Broadband consumers, the biggest losers

This month, the Federal Communications Commission (FCC) will likely approve net neutrality rules which will, for the first time, impose significant federal regulatory authority on Internet services and over Internet Service Providers (ISPs). After nearly a decade of intense clamoring by advocacy groups, who have called for a “free” and “neutral” and “open” Internet, net neutrality has become a seductive political euphemism that has snared the support of many in the public, including lawmakers and now several FCC regulators. Shadowed by President Obama’s recent public urging for public utility-style regulations that has remarkably coincided with the sudden change of mind of the FCC chairman, we should take pause and examine exactly how society and consumers would be better off with these public utility-like regulations.

To begin with, these regulations do not address any existing problems that require remedy, but rather hypothetical ones; and its basis comes without any sound economic justification.  Study after study finds these regulations will hamper broadband investment in the U.S., raise consumer prices, and make consumers worse off.

One common justification is the claim that the U.S. lags the world, but the claim is without merit. U.S. consumers generate two to three times more Internet data (per capita) than their European counterparts, U.S. ISPs invest twice as much in broadband infrastructure (per household) than in Europe, and the U.S. is heads and shoulders ahead in terms of wireless broadband speeds, use and deployment. If there no market failure, what justification is there for imposing a net neutrality remedy? 

Could there be some consumer benefit? Actually, public utility regulation of the Internet has been predicted to raise consumer prices and lower consumer welfare. The reality is that net neutrality has nothing to do with helping consumers, as demonstrated by the latest diatribe of one notable public utility enthusiast who called sponsored data agreements pernicious, dangerous and malignant. These voluntary agreements, made between content companies (like ESPN) and wireless broadband providers, would allow consumers to get access to some (say) sports videos and other online content without draining their wireless data caps.   

So, what is wrong with these sponsored data agreements and free data for consumers? Nothing. Under such an agreement, if I choose not to visit ESPN, I am no worse off; and if I choose to visit ESPN, I am getting free data. In economic lingo, these agreements are Pareto improvements– because they make some consumers better off without making others worse off.  As such, we can be 100% certain that consumer welfare would increase from these agreements, all opinions aside. However, some so called consumer advocates are against allowing content providers to voluntarily pay for your data to visit their websites – some stating that consumers should pay it all. In short, many of these advocates do not care about helping consumers; they are focused on making privately-owned networks a government-controlled public utility. 

However, the public utility approach will not make the Internet more open or freer. If market power is a concern of net neutrality proponents, that power is being spread among many market rivals – like telecommunications, cable, wireless and other Internet providers, as well as the many others – who contribute to various platforms of equipment, software, transport, cloud computing, Wi-Fi and applications.  For that reason, it should give us some relief to know that that any market power is dispersed among a wide host of private and competing interests looking to capture market share by giving consumers the services they want.

However, the alternative – making private networks into public or government networks – concentrates all of that market power into a single set of hands – the government’s hands.  It is hard to fathom how a government monopoly or “command and control” Internet would make consumers or society better off. How would it make the Internet more open and freer? The reality is that the calls for neutrality will go far beyond setting general principles for the industry to follow.  In fact, the likely implementation of onerous public utility-style regulation may be just one step closer to a goal of public control over private media. 

As the FCC looks to promulgate public utility-style rules on Internet services and providers, there can be nothing good in it for consumers. Regulations become a slippery slope that begs for more command and control regulations, initiates new programs of taxes and cross-subsidies, and inhibits private investment. The harm that will result from the FCC’s actions will take a few years to unfold, but undoing its damage will take much longer.

These regulations will do little to make the U.S. a more innovative worldwide leader in Internet-based technologies and applications, and that will cost jobs and investment.  Indeed, if the FCC votes through these regulations, this month will be a very sad day for consumers.

Pociask is president of the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization, which accepts donations and foundation grants from multiple sources.  While Pociask has been a member of the FCC’s Consumer Advisory Committee, the views expressed here are his own. For more information about the Institute, visit www.theamericanconsumer.org.  Twitter — @consumerpal