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Los Angeles Business Journal

The Market, Not Regulators, Should Decide the Internet's Future

Why net neutrality regulations are a bad idea

Nick Gillespie
July 10, 2006

Is there any debate that gets things more fundamentally backwards than the current battle over "net neutrality?" The sort of pre-emptive regulation at the heart of proposed legislation rarely works out well, especially in fields where technological change is the rule and not the exception.

Proponents of net neutrality argue that the telecom and cable companies who effectively control access to the Internet should be forced to make sure that all traffic be delivered at the same rate of speed. Due to Federal Communications Commission rule changes made last year, these companies are in a position to charge for "tiered service" — to charge content and application providers money if those providers want to make sure their Web pages and info streams get to surfers first and faster than content from providers who don't pony up.

"The future of the Internet is at stake," avers no less a cyber-celebrity than Vint Cerf, one of "the fathers of the Internet" and an advocate for net neutrality. If ISPs are allowed to charge some bandwidth users more than others, goes this line of thinking, the virtual marketplace of ideas will eventually devolve into ... well, something like broadcast TV, a medium that has never suffered from too little regulation. Yet that most disturbing outcome imagined by net neutrality advocates isn't particularly scarifying or convincing.

Forget for the moment that ISPs haven't kicked in tiered service yet, so there's no real telling what form it might take.

Let's assume that the worst fear of a fast-loading foxnews.com page comes true, even for those of us who prefer other, even more fair-and-balanced, less-comical news sources such as, say, The Onion. What are you likely to do in such a situation? At the very least, you'll bitch and moan to your provider, which is known to have some beneficial effects, even with near-monopolists. Remember what happened to the biggest ISP of them all, AOL, during its rise to dominance a decade or more ago? Originally a closed system, it had to allow its users to e-mail with non-AOL customers, then it had to allow its customers full access to the Internet, then it had to go to flat-rate pricing, then it had to woo subscribers with ever-increasing free hours, giveaways, and the like. AOL still regularly upgrades its system and its services not because it wants to, but because it has to.

Such capitulations to customers are the rule and not the exception among market leaders, whether you're talking about cyberspace or fast food. As Ohio State University political science professor John Mueller notes, even monopolists have reasons to court a captive market. If they do so, he explains, they're "more likely to be able to slide price boosts past a wary public—that is, such moves are less likely to inspire angered customers to use less of the product and/or to engender embittered protest to governmental agencies."

The argument that ISPs will degrade a good chunk of their service is speculative beyond belief and a short peg on which to hang overarching regulation. But there's also a strong dose of self-serving dudgeon in the attacks on the telecoms and cable companies that's annoying. It's self-evident why firms that are mostly in the content business — Google, Amazon, eBay, Microsoft — don't want to have pay anything extra.

Isn't there every reason to believe that cable companies and telecoms would similarly use whatever revenues they generate via tiered services to develop the next big thing in terms of networked communications? And isn't there also reason to believe that some of the cable companies and telecoms might not go the tiered-service route, just as some political commentary magazines´┐Żincluding this one—offer free online access to their material?

In any case, it's worth remembering that the Net — most obviously in the form of the World Wide Web — has in large part become a mass phenomenon not in spite of but because of the profit motive. That's easy to forget in a world in which faster and cheaper broadband, user-friendly interfaces, and e-commerce are no longer considered exotic or risky.

You don't have to believe that the cable companies and telecoms are kind-hearted altruists to realize they are desperate to get an edge on their competitors. That very desperation is likely to drive innovation that will benefit end users especially. Allowing builders of Internet infrastructure to recoup their investment by charging the Googles and Amazons for use of their network would balance the incentives for innovation more closely. Ironically, a non-neutral net would accelerate the spread of zippy broadband that can deliver movies, allowing hobbyists with camcorders to take on Hollywood studios. The neutrality advocates who criticize corporatized cable TV should welcome that.

In any case, if you do nothing it will be a lot easier to revisit the problem later than it will be if you implement an expansive regulation such as net neutrality.

Nick Gillespie is the editor-in-chief of Reason magazine. Reason's telecom research and commentary is here.


Nick Gillespie is Editor in Chief, Reason.com and Reason TV


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