Net Neutrality Politics

Ray Keating

Too often, government regulation is spurred by the political demands of narrow interests, rather than by a true economic imperative or by a need to protect the public. The latest example of this is the push for "net neutrality" regulation.

Agitators for so-called net neutrality argue that all Internet traffic should be treated equally, including in terms of costs. Why that should be the case, however, is not clear. After all, all Internet traffic is not equal.

For example, audio and video content (including television shows and films) is simply exploding on the Web. Therefore, broadband service providers (or Internet service providers, i.e., ISPs) need to expand and upgrade their networks to keep both content providers and consumers pleased. That requires a great deal of investment. One question is: who pays?

Net neutrality regulation proponents essentially argue that various business and investment models must be off limits. But why? For example, why shouldn't ISPs be able to offer premium services to certain content providers that would benefit both content providers and consumers?

And why should the government stick its nose in and dictate how broadband service providers, content providers and consumers interact? The answer is not about economics, or a need to protect the public. It's special interest politics.

In a February 20 Washington Post article, reporter Charles Babington noted that net neutrality "is shaping up as a Democratic issue this year, largely because its most fervid advocates are liberal bloggers and other Internet activists who play a big role in the early stages of choosing a Democratic presidential nominee." What's the beef? Babington reported: "Without such restrictions, proponents say, a user might find it time-consuming, or even impossible, to call up a favorite site that carriers have relegated to slower lanes for economic or even philosophical reasons."

Has anyone ever suffered from this phenomenon? No. Indeed, Babington pointed out that Christopher Wolf, co-chairman of Hands Off the Internet, reported that industry critics cannot come up with a case whereby a U.S. user was blocked. Babington continued: "But some groups that rely heavily on their Web sites to share information, raise money or promote causes say they fear it's only a matter of time."

Hmmm, so there is no public harm. Instead, we see a group pushing for regulation because, in their opinion, something might happen in the future. This is absurd, and certainly no way to guide the regulatory process.

Do ISPs really have an incentive to aggravate the two markets they serve - content providers and consumers? Obviously, the answer is no. That is especially the case as consumers have more choices, including cable networks, telephone networks and wireless.

Finally, there is the fact that government regulation is far from costless. When government takes on the role of limiting market transactions and setting prices, investment, innovation and service inevitably suffer. The consumer loses out in the end.

There is great wisdom in what Federal Trade Commission Deborah Platt Majoras recently said, according to a February 14 CNet report: "Majoras ... has previously voiced resistance to enacting the sort of Net neutrality regulations sought by Internet companies. As the FTC ponders future actions, Majoras' attitude toward the Internet is ‘to not screw it up,' she said Tuesday. In her view, that means avoiding new regulations whenever possible, particularly when ‘we're not seeing evidence of consumer harm.'"

Nonetheless, there are politicians plowing ahead. For example, another CNet report (February 16) noted that net neutrality legislation has been introduced in the Maryland state legislature. Also, legislation has been introduced in the U.S. Senate.

Our elected officials need to resist the political pressures to take regulatory action, as no reason exists for such regulation. In reality, net neutrality should be treated as the non-issue it is in terms of the economy, consumers and the Internet. Ironically, and unfortunately, net neutrality regulation would turn out to be a real issue - a negative one - for the economy, consumers and the Internet.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.
Copyright 2007. All Rights Reserved.

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