Goodbye Net Neutrality, Hello Competition

There is more to this deregulation move than meets the eye
By Jeffrey A. Tucker, Foundation for Economic Education
December 7, 2017 1:57 pm Last Updated: December 9, 2017 11:23 am

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 from 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 industry entrants, because deregulation promotes competition. Competition will lead to innovation and falling prices in the long run. Consumers will find themselves in the driver’s seat rather than crawling and begging for service and paying whatever the provider demands.

Ajit Pai, the chairman of the Federal Communications Commission (FCC), is exactly right. “Under my proposal, the federal government will stop micromanaging the internet. Instead, the FCC 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,” he said in a statement.

A Fed for Communication

The old rules pushed by the Obama administration had locked down the industry, with regulation favoring 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. Both companies are on record in support of the principle, repeatedly and consistently, while opposing only one stipulation that makes them a public utility.

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

Those who oppose net neutrality, in contrast, are the small players in the industry: hardware providers like Cisco, free-market think tanks, 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.

Here’s what 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 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.

If we try to understand the position of the large content providers, we see the obvious special interests at work. Netflix, Amazon, and the rest don’t want internet service providers to charge them or their consumers for their high-bandwidth content. They would rather see the providers absorb the higher costs of content streaming. It is in their interest for the government to make it illegal to set different prices for different usages. It protects their business model.

By analogy, let’s imagine that a retail furniture company was in a position to offload all their shipping costs onto 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.

So why did the internet service providers (the truckers by analogy) not oppose this rule? 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 the other options.

But what about the future? What kind of services could 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 good ideas out there. Costs are falling for all kinds of wireless and even distributed systems.

Costs as Barriers to Entry

So 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 competition seeking to poach consumers from you.

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.

So what were the costs to the rest of us? It may have meant no price reductions in internet service and not much innovation and improvement. It may have meant that your bills went up and there was very little competition. It 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 noncompetitive 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.

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. We should gladly accept our deregulation when and where we can get it.

Jeffrey Tucker is Director of Content for the Foundation for Economic Education (FEE). He is the author of five books, including “Right-Wing Collectivism: The Other Threat to Liberty.”

This article was first published on FEE.org. 

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.