Industrial Giants
What was sold as economic fairness and a wonderful favor to consumers was actually a sop to industrial giants who were seeking untrammeled access to your wallet and an end to competitive threats to market power.
Let’s grasp the position of the large content providers. Here we see the obvious special interests at work. Netflix, Amazon, and the rest don’t want ISPs to charge either them or their consumers for their high-bandwidth content. They would rather the ISPs themselves absorb the higher costs of such provision. It’s very clear how getting the government to make price discrimination illegal is in their interest. It means no threats to their business model.
By analogy, let’s imagine that a retail furniture company were in a position to offload all their shipping costs to the trucking industry. By government decree, the truckers were not permitted to charge any more or less whether they were shipping one chair or a whole houseful of furniture. Would the furniture sellers favor such a deal? Absolutely. They could call this “furniture neutrality” and fob it off on the public as preventing control of furniture by the shipping industry.
But that leaves the question about why the opposition from the ISPs themselves (the truckers by analogy) would either be silent or quietly in favor of such a rule change. Here is where matters get complicated. After many years of experimentation in the provision of Internet services — times when we went from telephone dial-up to landlines to T1 connections to 4G and 5G data coverage — the winner in the market (for now) has been the cable companies. Consumers prefer the speed and bandwidth over all existing options.
But what about the future? What kind of services are going to replace the cable services, which are by-and-large monopolies due to special privileges from states and localities? It’s hard to know for sure but there are some impressive ideas out there. Costs are falling for all kinds of wireless and even distributed systems.
Raising Costs
If you are a dominant player in the market — an incumbent firm like Comcast and Verizon — you really face two threats to your business model. You have to keep your existing consumer base onboard and you have to protect against upstarts seeking to poach consumers from you.
Net neutrality closed down market competition by generally putting government and its corporate backers in charge.
For established firms, a rule like net neutrality can raise the costs of doing business, but there is a wonderful upside to this: your future potential competitors face the same costs. You are in a much better position to absorb higher costs than those barking at your heels. This means that you can slow down development, cool it on your investments in fiber optics, and generally rest on your laurels more.
But how can you sell such a nefarious plan? You get in good with the regulators. You support the idea in general, with some reservations, while tweaking the legislation in your favor. You know full well that this raises the costs to new competitors. When it passes, call it a vote for the “open internet” that will “preserve the right to communicate freely online.”
Neutrality was Deceptive
But when you look closely at the effects, the reality was exactly the opposite. Net neutrality closed down market competition by generally putting government and its corporate backers in charge of deciding who can and cannot play in the market. It erected barriers to entry for upstart firms while hugely subsidizing the largest and most well-heeled content providers.
So what are the costs to the rest of us? It meant no price reductions in internet service. It could mean the opposite. Your bills went up and there was very little competition. It also meant a slowing down in the pace of technological development due to the reduction in competition that followed the imposition of this rule. In other words, it was like all government regulation: most of the costs were unseen, and the benefits were concentrated in the hands of the ruling class.
There was an additional threat: the FCC had reclassified the internet as a public utility. It meant a blank check for government control across the board. Think of the medical marketplace, which is now entirely owned by a non-competitive cartel of industry insiders. This was the future of the internet under net neutrality.
Good riddance, then. No more government-managed control of the industry. No more price fixing. No more of the largest players using government power to protect their monopoly structure.
In the short term, the shift by the FCC does not mean the immediate emergence of a free marketplace for Internet service. But it is a step. If we let this experiment in liberalization run a few years, we will see massive new entrants into the sector. As with every good or service provided by market forces, consumers will gain the benefit of innovation and falling prices.
The end of net neutrality is the best single deregulatory initiative yet taken by the Trump administration. The simultaneous, contradictory, and economically absurd attempt by the Justice Department to stop the merger of Time-/Warner and AT&T–which might only be a government attempt to punish CNN and therefore an abuse of presidential power–is another matter for another time.
We should take our deregulation where we can get it.
Jeffrey Tucker is Director of Content for the Foundation for Economic Education. He is founder of Liberty.me, Distinguished Honorary Member of Mises Brazil, economics adviser to FreeSociety.com, research fellow at the Acton Institute, policy adviser of the Heartland Institute, founder of the CryptoCurrency Conference, member of the editorial board of the Molinari Review, an advisor to the blockchain application builder Factom, and author of five books, most recently Right-Wing Collectivism: The Other Threat to Liberty, with a preface by Deirdre McCloskey (FEE 2017). He has written 150 introductions to books and many thousands of articles appearing in the scholarly and popular press. He is available for press interviews via his email.
This article was originally published on FEE.org. Read the original article.
