Net Neutrality: Prevention Worse Than Cure

Net Neutrality: Prevention Worse Than Cure
October 28, 2011

By John Stephenson

“An ounce of prevention is worth a pound of cure,” wrote Benjamin Franklin. That is certainly true when you are talking about your health. But what if there is no threat to your health? In this situation, the prevention may do more harm than good.

Unfortunately, this is exactly what is happening in broadband and Internet policy as a result of network neutrality.

Net neutrality, also known as the Open Internet policy, has been a central topic of discussion in telecommunications policy circles for years. Although there is no clear, agreed-upon definition of the term, net neutrality is generally understood as a policy that prohibits Internet service providers from blocking or unduly restricting legal content requested by users and transmitted over an ISP’s network.

Net neutrality arose as an issue after several ISPs suggested they would offer priority services to certain content providers so the ISPs could manage traffic on their increasingly congested networks more efficiently. Content providers opposed the idea of prioritizing traffic because they viewed it as the first step toward ISPs imposing constraints on the content of the networks’ traffic. 

FCC Exceeds Authority
Regulators sided with the content providers and responded last December when the Federal Communications Commission voted 3-2 to codify net neutrality. The rules were entered into the Federal Register in September of this year, the last step before official implementation in late November.

The FCC’s rule declares, “A broadband Internet access provider shall not block lawful content, applications, services, or nonharmful devices, subject to reasonable network management.” The rule also states ISPs must disclose their network traffic management practices.

The rule may not be in effect for long. The House of Representatives has already passed a Resolution of Disapproval for the rule, and members of Congress have included provisions in appropriations bills to prevent the FCC from enforcing the order. In addition, Verizon, a broadband provider, has challenged the rule in court, arguing the FCC has exceeded its authority.

Four Complaints in a Decade
A decision on the legality of the net neutrality rule cannot come soon enough. Although net neutrality arose out of concerns about content restrictions, those concerns have not proven justified. In the report accompanying the net neutrality order, the FCC acknowledges a lack of evidence of net neutrality violations, calling its proposed rules “prophylactic,” or preventive, rather than corrective.

In a recent paper on “Economics of Net Neutrality: A Review,” Gerald R. Faulhaber, a professor emeritus at the University of Pennsylvania’s Wharton School and Penn Law School, observes the FCC could document only four occurrences of behaviors that could violate the policy of net neutrality. Moreover, one of the four occurrences was an allegation by an advocacy organization that did not rise to the level of a complaint.

“By any standard, four complaints about an entire industry in over a decade would seem to be a cause for a commendation, not for restrictive regulations,” Faulhaber notes.

Substantial Costs Documented
While there is very little evidence of wrongdoing among ISPs, there is evidence of the likely substantial costs on broadband providers caused by net neutrality regulations.

Last year, Faulhaber and David Farber authored a paper that examined the results of a FCC broadband spectrum auction. What made the auction interesting—some even say controversial—is that the FCC’s imposition of net neutrality on portions of the spectrum raised broadband costs above the areas of spectrum not encumbered by the mandate.

The authors concluded: “[N]etwork neutrality regulation thus decreased the value of the spectrum asset by 60 percent. The evidence speaks loudly and eloquently: imposing network neutrality regulation reduces the value of the affected telecommunication asset.”

Hampers New Technologies
The high cost of net neutrality could seriously hamper the deployment of new technologies. As Faulhaber and Farber note, net neutrality “reduces the incentives to invest in [telecommuncations] assets.”

Reductions in investment mean higher costs for consumers to obtain the high-speed broadband products and services they demand to take advantage of the 21st century economy.

Additionally, reduced investment in broadband puts at risk the Obama administration’s stated goal of providing 100 million American households with access to 100 megabits per second connections by 2020. Is the government really prepared to jeopardize attainment of its goal for the sake of a preventive rule for which there is no history of bad behavior?

Let’s hope not.

John Stephenson (jstephenson@alec.org) is director of the Telecommunications and Information Technology Task Force at the American Legislative Exchange Council. Learn more at http://www.alec.org/

Internet Info

“Network Neutrality Order,” Federal Communications Commission, December 23, 2010: http://transition.fcc.gov/Daily_Releases/Daily_Business/2010/db1223/FCC-10-201A1.pdf

“Economics of Net Neutrality: A Review,” Gerald R. Faulhaber, University of Pennsylvania–Wharton School, July 25, 2011: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1894286

“National Broadband Plan: Connecting America,” Federal Communications Commission: http://www.broadband.gov/plan/