The Return of Net Neutrality: FCC Approves New Proposal to Regulate the Internet

Today, the FCC voted on a new proposed rule that governs how the internet, with respect to service providers and their ability to set prices, will be regulated. The hearing came down to a vote of 3-2 down party lines in support of the proposal, whith Republicans siding against the rule. After a court decision earlier this year that struck down previous net neutrality standards but preserved the FCC’s authority over internet regulation, the agency has been struggling to come up with rules that don’t make absolutely everyone angry. As in the case of most compromises, this has been a dismal failure.

The rule is more lenient than previous standards, in that it allows internet service providers (ISPs) some discretion over their pricing schemes. Whereas the original stated goal of net neutrality was to mandate equal access to all content, regardless of bandwidth requirements, this rule permits ISPs to charge their customers more when said customers incur greater costs by eating up huge amounts of expensive bandwidth. Previously, sites such as Netflix, Amazon, and YouTube, while taking up a vastly disproportionate amount of space on the net, were effectively subsidized by smaller companies who were forced to pay the same rates as their more bandwidth-hungry competitors. In this sense, the new rule is a step in the right direction.

However, the rule also contains some troubling language to the effect that the FCC is empowered to disallow any pricing policies it views as “commercially unreasonable,” and penalize companies that violate this policy. What “commercially unreasonable” means is left intentionally vague, opening the door to the potential abuse of discretionary power by the regulatory agency through the enforcement of arbitrary and discriminatory standards. If the IRS targeting scandal has taught us anything, it should be that broad discretionary powers in the hands of unelected bureaucrats are never a good thing.

Yet, while this rule is unsatisfactory to the proponents of internet freedom, it is equally outrageous to the pro-net neutrality crowd. Predictably, the left is in full hysteria mode, peddling apocalyptic predictions of “the end of the internet” like they’re going out of style, as in fact they are.

The argument goes that big, monied companies will be able to pay for an “internet fast lane” that will give them faster streaming speeds than new competitors and thus an incumbent advantage. But this line of reasoning actually gets things backwards. Instead of a “fast lane,” streaming services will simply be paying for the amount for bandwidth they are using. A failure to do so, will result in less bandwidth being allocated, which will result in slower streaming speeds. There’s nothing unfair about this. It is only a requirement to pay for what you use, instead of shifting that cost onto others.

Nor will this result in barriers to entry for competitors. Netlfix and Hulu will not be charged more simply because they are video streaming services, but because they have a large number of users demanding the transfer of large amounts of information. A small startup will not have so large a user base, and hence will not have costs that are as high. As they grow, their costs will rise in proportion to the amount of traffic they acquire, and revenues should more than keep pace with rising costs. An unregulated internet actually gives an advantage to new entrants, because they are no longer forced to pay inflated prices to cover the costs of existing rivals.

Apart from the obvious logic behind letting ISPs charge their customers based on the cost of serving them, the prophesiers of doom have conveniently forgotten the fact that the internet was humming along nicely for decades before the first net neutrality rules were implemented, with no adverse consequences.

Unfortunately, while the FCC’s new rule does have some positive features, it also maintains the agency’s authority to regulate ISPs on a whim. If the history of antitrust law is any guide, we can expect to see a large number of nuisance lawsuits filed by incumbent firms charging their competitors with “commercially unreasonable” practices – a thinly disguised attempt to maintain market power and stifle competition.

A far better solution would be a totally free internet, unhampered by unnecessary regulation and the potential for abusive, discriminatory, and anticompetitive government action – an internet where innovation would be free to flower in the beautiful chaos of cyberspace.

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