Net Neutrality: A Game of Hostage
Net Neutrality emerged as one of the most prominent and controversial political issues of 2017. The debate was featured across thousands of media outlets big and small, and the final decision to repeal Net Neutrality was highly controversial. Net Neutrality, a term coined by Columbia University Law professor Tim Wu, refers to legislation which forbids Internet service providers from treating data differently due to its source. The speed and quality of the internet connection is constant regardless of the web address a consumer lands on. Net neutrality was put in place under the Obama Administration’s FCC on February 26th, 2015 while Trump-appointed chairman Ajit Pai was the foremost crusader for its hard-fought rollback on December 14th, 2018. Many liberals viewed the threat to Net Neutrality as a threat to the free internet as they knew it, an overstep of corporate greed. Conversely, many conservatives saw it as a victory in the battle to deregulate the economy and encourage growth. However, a closer inspection of Net Neutrality reveals a lack of this simplistic polarity; liberalism can have ideological compatibility with repealing Net Neutrality as can conservatism with its reinstatement. Therefore, it is most useful to leave partisanship behind in pursuit of understanding. This is a discussion on the varied mechanisms in which Net neutrality affects the economy. There are four main entities who will become affected as the repeal is fully realized and made use of: Internet Service Providers (ISP’s), large content providers, small/new content providers, and internet consumers. These four entities will exchange benefits and detriments under the repeal of Net Neutrality. However, upon examining evidence and commentary provided by leading economists, studies provided by reputable research firms, and statements given by the entities themselves, it is reasonable to conclude that both Net Neutrality and a lack of Net Neutrality give differing entities a similar amount of overreach, and a compromise is needed as a means of balance.
It is beneficial to first examine the primary winners of the Net Neutrality repeal, which are Internet Service Providers such as Comcast, Verizon, and AT&T. When Tom Wheeler’s FCC implemented Net Neutrality in 2015, the Internet Service Providers were essentially defined as common carriers. This meant that Internet Service Providers were subject to government regulation and oversight as expressed in Title II of the Communications Act of 1934. ISP’s continuously expressed concern that being held under Title II could be dangerous. For example, under Title II, the government could feasibly set the prices of broadband services themselves, a matter akin to the government setting city-wide electricity rates. The perceived possibility of the government making use of this far-reaching power came to a forefront in 2016 when Cable One, a small Cable and Internet service provider, started raising rates dramatically in low-income areas where they had zero competition. The repeal of Net Neutrality is a victory of sorts for ISP’s because it puts an end to this Title II classification, preventing the FCC from breathing down their neck, and negating the FCC’s ability to treat Internet Service Providers like monopolies. Cable One’s plight was trying to provide large, all-encompassing internet plans to low-income demographics, who largely only use the internet for basic tasks. (Captain 2017, 1). A 2016 review from the Journal of Economic Perspectives found that it is likely net neutrality is hurting consumers who are using the internet primarily to check social media or email. (Greenstein 2016, 127-152). Without Net Neutrality in place, eventually ISP’s could offer bundles where social media and email are prioritized, and could offer these plans at much lower cost to the consumer and to the ISP themselves. In addition, the allowance of paid prioritization allows for ISP’s to collect an additional revenue stream, which could be invested back into the company to enhance the pace of innovation, which would encourage competition. Paid prioritization is a term used to describe the idea that ISP’s can collect money from content providers in order to provide their specific content priority. One hypothetical example would be Google paying an ISP for their search engine to be faster or more featured than other search engines such as Yahoo. If an internet user has a Gmail, and only uses Google as their search engine, one can hypothetically just buy a bundle where google is prioritized in this manner and Yahoo and Bing are not. The consumer benefits because ISP’s are more innovative and progressive, and can tailor their plan at a much lower cost. Ultimately, the winners of Net Neutrality being repealed are Interned Service Providers and consumers. ISP’s are no longer at the mercy for the FCC’s whim and overreach because they are not treated as monopolies. They can now feasibly implement highly customizable internet plans and increase their amount of customers. Paid prioritization assists this process, and provides an additional revenue stream for ISP’s to invest back into innovations in their business. University of California Berkeley economist Michael Katz, in his own published paper Wither U.S. Net Neutrality and Regulation? points out logical holes in the idea of Net Neutrality itself. Katz argues that paid prioritization itself is a normal facet of American economy. Katz writes “The logic of net neutrality would also argue for banning e-commerce sites from purchasing faster delivery from FedEx or UPS, or from offering free shipping” (Katz 2017, 441-468). A massive amount of large online business signed petitions to end the process of repealing Net Neutrality, yet they themselves have engaged in other mediums of pay to play, which demonstrates inconsistent logic and hypocrisy. In summary, repealing Net Neutrality gives much more freedom to ISP’s in order for them to tailor certain plans to certain demographics, at much lower prices. Of course, this bodes well for the consumer. ISP’s will not have to pump money into sluggishly acting in accordance with the FCC every step of the way, and will have additional revenue to pump back into making their technology better. Repealing Net Neutrality is a win for the consumer, and a win for the Internet Service Provider.
It is obvious to see why the titans of internet content, such as Facebook, Netflix, Google, etc. are not keen on paying a fee to Internet Service Providers for prioritization: they are giving up part of their revenue to maintain the priority that they (and all other content providers) were previously given by default under Net Neutrality. However, there is a more far-reaching consequence of paid prioritization. As New York University economics professor Nicholas Economides explains, “it will hobble innovative small and new technology companies that, unable to pay the fees demanded by ISPs, will be put in the slow lane. These companies are the engine of growth for the economy, and the new difficulties they will face will slow the growth of the technology sector, and therefore of the entire economy” (Economides 2017, 1). He has discovered such in a model he has constructed along with Benjamin E. Hermalin, an Economics professor at Berkeley University (Economides 2012, 602-629). It is tempting to believe that large content companies would benefit from paid prioritization, as they can bully smaller competitors out of fast lanes and into obscurity. However, large internet companies rely on small startups to show up onto the scene and innovate. For example, Facebook has been able to stay in its place of relevancy as an internet titan largely by either acquiring and swallowing up smaller, more innovative companies (Instagram, Oculus VR, Drop.io) or mimicking their technology (Snapchat) (Toth 2017, 1). The existence of paid prioritization could mean that these companies will be harder to birth. Under these conditions, it is entirely reasonable to believe innovation and the fast, dynamic growth of the internet will stifle. In the long term, higher-income consumers, who use the internet for more intense and varied services such as streaming, online retail, personal productivity, etc. could be more and more jaded because to these customers, the appeal of the service goes far beyond checking emails. Additionally, large content providers are rightfully scared of ISP’s having the power to favor their own services over theirs. This is ironic, since just last year Google was fined 2.7 billion dollars by the European Union for “[giving] prominent placement in its search results only to its own comparison shopping service, whilst demoting rival services. It stifled competition on the merits in comparison shopping markets.” (Hjelmgaard 2017). This case perfectly illustrates what Internet Service Providers may be able to do with the repeal of Net Neutrality. An Internet Service Provider could selectively choose which websites it favors, with the eventual goal of toppling one larger service in favor of one is ISP is aligned with. Dane Jasper, the CEO of Sonic, believes the added revenue of the pay-to-play system will not only be put back into innovation, but also put into means of bullying smaller ISP providers. This is one hidden danger of repealing Net Neutrality rules. This is why just over 40 small ISP’s write a joint letter to chairman Pai, refuting his view that smaller ISP’s ability to grow has depressed as a result of Net Neutrality. (Kastrenakes 2017). ISP’s, such as AT&T, have come out vehemently against this practice with vows and promises. A blog post written by Bob Quinn, AT&T’s Senior Executive Vice President of External and Legislative Affairs, he explains that has never blocked third party applications. (Quinn 2017). In another piece of irony, Quinn fails to mention that AT&T completely blocked Facetime in 2012 over several of its cellular data plans, only allowing it on more expensive data plans, while other similar services continued to exist. (Kang 2012). (Many tend to believe that repealing Net Neutrality will never lead to this aforementioned pattern of behavior by companies. However, incidents such as these cannot be ignored. In summary, most consumers should benefit from ISP’s being able to more properly cater to their specific needs, but it is still entirely possible that innovation as a whole in the internet suffers. If a company does not have the large financial resources it may take to prioritize itself to some degree, it could end up dying out. Small, new, unique businesses are the engine of innovation in the American economy. Consumers may become less enthused when the stagnation occurs, and even more so if ISP’s are prioritizing and pushing lackluster services for their own interest.
As discussed, analyzing the pros and cons of Net Neutrality blurs what could be considered the “conservative” or “liberal” approach. For example, a conservative might favor repealing Net Neutrality in favor of deregulation and economic growth. However, some economists believe and have demonstrated in their own models that small and large businesses alike could potentially be bullied out of fair competition. A liberal might favor an equal playing field for everyone when it comes to the internet, but will learn that large amounts of lower-income families are left at the mercy of ISP’s who are cannot offer them cost-effective plans because their hands are tied by the FCC, which is prohibiting innovation through multiple mechanisms which would make more widespread internet access possible. ISP’s are strong-worded in their language when discussing Net Neutrality’s repeal, explaining that they will not block certain competing applications for the sake of bolstering their own, yet several of the biggest telecom companies in the United States have been guilty of this in the past decade. Content Provider giants like Facebook and Google take the time to explain why pay-to-play systems are bad for the internet, yet are guilty of this supposed sin in many ways. In conclusion, doing away with Net Neutrality entirely might be just as detrimental as keeping it in place. Both liberal and conservative political figureheads and economists must come together for the sake of both the innovation of stagnant, worn-out ISP’s and the continued innovation of content and service providers, big and small, of the internet. Of course, Net Neutrality has only very recently been rolled back, and the consequences of this action, beneficial and/or detrimental, cannot truly be evaluated for several years. A system of checks and balances, making sure that no one entity has a massive, commanding amount of power to suppress competition in their own realms, will be appropriate in the future.
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