Why a court win for the FCC is a net loss for consumers

The United States Court of Appeals for the D.C. Circuit recently ruled in favor of the FCC’s new regulations on the Internet. By approving the agency’s Open Internet Order, or net neutrality regulations, as well as its reclassification of broadband Internet to a regulated public utility, the court handed the Obama administration and the FCC a major political and administrative victory. The FCC can regulate how Internet Service Providers (ISPs) manage their networks, all under the guise of keeping the Internet open.

Many criticisms of the decision have justifiably focused on its legal and political ramifications. Some point out that the FCC was initially skeptical of public utility regulation until the White House applied public pressure to the supposedly independent organization. There is also the questionable wisdom of applying Title II of the Communications Act of 1934 to broadband Internet. There are also serious First Amendment concerns with the government deciding how speech is transmitted over the Internet.

{mosads}Although these are important issues and compelling arguments, there is a more concrete and practical reason most Americans should be concerned by the court’s decision: net neutrality hurts consumers.

Of course, that’s not what its supporters say. President Obama argues that net neutrality ensures “a level playing field” by, for example, prohibiting so-called “fast-lanes” for content providers, also known as paid prioritization. They claim that the FCC’s order will prevent providers from stifling innovation and squashing competition.

However, these arguments ignore the reality of how Internet technology works. To provide service, ISPs must control movement through their networks based on such variables as time of day and the type of data being downloaded. When many users try to stream video content at the same time, the massive stress put on the network makes everything on the network slower. ISPs can manage the stream by briefly slowing the movement of some data. This technique, known as throttling, ensures that all of their users are able to use the network – but the FCC’s order prohibits this management. And that, in turn, hurts the product for which Internet consumers pay.

Judge Steven F. Williams’s dissent lays out a powerful case against the FCC’s order, pointing out that for all of the agency’s concerns over ISPs using paid prioritization unfairly, there were remarkably few instances of that ever happening, “a handful of episodes among the large number of transactions conducted by many broadband providers.”He also exposes the weak understanding of markets behind net neutrality: without paid prioritization, either all data must travel along the Internet at the same speed, which severely undermines the quality of certain products, or there must be unpaid prioritization, in which case some senders enjoy prioritization that is essentially paid for by everyone else. Simply put, for ISPs to provide consumers the services they want, somebody needs to pay for prioritization, and it makes most sense for the companies receiving that benefit to foot the bill.

The FCC argues that its rules do not “impose new taxes or fees or otherwise increase prices.” It also claims that it “doesn’t limit consumers’ choices or ban broadband data plans.” These statements are a rhetorical sleight of hand that mask the reality: These regulations will force these changes – price increases, fewer choices – on businesses and, eventually, consumers. FCC Commissioner Ajit Pai put it well last year: “The result of this pervasive regulation? Higher broadband prices, lower broadband speeds, fewer service plan choices, and less competition in the broadband marketplace. That’s a raw deal for consumers.”

We’re already seeing the implications of the supposedly open Internet with popular “zero-rated” services, such as T-Mobile’s Binge On. These programs allow consumers to stream large amounts of video or music without having it count against their monthly data caps. Such plans are popular because they take into account major changes in how and why people use the Internet. Yet net neutrality absolutists, including the editorial board ofThe New York Times, fear they violate the spirit of an open Internet.

The truth that the FCC and the administration want people to ignore is that regulating services and industries costs businesses money; businesses will pass those costs onto consumers. That’s simply how the market works. So it’s imperative that any government regulation is carefully planned and absolutely necessary. Net neutrality is neither, which is why the D.C. Circuit’s decision is a blow to consumers.


Mr. Colangelo is executive director of Consumers’ Research, the nation’s oldest consumer organization.

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