California chases away citizens, startups, and, perhaps, the internet industry it invented

BY BRET SWANSON

Between July 2018 and July 2020, California lost around 339,000 people to net out-migration. In the last nine months, that trend may even have accelerated. By one estimate, San Francisco alone now has 15.85 million square feet of vacant office space, equivalent to 11.7 empty Salesforce Towers.

Thousands of middle-class Californians are fleeing to Mountain States while scores of entrepreneurs, startups, venture firms, and large tech and financial firms are racing to new homes in Texas and Florida. Elon Musk, Joe Rogan, Oracle, Hewlett-Packard, and Charles Schwab Inc. have had enough. They all launched wildly successful enterprises in California — some many decades ago, others more recently — but the state has now chased them away.

Exemplary of this urge to strangle the golden goose is another California policy mistake: the imposition of its own net neutrality law in contravention of the successful American internet strategy.

The US has long governed the internet not as an old telephone network but as an “information service.” It’s a policy that has resulted in the world’s fastest, most extensive wired and wireless networks; the most widely used consumer and business apps and services; and, of course, the most successful software, web, social, and computer companies in the universe, mostly headquartered in . . . California.

So naturally, when the Federal Communications Commission (FCC) reaffirmed the longstanding US policy in 2017 (after a brief blip in 2015–16), California rushed in to rescue its citizens from the calamity of an explosively successful internet economy. In 2018, California enacted SB 822 to impose within the state an even more severe version of the expansive rules the FCC had attempted in 2015.

At the time, all the broadband and mobile firms, along with the Donald Trump administration’s Department of Justice, filed for an immediate injunction. They argued SB 822 flouts US policy in an arena of undeniably interstate commerce. The US District Court for the Eastern District of California denied the injunction, and in February the Joe Biden administration dropped the suit on behalf of the US — in a possible nod to its attempted reimposition of heavy internet regulation. So now, the broadband and mobile firms have appealed to the US Court of Appeals for the Ninth Circuit.

SB 822 regulates broadband and mobile as old monopoly telephone services, which could lead to price regulation and imposes the nice-sounding no-blocking, no-throttling, no–paid prioritization, and vague nondiscrimination rules of the short-lived 2015 vintage. (The 2017 rule now in force, by contrast, relies on transparency to achieve healthy outcomes, requiring internet service providers to disclose prices, speeds, and network management practices so consumers can make informed choices.)

But SB 822 goes even further. It also bans two types of zero-rating, or “free data.” Zero-rating is a common practice in which a mobile carrier, say, gives away data to consumers who use a particular app or service, and the app or service provider picks up the tab. It’s usually a win-win for consumers and content providers alike, and even the Barack Obama FCC said zero-rating is often consumer welfare enhancing and refused to ban the practice.

Where to begin? The internet is the ultimate form of interstate commerce both in its physical network architecture and its boundless web of software, data, and commerce. Does California think it can block wireless signals originating across the border in Nevada? Or weed out bits originating in, or users visiting from, Wichita? (Wait, let’s not give Sacramento any ideas.)

Seriously, the networks, data, and business arrangements of the internet are so intermingled and interdependent that it would be impossible to let each state govern these arrangements. The conflicts would be endless: a recipe for chaos and paralysis.

Moreover, what’s the point? We all want a “free and open” internet, to repeat the laudable abstract goal of the original net neutrality activists. To most internet consumers, however, it probably seems California is targeting the wrong gatekeepers.

The California policy would only prohibit non-existing blocking and throttling on physical networks — where it cannot cite any actual harms. Yet it would not prohibit manifest blocking and throttling of content on virtual networks such as YouTube, Facebook, and Twitter, where the world’s largest information platforms can malign and erase legitimate views on topics of national and global import.

So it looks like California is not only banning a phantom menace and ignoring a real one — and ignoring the technical realities of a complex, borderless network — but also is on the wrong side of several straightforward legal matters of federal supremacy.

The law is well argued in several legal briefs, which you can find here, here, here, and here.