February 5, 2015
Net Neutrality Unfairly Limits Business Models
Jeffrey Dorfman is a professor of applied economics at The University of Georgia where he teaches economic theory and food industry economics and management. His research spans virtually all facets of economics, focusing on empirical policy analysis. He is a regular contributor of opinion columns to Forbes.com and RealClearMarkets.com.
With President Obama’s urging, the Federal Communication Commission (a technically independent government agency) appears nearly ready to issue a set of net neutrality rules that he favors. Many individual internet users and businesses whose business models rely on equal internet access for all are also lobbying the FCC for their preferred solution. However, net neutrality is not as good an idea or as neutral a concept as many people believe. Rather, it is another attempt at government control and enforced equality in a realm where that makes little sense.
Net neutrality seems like a simple concept: the company
that links your computer/tablet/smartphone to the internet should not be able to discriminate among users and providers in the level of connectivity service provided. That is, we should all be able to send and receive the same number of bits of data per second. Another way to think about it is that net neutrality is a like a public highway that everyone has equal access to drive on.
This is a bad idea for the same reason that only having vanilla ice cream for sale is a bad idea: some people want, and are willing to pay for, something different. Forcing a one-size-fits-all solution on the Internet stifles innovation by blocking some companies from turning new ideas or business models into successful products. Innovation drives economic growth, variety increases consumer welfare; net neutrality would reduce both.
President Obama was quoted in his statement saying that “We cannot allow Internet service providers (ISPs) to restrict the best access or to pick winners and losers in the online marketplace for services and ideas.” Yet, enforcing net neutrality is picking winners and losers even if it looks like it is just “leveling the playing field.” Net neutrality would completely block certain business models and stop any possible innovation that might emerge if given the option of seeking differential access to bandwidth.
The key point that President Obama and all the supporters of net neutrality have missed is that ISPs and the companies that control the Internet backbone infrastructure that knits everything together do not have the power to pick winners and losers either. Consumers decide what products and services are successful because we adopt them. If an ISP blocks Netflix because of the bandwidth it requires, consumers who want Netflix will take their business elsewhere. If enough people do so, the ISP will have to change policies or go out of business.
Alternatively, if Netflix wants to pay internet service providers (including the backbone companies) to receive priority delivery of its packets of information, they should be allowed to and it will become Netflix’s problem to charge customers enough to cover that additional business expense. After all, a “non-neutral” internet will charge for better service and if we consumers do not find that worth our money, companies using that business model will fail.
As the former chief economist for the FCC, Thomas Hazlett, pointed out recently in Time, Facebook, Instagram, Twitter, LinkedIn (and many, many more success stories of innovation) all emerged without the benefit of net neutrality. In the time when the government might have been ensuring a level playing field for the Internet pipe into our homes, smartphones and mobile devices completely changed how most people connect to and use the Internet.
The problem with government regulation of the Internet is that by the time the government studies how it works and what is needed, technology has moved on. Who believes that the government can write a regulation that will still fit the bill in three years when none of us know what the dominant formats, companies, and technology will be by then? Given that the FCC has been proposing net neutrality rules for a decade with little success, why would we expect a change anytime soon?
More choices are good for consumers. We benefit from the large variety of cars available for purchase. The fact that most people cannot afford some of those models does not mean they should be removed from sale. Similarly, the fact that some businesses or consumers may choose to pay for better access to the Internet is not a bad thing. Some people pay more to fly first class, but they do not interfere with my travel in coach.
As long as the government enforces the antitrust laws and ensures that consumers can choose among methods and providers for how they connect to the Internet, consumers can pick winners and losers by voting with their time, their eyeballs, and their dollars. No government needed, thank you very much.
The Internet Needs a Network Neutrality Principle
Faith Sparr teaches in the Department of Communication Studies at the University of Michigan. Prior to teaching, she served as in-house counsel for Sprint. Her research includes analysis of the FCC’s regulation of indecency, free speech and public events and public spaces on the Internet.
The nation has been engaging in this network neutrality debate for well over a decade. In that time, interest in the conversation has waxed and waned, but it has reached a fever pitch over the last year or so. The increased attention began last May when the FCC issued its proposed rulemaking on Protecting and Promoting an Open Internet and continued through last summer when John Oliver addressed the issue in a June episode of his Last Week Tonight show. So what is all this fuss about anyway?
One thing that John Oliver got exactly right is that a lot of folks will try to make this issue sound incredibly complicated so that citizens will simply stop paying attention. When citizens stop paying attention that creates a vacuum for other interested parties to write the rules for the Internet. Those interested parties are likely to be large cable and telecommunications companies. But don’t believe it. In reality, the issue isn’t all that complicated.
The basic idea of network neutrality rests on a long-standing Internet principle called the end-to-end principle. Based on this principle, what ends up being transformative about the Internet is what runs on top of it (the content, the applications, etc.) It’s not the fiber optic cables, coaxial cables, or copper wires; it is what resides on the ends of the network that makes the difference. What most proponents of network neutrality would like to see is a rule that prohibits Internet Service Providers (ISPs) (the owners of those cables and wires which reach your home) from discriminating against, blocking, slowing down, or otherwise interfering with the content you are trying to access on the Internet.
Seems simple, right? Well, here is some of what you will hear from network neutrality opponents:
The Internet is fine. Leave it alone. Look how it has blossomed so far without network neutrality.
Again—don’t believe it. The fact is the FCC, through various rulings in the 1980s and 1990s, had been imposing regulations on the transmission side of the Internet up until 2002. In 2002 the FCC reclassified both the transmission side of Internet service and any additional bundled services offered by ISPs as “information services”. The reclassification meant that the FCC’s power in regulating ISPs was greatly diminished. However, soon after the reclassification, the FCC wrote some basic Internet freedoms into policy, and later made those guidelines more permanent in its 2010 Open Internet Order (which Verizon later challenged in court as being beyond the FCC’s invoked authority—Verizon won that suit). The early “freedoms” and subsequent order included language in the general vein of a neutrality principle. In short, the neutrality principle has been much more the rule rather than the exception throughout the Internet’s rapid growth.
This is about consumer choice. If your ISP is blocking or slowing down content you want—find another provider.
This one reminds me of a South Park episode when the adults go down to the cable company and complain that the kids have placed a parental lock on their cable channels. The cable representative tells the adults that if they don’t like the cable company’s policies they can find another cable company—then the rep sarcastically adds, “oh, there’s not another cable company, is there?”. A recent NTIA report shows that 82% of consumers have just one option for reasonably fast broadband service. That’s not what I’d call choice. Not to mention that the so-called choice proponents have been working hard to restrict municipalities from providing high speed wi-fi to their citizens.
But Netflix is a broadband hog and it should pay to deliver content to our customers.
This is an interesting argument; it also depends on how you view what happens when a customer requests Netflix’s (or any other content provider’s) content. Is the customer using the ISPs’ bandwidth or is it the content provider? After all, isn’t this the beauty of the Internet? Netflix comes along and disrupts other companies’ business models (say the cable companies’) and becomes extremely popular in the process. Down the road another streaming service bests Netflix. Do we want our ISP to be the gatekeeper for the next big application or service? If the ISP wants to charge me more because I want faster speeds, fine. This is already the business model. But what I don’t want are deals on the other side of the transmission that I don’t have sight to and which means one website, one application, one service might be loading more quickly and therefore becomes the next “winner” on the Internet stage. Not because that site/app/service is the best, but because it paid the fee to the ISP.
John Oliver was on to something last summer when he noted that if you want to do something “evil” (Oliver’s words) hide it in something boring. So as you hear the words “common carrier”, “Title II”, “forbearance”, “tariff” and the like, keep your eye on the ball. What the Internet will look like in the future depends on it.