Wednesday was a “Day of Action” in support of net neutrality regulations; large tech companies like Facebook, Google and Amazon all showcased their support for the regulations.
Net neutrality is the notion that Internet Service Providers (ISPs) shouldn’t be able to “slow down, speed up, or block data as it is routed from its content originator to end users” in order to favor particular sites. The net neutrality regulations put in place under the Obama administration involved subjecting the Internet to Title II of the 1934 Communications Act, where it’s considered a public utility that is subject to the iron grip of the FCC.
The FCC is now trying to kill these regulations, and they are right to do so. Here are seven reasons why.
1. The instances of ISPs slowing down or blocking data to favor certain sites over others are few and far between. Ian Tuttle notes at National Review that when the FCC first attempted net neutrality regulations in 2010, they were only able to “cite just four examples of anticompetitive behavior, all relatively minor.” Cell phone networks, which are not subject to net neutrality-esque regulations, don’t engage in such anticompetitive behavior.
There’s a reason for this: such behavior doesn’t cut it in a free market. As Ben Shapiro wrote in 2014, “Consumers would dump those ISPs in favor of others” if those ISPs slowed down or blocked data as favoritism toward certain sites.
“Competition ensures that companies do not have the leverage to discriminate against particular websites,” Shapiro added.
There has never been an urgent need for net neutrality regulations.
2. Under Title II, the Internet is subject to a bevy of regulations at the whim of the FCC. ISPs have to submit proposals for any “new technology or business model” to the FCC, which will severely hamper innovation.
“The FCC can decline the request for an opinion, can permit the innovation, or can require more information from the submitting party,” writes Brent Skorup of George Mason University in National Review. “These opaque determinations cannot be appealed, and affirmative decisions can be reversed at the agency’s whim.”
Additionally, the FCC also has the power to “partially regulate the capital investment of existing companies” and determine “which companies (if any) can enter the ISP market,” per Tuttle. In total, the Internet being under Title II’s jurisdiction puts “nearly $1 trillion of GDP and 2.5 million jobs under a new regulatory regime,” according to the American Action Forum. And what the FCC constitute’s as “abuse” can be changed at any moment.
What this means is that Title II entrenches the FCC’s tentacles into the ISP market and controls it with an iron fist.
3. The FCC can also subject ISPs to a slew of taxes under Title II. Per Tuttle, the FCC has the power to levy taxes against companies subject to Title II. Tuttle points out that “telecommunications companies are generally subject to higher state and municipal taxes than other businesses.”
Between the onerous taxes and regulations, the FCC could make it more difficult for smaller ISPs to thrive in the market while increasing costs for consumers. FCC Commissioner Ajit Pai explained how smaller ISPs are struggling as a result of net neutrality regulations:
“Among our nation’s 12 largest internet service providers,” he told the audience, “domestic broadband capital expenditures decreased by 5.6%, or $3.6 billion, between 2014 and 2016.” I ask him to elaborate. “As I’ve seen it and heard it,” he says, “Title II regulations have stood in the way of investment. Just last week, for instance, we heard from 19 municipal broadband providers. These are small, government-owned ISPs who told us that ‘even though we lack a profit motive, Title II has affected the way we do business.’ ”
The small ISPs reported that Title II was preventing them from rolling out new services and deepening their networks. “These are the kinds of companies that we want to provide a competitive alternative in the marketplace,” Mr. Pai says. “It seems to me they’re the canaries in the coal mine. If the smaller companies are telling us that the regulatory overhang is too much, that it hangs like a black cloud over our businesses—as 22 separate ISPs told us three weeks ago—then it seems to me there’s a problem here that needs to be solved.”
It’s no wonder that one 2014 study estimated net neutrality regulations could result in as much as $45.4 billion in new ISP investments being lost over the next five years. There has already been some loss in investment, as “broadband capital expenditures among the dozen largest ISPs fell 5.6 percent from 2014 to 2016,” according to Tuttle.
4. The FCC also has the power to prevent ISPs from charging websites at rates they deem to be unfair and ends “paid priority.” This is bad economics, as Shapiro explained:
Netflix consumes a huge amount of peak traffic bandwidth. That costs ISPs money. Pornography sites consume a huge amount of bandwidth. That costs ISPs money. Were an ISP to push YouPorn to pay fees for its higher bandwidth, consumers of the ISP who did not use YouPorn would be the beneficiaries — they wouldn’t be subsidizing YouPorn. As Alexandra Petri of Washington Post writes, “To use one of those dreaded analogies, if you are constantly driving huge trucks, full of big deliveries of pornography, along a road, why shouldn’t you have to pay more for the road’s upkeep?”
Meanwhile, other ISPs could calculate that they want to absorb the costs of YouPorn in order to carry YouPorn, since YouPorn could refuse to pay the fees to the first ISP. That would be an advantage for the second ISP. In other words, market choices take place, and those can provide options to consumers. Net neutrality would ban such deals.
ISPs are also prevented from engaging in what’s known as “paid priority,” where they pay to have certain bits sent to computer screens at a faster rater than others, under net neutrality regulations. This adversely harms smaller ISPs, which rely on paid priority since they don’t have as much resources as bigger ISPs.
This ends up being a lose-lose for consumers, who will be forced to choose between higher costs or slower Internet speeds.
5. It’s a form of censorship. It’s obviously not the kind of blatant censorship that one would expect under totalitarian governments, but the FCC has a way of being subtle in how they control content, per Skorup:
Some Internet providers may initially fight or test the legal boundaries, but the FCC has ways of breaking defiant firms. The most alarming is that the agency is increasingly using license and transaction approvals to coerce various policies — like net-neutrality compliance, increasing the number of, say, public-affairs, Spanish-language, and children’s TV shows, and abandonment of editorial control of TV and radio channels — that it cannot, or will refuse to, enact via formal regulation. In the long run, Internet and technology companies, now FCC supplicants, will have to divert funds from new services and network design to fending off regulatory intrusions and negotiating with the Internet’s new zoning board.
In other words, with the FCC controlling the ISP market they can and will use their power to coerce them into providing content that’s more toward their liking.
7. The better way to ensure net neutrality is to breathe more capitalism into the ISP market rather than government control. Tuttle explains how municipal governments are responsible for creating ISP monopolies:
Finally, municipal governments should look for ways to encourage, rather than discourage, broadband investment. Local governments and their public utilities are notorious for charging broadband companies exorbitant prices for access to publicly owned “rights of way,” without which they cannot erect the infrastructure necessary for Internet service. These municipal monopolies are among the chief reasons that many places have little or no competition among ISPs. But it doesn’t have to be this way. Kansas City, Austin, and Provo all hammered out favorable agreements with Google Fiber, the Internet giant’s ultra-high-speed broadband project, and several other cities have followed suit. Kansas City officials partially credit the arrangement for the city’s ascendancy as a tech hub. Meanwhile, other ISPs have increased their offerings to compete: Verizon and AT&T both recently announced plans to offer higher-speed Internet hookups for customers in select areas.
Instead, the FCC should be encouraging de-regulation in order bring in more competition, which is the real check against corporate abuse.
If there is to be a standard for consumer protection with regard to ISPs, then perhaps it would better for Congress to pass a clear statute that maintains light regulation on the ISP market while returning the Federal Trade Commission (FTC) to its role of being the enforcer in such matters.
Maintaining the FCC’s heavy hand in the ISP market will only harm consumers.