Net Neutrality: A $69 Billion Mistake

Proposed Internet regulations would deprive consumers of $69 billion in potential benefits over the next 10 years by barring voluntary commercial agreements necessary to bring some new applications and services to the Internet, estimates the American Consumer Institute in a new study by Stephen Pociask. The report represents the first effort to put a price tag on network neutrality, a proposal to regulate the quality of service options Internet service providers can offer Internet applications providers.

“Despite proponents’ best intentions, net neutrality proposals would be a twofold problem for consumers,” study author Stephen Pociask said. “Innovations that require a guaranteed level of service won’t come to market, and consumers would have to pay more for the services they receive.”

Among other things, network neutrality would prohibit multi-sided pricing, a common practice in other industries. For example, newspaper publishers charge both readers and advertisers, but revenues from advertisers go a long way to reducing the cost for readers. Likewise, Internet service providers aim to keep consumer broadband costs low by charging large content and applications providers like Google, and Sony for prioritization and quality guarantees, especially for handling error-sensitive apps such as video and massive multi-layer gaming.

The study estimates that multi-sided pricing allows content providers to absorb a portion of network upgrade costs and would provide consumers $69 billion in benefits over the next 10 years. Such an arrangement also would benefit content providers and online advertisers by stimulating a 40 percent increase in broadband subscribers, which would increase advertising revenues by $6 billion per year. The study also finds that net neutrality restrictions would raise consumer prices and trigger a sharp dip in the number of Americans who subscribe to broadband services, particularly lower income consumers. “Given the national commitment to universal broadband service, Internet regulations would drive millions of lower-income Americans offline, which is last thing we should do,” Pociask said.

Full study is available here.