Net Neutrality is Misguided

This article in Tech Crunch sums the argument in favor of Net Neutrality:

Everyone agrees on the end: we want an open internet. But there’s more than one means to that end. We disagree on the means, not the end. The Senate Democrat perspective assumes that ISP companies will infringe the speech of their customers or restrict their traffic flow, unless government regulators prevent this. So they conclude we must grant government this new power.

This perspective is misguided in two ways. First, it assumes new government powers are the only way to prevent ISP companies from restricting content or traffic flow in ways that harm consumers. Second, it ignores the risk and cost of these new government powers.

Two alternatives to achieve the common goal of an open internet are regulation and competition.

Net Neutrality regulation means rules controlling how to handle data content and movement. These rules must go through multiple approvals and public comment. They are necessarily reactionary and lag technology and innovation. They are also detailed and complex by nature. This attracts rent seeking and lobbying for loopholes by ISP companies, which makes the rules even more complex and inefficient. This increases the complexity and cost of doing business, which reduces innovation, rewards established companies and deters new providers from entering the market. That means higher prices and less consumer choice.

For one example, consider T-Mobile’s zero-rating video data. Most of their customers loved this service, and the ones who didn’t could opt out at no charge. Yet providing this service got T-Mobile hauled in front of the FCC to explain themselves to regulators. They were exonerated, but this positive outcome was not preordained. It cost them thousands to defend themselves and they could have been subjected to massive fines. When ISPs get hauled in front of the FCC to testify every time they do something regulators didn’t anticipate, say goodbye to innovation.

An example the Senate Democrats use is “fast lanes” vs. “slow lanes”. This is a red herring. Some kinds of traffic, like video, consume far more bandwidth than others. For the internet to function properly, these different kinds of traffic must be handled and routed differently. In short, there already are “fast lanes” and “slow lanes” —  it’s a technical necessity. The question is how we pay for them. Blanket rules like Net Neutrality risk creating a tragedy of the commons, where everyone uses bandwidth but nobody invests in developing it, or forces everyone else to pay the costs of heavy bandwidth users, which encourages over-consumption, reducing quality of service for everyone.

Yet the Senate Democrats do have a certain logic. With only a handful of monolithic ISP companies, there is no real competition and some form of regulation like Net Neutrality becomes necessary. However, as citizens and consumers, we should not accept the inevitability of having only a handful of monolithic ISP companies. And we surely should not pass new regulations like Net Neutrality that will foster and lock in this dystopian future. Net Neturality is self-actuating and self-perpetuating. It creates and exacerbates the very problems it intends to prevent, as it purports to solve them.

In short, it is naive to believe:

  • That Net Neutrality regulations will stay ahead of fast-changing technology and creative interpretation by ISP companies.
  • That a distant federal bureaucracy will make better decisions about how to allocate bandwidth and handle traffic, than ISPs directly negotiating with each other and seeking customers.
  • That Net Neutrality rules will be immune from rent-seeking, carved-out loopholes and other forms of regulatory capture by big ISPs.
  • That these complex rules won’t raise the cost of business, restricting innovation, competition, and consumer choice.

Consider the alternative that the Senate Democrats ignored: competition. With competition, if one provider does something you don’t like, vote with your wallet and switch. You can switch at any time, for any reason: terms, privacy, cost, etc. Your vote hits the ISP where it counts: financially. Complex rules don’t bother them or protect you; their lawyers and lobbyists are better than yours, and are helping draft those rules.

Under competition, the rules we need are simple: prohibit fraud and establish property rights for access. There is no need for complex rules micro-managing data content and movement. This reduces rent-seeking and lobbying and keeps the cost of doing business low. Without complex rules dictating how to run their business, companies are free to innovate in technology and service to differentiate themselves, much like T-Mobile did for telecom.

But this works only under true competition. That means every person has a choice of several providers (not just two) and can switch between them quickly, easily, and cheaply. Unfortunately, we don’t have this in the USA. Why not? Primarily because multiple layers (local, state, federal) of complex regulations lock in existing ISPs and make it expensive for new companies. The reason some ISPs get away with bad behavior, like famously bad customer service and high prices, is because their customers have no alternative. Over-regulation protects them from competition. Adding even more more layers of regulation (e.g. Net Neutrality) will fix this like throwing gasoline on a fire.

Far better to address the root cause. Unwind the layers of complex regulations and municipal property access rules that lock in ISP companies and block competition. ISPs already are too much like utilities. This is the problem, not the solution.