The Natural End to Net Neutrality: The Lawyers Win

The Natural End to Net Neutrality: The Lawyers Win
July 1, 2006

Prompted by questions around the blogosphere about how network neutrality will affect the “computing-as-a-utility” model, I offer this slightly jaded appraisal of how net neutrality regulation would end up playing out in a world where both public and private networks co-exist.

First, a purely taxonomical distinction between public and private networks will be made. Part of a broadband pipe will be treated as “public” and regulated as such, while another part (for instance, the part carrying video programming) will be treated as private and not subject to the panoply of “public Internet” net neutrality mandates. While there will be no principled line that can be drawn to make this distinction, it will be necessary to avoid the more draconian effects of net neutrality.

Gradually but inexorably, everyone with specialized needs for quality of service (QoS), low latency, or the like, will be purchasing a “private” network--capacity that is not subject to the public Internet net neutrality rules. Microsoft and Sony, for instance, might buy or subsidize “private” broadband capacity so gamers on their network will get the low-latency service they need for interactive gaming.

Net neutralists will scream at this legerdemain, but they will be powerless to stop it because, at some point, even the courts and regulators will have to recognize the validity of private contracts for private service. Besides, regulators eventually will come to understand the negative investment effects of enforced network neutrality, and the needs for low latency and high QoS, and this will drive them to allow such arrangements.



Private vs. Public Precedents

There is historical precedent for just such regulatory bracket creep. “Private line” service was one way regulators saved themselves from their own mandates. Regulators were compelled to invent the private line category so businesses’ communications needs could be customized and met without the onerous regulation and cross-subsidization inherent in the old public switched network.

In truth, of course, a private line looked no different than a public line--the same copper strand could carry both. Yet without these private, relatively unregulated arrangements, large enterprises would bolt the network, and by doing so, leave all consumers worse off. So--voila!--“private line” service showed up absent the traditional regulatory burdens.

In the end, then, the Internet will be differentiated with different tiers of service, and two-sided markets will develop as more effective price differentiation reaches different consumers. This will be done by gradual regulatory differentiation between “public” and “private” offerings where all of the commercial freedom lies on the private side of the pipe.

Trouble is the differentiation will largely be based on legalisms, not economics or even new technology platforms. A hardened cynic sees net neutrality as a boost for the communications lawyers--with all the associated transaction costs--but bringing little value to anyone else.


Ray Gifford (rgifford@pff.org) is president of the Progress & Freedom Foundation. This article is adapted from an entry in the PFF blog (http://www.pff.org/blog).