T
o date, the lack of measurable anticompetitive behavior from Internet Service Providers (ISPs) is no accident. Indeed, there has been scant evidence of abuse in the last seven years since the Federal Communications Commission’s 2015 Open Internet Order was repealed. Surely this fact suggests that the hyperbolic fears cited by Net Neutrality (NN, which here represents the FCC’s 2015 OIO) advocates are baseless. In fact, the entire mechanism of NN is prophylactic in nature. In order to ward against possible harm to competition, they use “ex-ante” reasoning to create regulations for misuses that are merely predicted, based on faulty analysis. Alternatively, antitrust vigilantly, if passively, monitors closely for any violation but does not intrude until there is empirical evidence of unfairness.
As a matter of fact, the erroneous reclassification of the internet as a utility in 2015 by the FCC under Title II forms the basis for these two vastly disparate perspectives of what the internet actually is, separating the NN and the Anti-NN (ANN, which here represents the 2017 repeal) proponents. ANN is defined by competition, while NN has a static view of competition as if it is a threat and the only way to safeguard against it is to remove it entirely. Nowhere is this more obviously demonstrated than through their “one price fits all” canon in an attempt to secure equality. The prime goal of the NN proponents is to treat all internet traffic and content equally. The argument relies upon the fact that a utility does not involve much variety, and the prices are always the same for any user. Electricity to run your hairdryer is the same price per unit as running your central air conditioning system, but the number of units consumed differs. Conversely, the internet marketplace is replete with variety at every turn. This means that there are multiple choices to be made at each step to manage pricing, traffic, and customized content dynamically so as to offer consumers what’s most desired, maximizing profitability.
THE CRUCIAL SIGNIFICANCE OF COMPETITION
Another glaring difference is that NN discounts the virtues of market forces to arrive at fair competition and prices naturally. For example, if an ISP purposely excludes a content producer, customers will switch to a competitor in pursuit of more variety. End users are highly price elastic due to the presence of ample competitors, meaning that any egregious, anticompetitive action would be met with churn to a competitor. Nowadays, there is low sticking-power in the market due to ISPs eagerly advertising that they will cover switching costs.
STATIC VS DYNAMIC, ONE CHOICE VS MANY
In fact, the economics of regulation cause enormous inefficiencies, and NN would halt innovation in a rapidly changing tech landscape. NN proponents say that they want to protect small edge provider entrants into the internet and that paid prioritization divides the haves from the have-nots. However, one way for a new supplier to gain entry is to invent a novel and differentiated application. Being able to come to an agreement with the ISP best-suited to partner with would offer yet more variety on their platform. This would attract more end users, is a win/win, and therefore facilitates their entry.
PAID PRIORITIZATION AND THE DIFFERENCES BETWEEN NN AND ANN:
Paid prioritization is unequivocally helpful to consumers, most important is its ability to reduce congestion as higher value content can flow towards end users more efficiently with fast lanes. Price is a proxy for utility, and these edge providers clearly have an interest in reaching end users more quickly if they are creating private content distribution networks that speed up their own content delivery already. Treating all content equally leads to inefficiency, as low-value or less-popular content can delay access to high-value content in traditional “First-in, First-out” ISP systems that get congested. With paid prioritization, congestion can be mitigated, and resources can be allocated to the most heavily trafficked edge providers and highest-value goods first, as they should be. Contrary to NN proponents’ arguments, paid prioritization can also encourage entry for low-budget edge providers who may only be able to afford lower-cost tiered pricing for access to end-users. This makes entry possible for them only if paid prioritization is permitted.
The NN provision banning termination fees between ISPs and content producers also leads to significant inefficiency. According to economist Michael Katz, “Researchers have found…regulation that lowered mobile termination fees has led to higher retail pride for mobile services.” There is empirical evidence behind this “waterbed” effect, forcing ISPs to charge zero-prices to edge providers. This will only encourage them to extract more surplus through higher prices from end users. For all the propagandaabout equality from NN, even more, lower-income households might lose internet access due to being priced out by this effect. End-users will even become more attractive to ISPs if termination fees are allowed, as they will now also earn revenues from edge providers serving more end-users.
Paid prioritization also allows ANN ISPs to monetize their own traffic that they themselves have created. It also allows the market to respond to more nuanced stimuli such as price variations. This is unequivocally helpful to consumers, and its most important aspect is its ability to reduce congestion. It’s exhibited as higher value content can flow towards end users more efficiently through these fast lanes. Price reflects the value of a good, and these edge providers who are interested in reaching more end users will meet the added costs. Not only does this give the ISPs a way to monetize traffic, consumers are made better off because their preferences dictate the most accessible goods. The more desired content is distinguished from less-desired content, rather than all being grouped into the same speed delivery on limited bandwidth.
FLEXIBILITY IN NN AND ANN:
Another critical difference between NN and ANN is flexibility. The NN advocates are blind to content, as they view the internet through one lens, that all Internet transmissions are treated equally, irrespective of their origin or intent. In reality, the internet is a plethora of diverse things in every imaginable way. This dynamism allows it to grow and change, always adapting and open to limitless possibilities.
In fact, one of the ironies of the NN paradigm is that in trying to represent everyone equally, they actually disregard the wishes of individual consumers who are looking for their own customizable broadband, not at all the unilateral style of NN.
CONCLUSION:
ISPs don’t exist in natural monopolies and competition needs to be preserved in order to ensure innovation and growth. In an atmosphere of constant regulation, as is the case with NN, original ideas can be suffocated, and efficient incentives can be annihilated. Vigorous competition is a necessary and defining standard in our capitalist system. The dynamism of the internet requires nothing more than a vigilant eye. Competition supported by antitrust will safeguard consumers online. The comprehensive solution is that competition and antitrust must work in tandem.
Bibliography:
“Antitrust Over Net Neutrality: Why We Should Take Competition in Broadband Seriously.” Federal Trade Commission, 24 Jan. 2017, https://www.ftc.gov/news-events/news/public-statements/antitrust-over-net-neutrality-why-we-should-take-competition-broadband-seriously. Bytes, Washington. “Bringing Economics Back Into The Net Neutrality Debate.” Forbes, https://www.forbes.com/sites/washingtonbytes/2017/07/12/bringing-ec onomics-back-into-the-net-neutrality-debate/. Accessed 25 Apr. 2024. Katz, M.L. Wither U.S. Net Neutrality Regulation?. Rev Ind Organ 50, 441–468 (2017). https://doi.org/10.1007/s11151-017-9573-0