California is the world’s 8th largest economy and fueled in large part by Internet companies. On the surface, it seemed that the FCC’s recent “Open Internet” proclamation would benefit innovation, but a review of the 300 pages of rules shows that their impact is something quite different than was intended. The California companies that supported these rules thought they would apply to other industries, but it turns out these regulations will likely fall on the Internet companies themselves.

By applying the regulatory provisions of the telephone monopoly to the Internet, the rules effectively create new regulations on privacy, security, and taxation.  The FCC has rewritten the communications laws by substituting the term switched internet protocol (IP) network for what was the telephone network.  When people say they support an Open Internet, this is not what they have in mind nor was it what the FCC said it would do when it asked for comments. 

Despite numerous documented examples of groupthink and overt or ‘subtle’ pressure by many of Silicon Valley’s greatest minds, support for utility regulation of the Internet is far from unanimous. Many of the business-minded entrepreneurs and investors that are on the constant mission to innovate see the inevitable collateral damage that these rules will have not just on our technology community, but on American Internet users everywhere.

The rules from the FCC usher in complex new silos, undoing a previously flat environment by inventing artificial distinctions between content companies, Internet providers and end users for the purposes of regulation. History shows this will harm the market. Big businesses in the Internet economy may withstand the new costs of doing business in a highly regulated environment – from lawyers to lobbyists to compliance directors – but the entrepreneurs and small businesses that have made the Internet the dynamic environment it is today may not be so lucky. Ironically, these are the same businesses the FCC says it wants to protect.

For the investors and business minds fueling new and innovative products and service offerings, devoting resources to the influence industry, expending time on compliance rather than customer satisfaction, or forgoing profits to offset inevitable cost hikes may be too much to bear. As a result, these oft-forgotten bedrocks to the Internet economy will pick up and leave, focusing on other industries while the Internet goes the way of the telephone – stagnant, anti-competitive, and costly.

The Internet has grown to where it is today without a regulatory straightjacket and through rather unanimous bipartisan policy in Washington D.C.  Regulating the Internet like a utility telephone network represents a dramatic paradigm shift from what was arguably one of the greatest policy decisions of our time. Democrats and Republicans, including elected leaders in California, must come together to re-establish the Internet as a nimble, lightly regulated service. This can be done while still giving consumers and policymakers alike the consumer protections they desire and deserve.

Having been the CIO and a consultant to a number of technology companies and a county in California, I can attest that the goal is not a state of non-regulation, but rather light, smart, and right regulation. As for the Internet today, there is nothing broken that needs fixing. The FCC’s approach violates the first principle of regulation: Do No Harm.

Lee Jones is a Consulting Professor at the Silicon Valley Innovation School.