Archive for year: 2015

Well, it has happened. I truly never thought this day would come. After what seemed like years of agonizing requests and protests, the front page on Reddit will be free of “Net Neutrality” posts! What would cause this sudden, massive shift in the exuberance of sub-par posts that never fail to distract from my perusing of Black Hole science and adorable kittens? Thursday, February 26th, the FCC listened to the cry of over 4 million commenters during their Open Internet proceedings, and decided to “set sustainable rules of the road that will protect free expression and innovation on the Internet and promote investment in the nation’s broadband networks.” Again.

You see, the fight for “net neutrality” is nothing new — it has been going on for over a decade. Back in 2008, the FCC issued an order prohibiting Comcast’s network management practices after upholding a complaint that they had interfered with traffic to popular peer-to-peer sharing site, BitTorrent, due to congestion. The media conglomerate changed its network management practices, but not without suing the FCC. Comcast argued the agency “lacked jurisdiction” to enforce network management since the Internet was an information service and not subject to such regulations. The D.C. District Court agreed and the issue was remanded.

In 2009, President Obama nominated his top technology advisor, Julius Genachowski, to lead the FCC. Both men are staunch believers in not allowing ISPs to offer “paid prioritization”, believing that innovation would diminsh.  The FCC introduced a similar (read: the same) set of Open Internet “rules of the road” in 2010, that called for fixed broadband providers (ISPs such as Verizon or Comcast) to employ transparency and fair network management in there role as the messenger of content. However, the FCC was missing a key component–they did not reclassify the Internet as a “public utility”. Genachowski’s efforts to reclassify the Internet from an “information service” were heavily blocked by National Economic Council director Larry Summers, who argued that the “overly heavy-handed” regulations of the government would be detrimental to the economy.  This led to a similar overturning of the order by the courts in 2014, when the U.S. Court of Appeals sided with Verizon in the argument that the FCC “lacked sufficient jurisdiction” to regulate network management practices of broadband ISPs.

Here we are 1 year later. The world is rejoicing because the Internet is now open and free! The FCC, under the tutelage of Chairman Tom Wheeler, has decided to re-classify the Internet to a “public utility”, and enforce its 2010 order of wired and mobile broadband network management practices. The Internet rejoiced, hundreds of articles were written within 10 minutes, and the bandwagoner’s were sounding their triumphant horns. Yet, here I sit, scratching my head and wondering “where’s the victory?”

Net neutrality didn’t solve anything simply because there was really nothing to be solved–at least not for consumers. One would think that such a long and public battle would be rife with examples of “predatory” actions by ISPs to “extort” large sums of money out of its content partners or consumers. However, one would be wrong for this thought (unless 4 complaints filed in 10 years is “rife”)!

Treating the vast economic activity of the Internet as a “public utility” is essentially an attempt to create a perfect market in which there is a consistently level playing field across the interspace, and no competition among market players. While this helps us understand certain market forces in economic theory, it is largely stifling in practice. Key determinants of economic growth largely rely on competition in the market. What incentive would a business have to offer consumers a better product if there wasn’t a bright-eyed, dream filled kid around the corner ready and capable of unleashing a completely mind-shattering new way to interact with the world? Protecting the content of the Internet has caused a stifle in the competition of the intermediary businesses that deliver the content to the consumer–the broadband ISPs.

Should Netflix, Facebook, Amazon Instant Video, and Hulu all pay the same price for access to a ISPs consumers? Initially, you might say yes until you look at the data. Netflix accounts for 35% of all downstream broadband traffic in North America. In comparison, Facebook is at 2.98%, Amazon is 2.6%, and Hulu is just under 1.4%. As an economist, I would think not. What incentive does the broadband service have for growing more competitive in offering better service?

Likewise, should my wonderfully sweet elderly neighbor pay the same price for her Internet service when she spends half of her day on the phone with Hulu Support trying to figure out how to get “the Hula” on her TV, while I work on my blog, browse Facebook, and order that really neat German book on Amazon, all during a House of Cards binge-watching marathon? Somehow, I do not think this is “fair” in our economy. Allowing “equal access for unequal usage” threatens to derail investment and innovation in an already quasi-monopolistic industry.

To be honest, I am not against net neutrality. I do believe that the Internet is an unprecedented phenomenon that warrants special consideration in its future regulation. Never before has a medium of communication generated such a vast amount of distributed wealth in a short period of time (the number of millionaires -and even billionaires- created as a result of technological applications on the Internet is staggering!), allowed ideas to develop so quickly, or given opportunity for intimate connections from so far away. The need of the Internet to remain an open source of continuously growing economic activity is imperative for the continued development of the Internet as an integral tool in our lives.

However, in our quest to “save the Internet”, we can’t forget about the economics of the ways we receive the information. I suspect that this won’t be the last I hear of “net neutrality”. It seems Verizon was almost rendered speechless after the FCC’s announcement. If there lawyers are talented enough to write an entire policy blog in Morse code, I can only wait to see what type of language they’ll use in the coming lawsuit.