Goodbye Net Neutrality; Hello Competition

By Jeffrey Tucker Published on November 24, 2017

At long last, with the end of “net neutrality,” competition could soon come to the industry that delivers Internet services to you. You might be able to pick among a range of packages, some minimalist and some maximalist, depending on how you use the service. Or you could choose a package that charges based only on what you consume, rather than sharing fees with everyone else.

Internet socialism is dead; long live market forces.

With market-based pricing finally permitted, we could see new entrants to the industry because it might make economic sense for the first time to innovate. The growing competition will lead, over the long run, to innovation and falling prices. Consumers will find themselves in the driver’s seat rather than crawling and begging for service and paying whatever the provider demands.

Ajit Pai, chairman of the FCC, is exactly right. “Under my proposal, the federal government will stop micromanaging the internet. Instead, the F.C.C. would simply require internet service providers to be transparent about their practices so that consumers can buy the service plan that’s best for them.”

A Fed for Communication

The old rules pushed by the Obama administration had locked down the industry with regulation that only helped incumbent service providers and major content delivery services. They called it a triumph of “free expression and democratic principles.” It was anything but. It was actually a power grab. It created an Internet communication cartel not unlike the way the banking system works under the Federal Reserve.

Net Neutrality had the backing of all the top names in content delivery, from Google to Yahoo to Netflix to Amazon. It’s had the quiet support of the leading Internet service providers Comcast and Verizon. The opposition, in contrast, had been represented by small players in the industry, hardware providers like Cisco, free-market think tanks and disinterested professors, and a small group of writers and pundits who know something about freedom and free-market economics.

The public at large should have been rising up in opposition, but people were largely ignorant of what was going on with net neutrality. Consumers imagined that they would get censorship-free access and low prices. That’s not what happened.

What was sold as economic fairness and a wonderful favor to consumers was actually a sop to industrial giants.

Here’s what’s was really going on with net neutrality. The incumbent rulers of the world’s most exciting technology decided to lock down the prevailing market conditions to protect themselves against rising upstarts in a fast-changing market. The imposition of a rule against throttling content or using the market price system to allocate bandwidth resources protects against innovations that would disrupt the status quo.

Industrial Giants

What was sold as economic fairness and a wonderful favor to consumers was actually a sop to industrial giants who were seeking untrammeled access to your wallet and an end to competitive threats to market power.

Let’s grasp the position of the large content providers. Here we see the obvious special interests at work. Netflix, Amazon, and the rest don’t want ISPs to charge either them or their consumers for their high-bandwidth content. They would rather the ISPs themselves absorb the higher costs of such provision. It’s very clear how getting the government to make price discrimination illegal is in their interest. It means no threats to their business model.

By analogy, let’s imagine that a retailer furniture company were in a position to offload all their shipping costs to the trucking industry. By government decree, the truckers were not permitted to charge any more or less whether they were shipping one chair or a whole houseful of furniture. Would the furniture sellers favor such a deal? Absolutely. They could call this “furniture neutrality” and fob it off on the public as preventing control of furniture by the shipping industry.

But that leaves the question about why the opposition from the ISPs themselves (the truckers by analogy) would either be silent or quietly in favor of such a rule change. Here is where matters get complicated. After many years of experimentation in the provision of Internet services — times when we went from telephone dial-up to landlines to T1 connections to 4G and 5G data coverage — the winner in the market (for now) has been the cable companies.

Consumers prefer the speed and bandwidth over all existing options.

But what about the future? What kind of services are going to replace the cable services, which are by-and-large monopolies due to special privileges from states and localities? It’s hard to know for sure but there are some impressive ideas out there. Costs are falling for all kinds of wireless and even distributed systems.

Raising Costs

If you are a dominant player in the market — an incumbent firm like Comcast and Verizon — you really face two threats to your business model. You have to keep your existing consumer base onboard and you have to protect against upstarts seeking to poach consumers from you.

Net neutrality closed down market competition by generally putting government and its corporate backers in charge.

For established firms, a rule like net neutrality can raise the costs of doing business, but there is a wonderful upside to this: your future potential competitors face the same costs. You are in a much better position to absorb higher costs than those barking at your heels. This means that you can slow down development, cool it on your investments in fiber optics, and generally rest on your laurels more.

But how can you sell such a nefarious plan? You get in good with the regulators. You support the idea in general, with some reservations, while tweaking the legislation in your favor. You know full well that this raises the costs to new competitors. When it passes, call it a vote for the “open internet” that will “preserve the right to communicate freely online.”

Neutrality was Deceptive

But when you look closely at the effects, the reality was exactly the opposite. Net neutrality closed down market competition by generally putting government and its corporate backers in charge of deciding who can and cannot play in the market. It erected barriers to entry for upstart firms while hugely subsidizing the largest and most well-heeled content providers.

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So what are the costs to the rest of us? It meant no price reductions in internet service. It could mean the opposite. Your bills went up and there was very little competition. It also meant a slowing down in the pace of technological development due to the reduction in competition that followed the imposition of this rule. In other words, it was like all government regulation: most of the costs were unseen, and the benefits were concentrated in the hands of the ruling class.

There was an additional threat: the FCC had reclassified the internet as a public utility. It meant a blank check for government control across the board. Think of the medical marketplace, which is now entirely owned by a non-competitive cartel of industry insiders. This was the future of the internet under net neutrality.

Good riddance, then. No more government-managed control of the industry. No more price fixing. No more of the largest players using government power to protect their monopoly structure.

We should take our deregulation where we can get it.

In the short term, the shift by the FCC does not mean the immediate emergence of a free marketplace for Internet service. But it is a step. If we let this experiment in liberalization run a few years, we will see massive new entrants into the sector. As with every good or service provided by market forces, consumers will gain the benefit of innovation and falling prices.

The end of net neutrality is the best single deregulatory initiative yet taken by the Trump administration. The simultaneous, contradictory, and economically absurd attempt by the Justice Department to stop the merger of Time-/Warner and AT&T – which might only be a government attempt to punish CNN and therefore an abuse of presidential power – is another matter for another time.

We should take our deregulation where we can get it.

 

Originally published at fee.org November 22, 2017. It is reprinted with permission.

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  • Karen

    You want to ban everyone to the left of Genghis Khan from the Net and allow corporations to decide what we get to see. There will never, ever be anything like effective competition for plans because there will only be two or three companies offering service and they can be paid by the big providers to prefer the big guys’ stuff. The Internet will be exactly like cable service.

  • rick dean

    Jeffrey Tucker, in his own words.

    “It’s not too interesting to say that Donald Trump is a nationalist and
    aspiring despot who is manipulating bourgeois resentment, nativism, and
    ignorance to feed his power lust. It’s uninteresting because it is
    obviously true. It’s so true that stating it sounds more like an
    observation than a criticism.”

    I do wish the Stream would do a little more research before posting articles by obvious leftists.

  • LgVt

    You think this is going to lead to a free marketplace? Is that a joke?

    Net neutrality didn’t cause the lack of competition. The major broadband ISPs did that themselves long before, dividing the country into negotiated local monopolies. Each provider stays in their own territories; by municipal contract, they cannot and do not compete with each other. Thus, they can screw over their customers with impunity–throttling bandwidth, blocking access, and so forth–and there is nothing the customers can do about it. There is no competitor they can switch to, and now, thanks to the new policy, there’s nothing the FCC can do about it, either.

    Where do you think the calls for net neutrality came from in the first place? This wasn’t an invented left-wing threat like global warming. This was a legitimate grass-roots uprising in reaction to repeated abuses from ISPs like Comcast who had demonstrated time after time after time that they could not be trusted. Net neutrality wasn’t about government control; it was about protecting customers from abusive monopolies that could not be broken up.

    The protection’s gone, now, and the abusive monopolies are still there. Take a wild guess what’s coming next.

  • One thing Jeffery did not mention:

    Those providing the carrier medium were barred from censoring content, but those who own the media (social and otherwise) sites were not. Because of this you have a small group of very large, very left-wing media sites censoring content based on how closely it agrees with what they want you to hear, and there was nothing that the carrier providers could do to put the media sites back in their place. As a result of this we have had left-wing extremist nonsense being trumpeted as unopposed “fact”, while dissenting views are getting stuffed down the toilet as supposed fake news, and since most people never get to hear the truth, they have no clue what is really a pack of lies spouted by extremely biased organizations.

    • James

      If you think MSNBC is left wing, how do you think Comcast (the same company) will control the content that comes into your house?

  • John

    John

  • John

    To say there is not competition for internet services now seems a little off to me. I can buy service from the “telephone” company (landline), cable company, cell phone company, or dish. If you are talking low bandwidth, that is. For high bandwidth stuff like a dedicated fiber wavelength over a fiber ring, that is different. The “last mile” facility is the issue for low bandwidth. Only the “big boys” have the cap to build these distribution systems to consumer homes and businesses. So, for now, they will continue to be the only players. Do not be fooled; they fight between themselves for subscribers. There also is something called “colocation” which allows “small” internet providers to locate their equipment at the phone company’s wire center, (central offices). They can then use, for a fee, the facilities already built by the phone company to get the subscribers home. Sounds like competition to me! This is a very complex issue. To say competition will be increased by lack of net neutrality is an over simplification in my opinion. The real issue is capital equipment. The big boys got the cap. to invest. Like automobiles, takes a lot to get started and a lot to keep going. Ask Randall at AT&T.

  • James

    That’s not how the internet works.

    Second, as pointed out, the bandwidth problem is due to a lack of options in the last mile. The only companies with the capital to make the last mile connection are telcos, wireless, and cable, because they are simply adding it to existing infrastructure.

  • James

    Internet protocol (IP) is dumb. IP exists to forward packets of information from one machine to another. Transmission Control Protocol (TCP) makes sure all the packets get where they need to go. These two protocols, TCP/IP, form the backbone of the internet.

    Everything on the internet is a packet of information of roughly the same size. The only thing TCP/IP cares about is the packet source and destination. Everything inside the packet is taken care of at the endpoints.

    ISPs provide the hardware that moves the packets (a bit of oversimplification, but works for this analogy). They are like a shipping companies where every box is identical except for the address. Some people ship very few boxes. Others ship many boxes.

    Net Neutrality is a system where every box (of the same size) must be treated the same way. If you ship one box and Amazon ships many boxes, you get charged the same per-box price to ship and get the same level of service. If Amazon overloads the system, then everyone must pay for the upgrades to the system. However, Amazon will be paying the most because they have the most boxes. (ISPs make money off consumers because most of us overbuy capacity, but I digress.) This called “common carrier” and is pretty much how actual shipping companies are regulated. Common carrier regulations were invented to keep all customers the same fair access to railroads in the 19th century.

    Without Net Neutrality, ISPs could charge different customers different prices for identical boxes. In theory, this could make serving large customers more profitable, meaning that Amazon would bear all the cost for Amazon overloading the system. In practice, however, without common carrier regulations, carriers look to sign sweetheart deals with their biggest customers.

    In the case of the shipping system, that means that you will bear an even greater share of the cost of Amazon overloading the system. You would pay more to ship your package and Amazon would pay less. If you are a business that depends on shipping packages, you would be doomed.

    Again, this is exactly how 19th century railroads operated and exactly why common carrier regulations were invented.

    Without Net Neutrality, those who can sign sweetheart deals with an ISP will sign sweetheart deals. Those who are owned by an ISP will already have this preferential treatment built in. Those who cannot will pay the price.

    G.K. Chesterton once said “Don’t ever take a fence down until you know the reason it was put up.” We have common carrier regulations for a reason and we apply them to the internet for a reason.

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