Earlier this week, President Obama issued a statement encouraging the Federal Communications Commission (FCC) to adopt stricter rules on Net Neutrality, a regulation that requires internet service providers (ISPs) to treat all web content equally. But the president, like most supporters of Net Neutrality, fails to understand how the internet actually works. FCC Chairman Tom Wheeler is resistant to Obama’s ideas, preferring a more nuanced approach, but he still favors increased regulation of the internet. Below is an extract from the president’s statement, outlining the four principles he has singled out as being fundamental features of the new regulations.
• No blocking. If a consumer requests access to a website or service, and the content is legal, your ISP should not be permitted to block it. That way, every player — not just those commercially affiliated with an ISP — gets a fair shot at your business.
• No throttling. Nor should ISPs be able to intentionally slow down some content or speed up others — through a process often called “throttling” — based on the type of service or your ISP’s preferences.
• Increased transparency. The connection between consumers and ISPs — the so-called “last mile” — is not the only place some sites might get special treatment. So, I am also asking the FCC to make full use of the transparency authorities the court recently upheld, and if necessary to apply net neutrality rules to points of interconnection between the ISP and the rest of the Internet.
• No paid prioritization. Simply put: No service should be stuck in a “slow lane” because it does not pay a fee. That kind of gatekeeping would undermine the level playing field essential to the Internet’s growth. So, as I have before, I am asking for an explicit ban on paid prioritization and any other restriction that has a similar effect.
This kind of pleasant-sounding language is just a smokescreen for the real impact of Net Neutrality, which amounts to little more than corporate welfare. Let’s take these points one at a time and see why they are not the silver bullet the president would have us believe.
Requiring an ISP to provide equal access to all web content is akin to forcing a restaurant to serve every type of food. Product differentiation is one of the main ways in which companies compete. Just as cable companies offer a variety of packages for people who like sports, or movies, or news – why shouldn’t ISPs be allowed to tailor their service, and their prices, to individual needs?
One of the biggest myths about Net Neutrality is that it levels the playing field for startups and entrepreneurs, by preventing ISPs from speeding up and slowing down service at will. Actually, what Net Neutrality really does is spread the cost of service across all web companies. Egalitarianism doesn’t make sense when things are not really equal. A startup does not consume the same resources as an established bandwidth hog – like Netflix or YouTube – and therefore it doesn’t make sense for them to be treated equally by ISPs.
Net Neutrality effectively forces startups to subsidize the bandwidth requirements of established companies, by equally distributing the cost of service to everyone, even those who do not benefit from faster speeds.
The president stresses that he is not only interested in the interaction between companies and consumers, but this interaction is where competition occurs and how the market evaluates whether a particular provider is succeeding or failing.
Implementing complex and unnecessary transparency requirements that have no effect on consumers is unnecessary, increases costs, and makes it more difficult for new firms to enter the market.
No Paid Prioritization
One of the main fears driving the push for Net Neutrality is the idea that ISPs will create an “internet fast lane” that will give big companies with deep pockets an advantage over everyone else. But what this analysis fails to recognize is that bandwidth is a finite resource. ISPs have to pay for every megabyte of bandwidth they provide, and companies that are more resource-intensive are taking up space that could be allocated to other sites. If bandwidth is allocated equally, popular sites with streaming video will necessarily experience slower speeds than sites that are purely text-based, for example.
Paid prioritization allows these companies to invest in better service to their customers by the purchase of more bandwidth from ISPs. It’s not a racketeering scheme, it’s simply a way to allocate scarce resources in a way that aligns with consumer demand. If it turns out that people do not like this allocation, competition will allow them to say so by voting with their dollars.
The president’s push for Net Neutrality stems from a misguided egalitarian instinct that doesn’t make sense when dealing the incredible diversity of web content. Providers need to have the flexibility to allocate their resources as their customers demand, not be forced to adhere to a strict standard that doesn’t differentiate between text, video, audio, or interactive content.