Thank Goodness Apple's iPhone Violated 'Net Neutrality' in 2007

Thank Goodness Apple's iPhone Violated 'Net Neutrality' in 2007
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Ten years ago this week the Apple iPhone, described by Steve Jobs as a “revolutionary product” that “changes everything,” went on sale for the first time. A million flew off the shelves in just ten weeks and a decade later—with more than a billion sold worldwide—the iPhone has transformed the way we live, work and do business.

But even as the fanboys and girls were camping out to be at the front of the line, harsh critics queued. Columbia law professor Tim Wu denounced the iPhone as “anticompetitive.” Nested exclusively with AT&T and lurking in a “walled garden,” the iPhone rollout violated “network neutrality,” a term coined by Mr. Wu to describe his preferred platform for fixed and wireless communications.

With Apple imposing its verticals and masterminding the user experience, it extended the carriers’ practice, Mr. Wu argued, of “aggressively controlling product design and innovation in the equipment and application markets, to the detriment of consumers.” Once “Big Brother's foe,” Apple, he said when the iPhone was launched, is “now more like Little Brother, happy to sell cute little devices that are easy to use, make money, and spread false consciousness.” By March 2008, tech writer Timothy Lee applied the lesson, proclaiming: “Apple's walled garden will hurt iPhone innovation.”

Alas, Apple thoroughly vanquished the Old Guard.  The fearsome mobile networks became Apple’s house pets, with iPhones everywhere and profits flowing to both Apple and the independent app developers it sponsored on its “non-neutral” platform. All while Nokia, Motorola, Palm and Blackberry—proud producers of the “dominant” smartphones of 2006—were left as smoking craters.

But did this spell the end of progress? No. The disruptive shift in technology flashed brilliantly, but Google was not blinded. The owner of the world’s greatest search engine became a wireless powerhouse by proxy, introducing Android mobile operating system software and licensing it, without charge, to device makers far and wide. It was a jujitsu move, adopting Apple’s vision but angling it with distinct thrust. While Google embeds its most lucrative apps within Android, it maintains a more laissez-faire attitude with users, developers and device makers.

Competition expanded the market. Consumers and developers chose the platform they liked best. Innovation beyond the wildest forecasts emerged.

This conflicts with the “net neutrality” vision. Apple designs and curates a vast ecosystem. Both iTunes and the App Store are hardwired, so to speak, onto the iPhone (and iPad, of which some 400 million have been sold since its introduction in 2010). Apple users feel the vertical thrill. They are notorious bandwidth hogs, spending more time online, downloading more bits, than others. By 2017, over 140 billion downloads had flown out of the Apple App Store.

Google Play, with about half as many, has achieved a great platform of its own. Rival firms, competing ecosystems, different rules, and alternative strategies. This is what open economies invite. But the “net neutrality” idea imposes a different structure, one that posits a universal fear of “vertical foreclosure” and imposes blanket prohibitions to avert the predicted danger.  

Not only does the proffered policy short the existence of antitrust law, which exists to counter anticompetitive conduct via consideration of costs and benefits, but it succeeds in a foreclosure of its own. If Mr. Wu’s warnings about the iPhone model had been heeded by policy makers, the true revolutionaries might not have stormed the palace gates. The attempt to protect consumers would have pre-empted what The Atlantic called the “defining consumer item of its age.”

AOL was a disruptive innovator in the 1990s, bringing the mass market Internet to the people.  But AOL was not a common carrier; if ISPs had been required to be such, said the FCC soon after, the benefits it brought would likely have been squelched. Like Apple, AOL offered a walled garden. “Open access” champions, as “net neutrality” denizens today, objected fiercely. In the end, AOL gave up its garden and opened its walls. Soon, it was being crushed by broadband and wireless—succeeding waves of creative destruction. But its foray had been hugely advantageous for society, dramatically expanding the reach of networks.

Sometimes a “walled garden can turn into a rainforest,” as Steven Johnson noted of Apple, and sometimes it just ends up road kill. But imposing the visions of policy makers over those of Steve Jobs is probably not the best way to distinguish them.

 

Thomas Hazlett is the H.H. Macaulay Endowed Professor of Economics at Clemson University. His book, The Political Spectrum: The Tumultuous Liberation of of Wireless Technology, from Herbert Hoover to the Smartphone, was published by Yale University Press on May 23. 

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