The economic case that net neutrality was always fundamentally bad for the internet
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Net neutrality may be over. The Federal Communications Commission chairman Ajit Pai recently proposed getting rid of regulations that stop internet service providers from charging fees to content providers for faster connections. The FCC votes on Dec. 14, and the proposal is likely to pass.
The term net neutrality was coined by Tim Wu, who was a law professor at the University of Virginia at the time, to describe his vision for an internet where all traffic was treated equally by internet providers. Most stakeholders in Silicon Valley support net neutrality, as do the majority of Americans across party lines. Not all economists are sure it makes sense.
“I think Tim Wu coming up with the name net neutrality was really brilliant because it sounds really good,” the economist Michael Katz told Quartz. “But it is a really bad idea at a fundamental level.” Katz, formerly chief economist at the FCC and now a Berkeley economics professor, thinks the internet should be regulated like most other parts of the economy. If there are abuses by internet providers, they should be dealt with under antitrust law.
The main reason Katz is against net neutrality, is that he sees likely benefits from paid prioritization, the ability of internet providers to charge companies for faster speeds. Paid prioritization, Katz says, is normal in most other parts of the economy. “The logic of net neutrality would also argue for banning e-commerce sites from purchasing faster delivery from FedEX or UPS, or from offering free shipping,” Katz writes in a recent paper. He argues that that choice is good. Companies that need super-fast internet can pay more, and those that aren’t concerned with speed can pay less.
According to Katz, low income families who are happy with basic, slower internet would be winners from the end of net neutrality. He theorizes that the most basic packages would likely become more affordable as some of the money that internet providers like Comcast and AT&T, receive from content companies like Netflix and YouTube, would be passed on to consumers. The basic low-cost internet option would entice more households to sign up, and that in turn would be a win for both internet providers and content makers.
Katz is not alone in thinking that some consumers would benefit from eliminating net neutrality. A 2016 review of economics research on internet regulation found that households who only use basic internet services, like email and Facebook, would probably be better off without the rule.
Nicholas Economides, an economist who studies net neutrality at New York University, thinks this is wishful thinking. He believes that payments from content companies to internet providers would end up in the pockets of the internet provider’s stockholders, and not be passed on consumers. “Right now we don’t see companies like Microsoft, Google and Amazon coming to AT&T begging for prioritization,” Economides told Quartz. He said that instead, we see AT&T coming out and saying we want a new revenue stream.
On almost every point, Economides disagrees with Katz. He sees the internet operating extremely well under net neutrality. “Why screw up something that works?” said Economides.
The main problem he foresees with eliminating net neutrality is that it will be bad for startups. Right now, they operate on relatively equal footing with more established firms. But without net neutrality the costs associated with obtaining fast internet could make things difficult, and stunt the growth of the next internet unicorn, and Economides says such “startups are very very important for the growth of the US economy.”
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