can't assume that optimal social values will be the result.  Rewarding a single innovator isn't always the best thing to do.

This is a long way of saying that I disagree with Martin.  I don't think it should matter how Skype makes money.  I do think that transport -- the substrate, the common carrier -- should be treated differently than the layers above, because we don't have competition for transport.  So our costs are high and our speeds are low.

The idea that the telcos have zero competition (where there's no cable, for example) isn't true, because there's always (at a price) the option for users to collectively revolt and built their own access network. The proposed neutrality regulations are a tonic that soothes the pain of monopoly and ensures that the level of local political outrage never reaches a critical action threshold.

Don't throw me into the neutrality patch, Mr Fox!

I do think these guys have zero competition (or only gentle competition) because the upfront costs of an alternate network are insuperable.  I do think there's a risk of creating a "neutrality patch" that is a comfortable humid swampy environment for these monopolists, and that's why I'd rather treat them like any other utility.  Like a pipe.