Understanding the fight about 'net neutrality'
Originally published in the Herald-Mail
Let’s try a thought experiment: Imagine the government announces that you no longer have to pay your monthly credit card bill. However, you will have to pay someone else’s bill, given to you at random. What would you think of this policy and how would it change the way you use your credit card? Would you get rid of it altogether?
Keep your answers in mind as we discuss the recent fight over “net neutrality,” a bunch of regulations on internet service. Net neutrality has been in the news because the Federal Communications Commission (FCC) recently voted (12/14) to repeal those rules. As a result, some politicians and internet activists are claiming the FCC decision will destroy the internet and democracy itself—even though many of those same folks admit they don’t understand the technology underlying the controversy. They just know that repeal is very bad, and they’re very mad about it!
The whole fight is really over a technology problem wrapped up in an economics problem, both of which are fairly straight forward, and neither of which has a clear-cut, good-or-bad, right-or-wrong answer. If people would take the time to understand those issues, they’d see there’s little reason to be mad at the FCC for either its earlier decision or its recent one, and that neither decision means the end of the internet or democracy.
Back in 2015, the Obama administration FCC announced a new rule prohibiting internet service providers (ISPs)—companies that connect homes and businesses to the internet—from putting restrictions on high-volume internet content from providers like Netflix, Skype and Spotify. The Obama FCC feared that without the rule, ISPs would malevolently “hold hostage” some of that content by either slowing its delivery or blocking it altogether—unless the ISPs received payment to let it through. Under the rule, all content—whether a simple email or a high-definition streamed movie—was to be treated and priced equally, hence the term “net neutrality.” After some courtroom wrangling, the new regulations went into full effect this past May.
Now, seven months later, the FCC has reversed course. But the ISPs have a reasonable argument for wanting to restrict delivery of intense content unless they receive special payments. It’s the same reason that the Postal Service, television and radio broadcasters, UPS and FedEx, and telephone companies charge different prices to their different customers: some of the deliveries cost a lot more than others.
The internet started out as a government-financed computer network connecting the Pentagon with research centers working on Defense Department contracts, and soon expanded to include universities generally. In the 1990s, when the economic potential of the internet became apparent, the government opened it up to the public, which could connect through ISPs to the government “backbone” network and then to other computer users through their ISPs.
But the government connections soon became overwhelmed. The ISPs and other internet companies responded by building their own backbones, and also by connecting directly to other ISPs. Contracts between the private networks managed their operations and the prices to use them. This benefited consumers because the integrated networks created redundancy and sparked price competition between the different internet companies. As a result, internet reliability and speed increased while subscriber prices (adjusted for level of service) fell.
Because of those increased capabilities, content providers like Netflix, Spotify and Skype developed and deployed new, internet-intensive products, but those products are putting new pressures on internet capacity.
Increasing capacity is costly, so the ISPs wanted to charge Netflix and others for the additional equipment. The content providers didn’t want to pay those charges, so they petitioned the Obama administration for protection, resulting in the net neutrality regulations.
If the ISPs can’t charge content providers for the new equipment, then they must do one of two things: (1) don’t upgrade their networks, resulting in bad connections for Netflix, Skype, Spotify, etc., or (2) invest in the upgrades and raise the monthly rates for ISP subscribers—regardless of whether an individual subscriber uses Netflix, Skype or Spotify. Either way, some ISP customers would have to bear the cost of other ISP customers’ benefits. Like our credit card thought experiment, net neutrality meant the government was forcing some people to pay the bills for other people’s benefits.
Net neutrality supporters claim that allowing the ISPs to charge different prices for different levels of service will lead to the ISPs nefariously impeding their subscribers from visiting parts of the internet. That’s possible, but it seems unlikely because the ISPs would lose subscribers and gain a lot of bad publicity. Besides, as part of the FCC repeal, internet companies are again under the oversight of the Federal Trade Commission—the nation’s top antitrust watchdog—to make sure they don’t engage in anticompetitive practices.
Now that the FCC has repealed net neutrality, the ISPs can charge content providers that make heavy use of their networks. That means the beneficiaries of internet upgrades will help pay for the cost of those upgrades. Throughout economic history, plenty of mischief has resulted from costs and benefits going to different people. By ending that, the FCC hopes to benefit consumers as a group, though heavy internet users will no longer be able to push some of their costs onto their neighbors in the name of “net neutrality.”
It’s been nearly two weeks since the FCC reversal, and both the internet and democracy seem to be doing OK, just like they did before the repeal, and like they did back in April before net neutrality went into full effect. Despite the predictions of doom, I think we’re going to be alright.
Thomas A. Firey is a senior fellow with the Maryland Public Policy Institute and a Washington County native.