Will FCC rules crash the Internet?

COMMENTARY Government Regulation

Will FCC rules crash the Internet?

Jul 23, 2014 2 min read

Former Senior Research Fellow in Regulatory Policy

James Gattuso handled regulatory and telecommunications issues for The Heritage Foundation.

The comment period on the FCC’s latest plan to regulate Internet traffic through so-called “net neutrality” rules was slated to end last Tuesday. But the agency had to extend the deadline. Because its website crashed. The irony was hard to miss.

The agency has been beating the drum for Internet regulation for nearly a decade. The Federal Communications Commission has tried to impose its rules on Internet providers twice, and twice they have been struck down by the courts.

Now, it’s trying again. This time it’s considering a radical plan to make the Internet a “common carrier” service — meaning that it would be regulated like railroads during the 20th century or local water companies today. That’s hardly an appropriate model for a dynamic and ever-evolving technology like the Internet.

Despite a decade of debate on the matter, the actual harm that net neutrality rules are meant to address has been fuzzy to say the least, ranging from Comcast’s (justifiable) efforts to limit bandwidth hogs to (hypothetical) fears that Internet service providers could censor disfavored political views.

Most recently, discussion has focused on the ability of an ISP to charge content providers differing amounts for different quality of service or transmission speeds. Proponents of heavy regulation argue that allowing such “paid prioritization” would leave Web users who don’t pay the premium with inferior service and smaller businesses at a competitive disadvantage to their bigger rivals. Common carrier rules requiring providers to treat all comers equally, they contend, would prevent them from offering such differentiated service.

But this would make little sense. Almost every economic market offers some level of differentiated service at discount and premium rates. Airline passengers can fly coach or first class, sports fans choose between box seats or grandstand benches, cable service can be basic or enhanced tier. Paying more — or less — for a product or service according to the quality and quantity received is not a sign of a healthy, diverse marketplace, not an unfair marketplace.

Nor do premium service offerings endanger competition. Priority services are not purchased just by the market leaders. Indeed, they can be more helpful to new entrants trying to win customers from a dominant firm than to an already entrenched firm.

Rather than preserve service levels for non-premium customers, banning paid prioritization would actually make a deterioration of service more likely. Broadband network owners invest tens of billions annually to maintain and expand their networks. In fact, the two biggest sources of capital investment in the U.S. economy in 2012 were AT&T and Verizon. Regulations — such as the proposed neutrality rules — that limit revenue and thus discourage such investment are the real threat to consumers who rely on robust broadband service.

Barring differentiated service agreements also could cost consumers. Take AT&T’s “sponsored data” program, for example. The idea is simple — in exchange for a fee, AT&T will exempt customers of that content provider from the wireless data charges that otherwise would apply. Say, ESPN pays AT&T a premium so consumers can watch ESPN programming without paying wireless usage fees. It’s a clear win for consumers, but to some neutrality regulation advocates, it’s a form of paid prioritization — something to be banned because not all firms can afford the same deal. This turns the marketplace on its head, restricting pro-consumer offerings simply because they are better than what the competition can provide.

But what if competition fails? Without net neutrality rules, wouldn’t consumers be left at risk? Not at all. Agencies such as the Federal Trade Commission can address any legitimate concerns under existing antitrust laws. And antitrust rules focus on consumer welfare — an approach far preferable to the FCC’s vague charge to further the “public interest.”

Given the antitrust rules already in place, there’s no need for additional rulemaking here. But should the FCC decide to regulate Internet service providers as common carriers, the FTC would lose its jurisdiction. That would be the biggest irony of all.

 - James L. Gattuso is senior research fellow in regulatory policy for the Heritage Foundation’s Thomas A. Roe Institute for Economic Policy Studies.

Originally appeared in The Washington Times