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The End of Net Neutrality: Market Freedom

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The End of Net Neutrality: Market Freedom

As the battle over Net Neutrality rages in the US, let's take a look at the argument that revoking protections will lead to more innovation.

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Welcome back to this series on net neutrality. If you're not caught up, feel free to take a look at the previous article, which tackles the fact that it's probably not the end of the world.

One of the arguments you hear from ISPs with regard to the eradication of Net Neutrality is that it stifles innovation. This is an extension of a free market argument for Net Neutrality — that markets should be regulated as little as possible to provide room for innovation, usually in the form of smaller, disruptive companies. We've seen this in the content space over the past decade — we can debate the actual value of many of the internet products we use (I'm looking at you Facebook and Snapchat), but there's certainly been lots of innovation there over the years.

How does this compare to ISPs?

Well, ISPs have been regarded as big, fat, dumb pipes. The bigger and dumber, the better. And ISPs aren't happy with that. And the market, as a whole, hasn't really had much space for innovation. ISPs have only been able to compete in the size of the pipes they build, which has led to shrinking profit margins, which has led to extensive market consolidation, which has terminated in today's internet oligarchy. But what if ISPs could compete with other products besides bandwidth and latency?

From a free market perspective, if we removed these regulatory constraints, that would enable companies to bring more innovative products to market, as they could potentially have more areas in which to compete. And what the FCC is proposing does support this perspective — they are eliminating Net Neutrality restrictions while requiring ISPs to be transparent with the services they provide.

Are they selling your information? They need to let you know. Charging more for social media access? You need to be told. Backcharging Netflix for access to their networks? That needs to be clear. So consumers have more choice, and they know what those choices are. If people are actually willing to pay ISPs for blanket access (think internet fast-lane for everything), they can, and ISPs will be willing to provide this kind of access. Basically, the consumer will have more choice and the market will determine what kinds of internet access ISP provide based on these aggregated choices.

But is this true? Will this really happen?

Well, probably not. At least, I don't personally think so. AT&T, CenturyLink, and Verizon are Tier 1 networks in the U.S., and I expect that they will apply content-based routing at this level as well. This will likely make it difficult for Tier 2 and 3 networks to provide content-neutral internet access (by which I mean they can't, really; all they can do is camouflage this by providing a single, all-access price for all fast-lane access). But the way traffic is managed at this level in a non-Net-Neutral world is totally up in the air, so who knows.

Which leads us to the next problem — I suspect this approach will not work well with established oligarchies either. It certainly hasn't in recent history (e.g. Russia). That said, we've certainly seen plenty of cases where established companies have been soundly beaten by upstarts. Just look at Yahoo, or Microsoft, or IBM. But I don't believe that the ISP market, no matter how deregulated, really has enough possible areas of differentiation to really encourage incumbent-beating innovation. And many of today's incumbents are vertically integrated anyway, both through the network market and reaching into content production. That will make it even more difficult for other ISPs to compete. After all, if I'm a small, non-profit ISP that provides high-quality municipal broadband, will I be able to provide access to NBC or Telemundo with the same network performance as Comcast? After all, Comcast owns NBC Universal, which owns both NBC and Telemundo. Maybe I can, maybe not; but I would guess not. At least, not without paying for that.

Does this extend to all content providers? Well yes, actually. But not how you'd think. More next time, when we talk about good old-fashioned greed.

So will this work? Well, I don't know. I do believe in free markets and innovation, but I also believe that they don't always work the way we'd like. In this case, I'm skeptical that the end result will, in fact, do much for consumers, though it will give ISPs the potential to begin to gouge content providers for revenue while extracting more profit from those of us that can't afford all access fast-lane internet (which I think is already happening, at least with some ISPs).

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Topics:
net neutrality ,cloud ,regulation ,free market

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