The FCC should preserve net neutrality
© Greg Nash

Who do you think should decide what content you can most readily access, you or your Internet service provider (ISP)? Although we suspect most Americans would like to decide for themselves, FCC Chairman Ajit Pai has concluded that your ISP—that is, AT&T, Comcast, or one of a few other large corporations—should decide for you. For that is, in effect, what he proposed last week in scrapping net neutrality regulations.

Net neutrality guarantees ISPs cannot manipulate or slow down traffic. Without net neutrality, AT&T or Comcast could deliver content from The Wall Street Journal first and The New York Times last if that is what it wishes to do. Or, if the Journal is willing to pay fees for prioritization that the Times is not, the Journal’s web page would appear first. Similarly, if Amazon paid AT&T, but Netflix did not, AT&T could ensure that streaming content from Amazon reaches users before that of Netflix.

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In an environment without net neutrality, AT&T would be able to manipulate all Internet traffic on its network, exacting significant new tolls for content and services, which will bear on what consumers pay for content and services they acquire. Moreover, rather than the winners and losers in every industry being determined by the inherent value of what they provide consumers, who wins and who loses will depend on who is willing to pay ISPs the most. Net neutrality established a level playing field for competition. This was of special value to new and innovative companies. It allowed them to grow, becoming engines of growth for the US economy. Without network neutrality, these new companies would typically be unable to pay the fees to be “prioritized.” Fewer new companies will succeed, slowing innovation and economic growth.

 

Chairman Pai proposes to scrap net neutrality regulation and substitute it with a commitment by telecom and cable companies to adhere to “open Internet” principles, delegating enforcement to a different agency, the Federal Trade Commission (FTC).

There are several problems with this proposal. First, all telecom and cable companies have publicly advocated against net neutrality, arguing that it should be abolished so that they make higher profits. In fact, higher profitability of telecom and cable companies was one of the reasons given by Chairman Pai for scraping net neutrality.

How can we expect telecom and cable companies to commit to net neutrality when they have spent huge sums in lobbying and political donations over the past 12 years to kill net neutrality? How can it be sensible public policy to let the wolves guard the sheep?

Secondly, each telecom and cable company will commit to a different “open Internet,” and it remains to be seen whether it will contain all principles of the current law. It will force consumers and businesses to look at the “fine print” written by telecom lawyers. Litigation is bound to follow.

Third, enforcement will fall to the FTC, an agency with little expertise and experience in regulating telecom and cable matters. Everyone, including the Supreme Court, agrees that telecom and cable matters are technical and complicated and that the FCC has the right expertise. By delegating enforcement to a different agency, the FCC is abdicating on its responsibility to regulate the telecom sector. It pits an agency without the requisite experience against telecom companies with decades of legal expertise in this arena. Who will win is obvious. 

Chairman Pai had promised that regulations will be evaluated based on an economic cost-benefit analysis, echoing a promise by President Trump. However, he is proposing a very significant regulatory change without the agency having done any such an analysis. There is, though, extensive economic research, including some by us, that shows that the benefits of net neutrality far outweigh its costs. (See Economides and Hermalin, “The Economics of Network Neutrality” in Rand Journal of Economics; Economides and Tag, “Network Neutrality on the Internet: A Two-sided Market Analysis” in Information Economics and Policy.) That research should inform the FCC’s decision, and not be ignored.

President Trump is correct when he points out that there are many regulations that help neither consumers nor businesses. But net neutrality is beneficial to consumers and to the overwhelming percentage of US businesses that do not want their Internet communications manipulated by telecom and cable companies.

The only winners from killing net neutrality are the companies who are in control of Internet traffic. It is truly disheartening that an early regulatory action of the Trump administration is to abolish an overwhelmingly popular and beneficial regulation, both for consumers and the many thousands of businesses utilizing the Internet, simply to benefit a handful of telecom and cable companies 

This is definitely not a way to “make America great again.” 

Nicholas Economides is a professor at NYU's Stern School of Business. Benjamin Hermalin  is a professor at the UC Berkeley Haas School of Business.


The views expressed by contributors are their own and are not the views of The Hill.