Biden executive order reflects flawed views on internet competition

Biden executive order reflects flawed views on internet competition
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Last Friday, the Biden administration unveiled a sweeping new executive order designed to promote competition across the American economy. Some of its initiatives, such as occupational licensing reform, are both welcome and long overdue. For example, in his remarks, Biden noted that a hairdresser who moves to a new state may need to complete a six-month apprenticeship to get a license, even if he or she has been in the trade for decades. Reducing these artificial government-imposed barriers to competition will unquestionably help consumers.

But many of the order’s private sector reforms reflect a flawed conception of competition. Underlying these initiatives is the populist notion — which has gained currency among progressives in recent years — that big is inherently bad. The order targets “dominant” internet platforms and decries “excessive” market concentration, and complains that Americans pay “too much” for broadband or cable service. But the order is long on rhetoric and short on proof. It never explains why the White House feels prices are too high, or how it would calculate an “appropriate” price. And it does not show why concentration is “excessive” or how “dominant” firms harm consumers. By simply assuming big is bad, this approach ignores many pro-competitive practices that it has put on the chopping block.

Take, for example, the executive order’s net neutrality provisions. The order calls for the Federal Communications Commission to reinstitute common carriage obligations on broadband providers that existed during part of the Obama administration. Ostensibly, these rules promote competition by requiring broadband providers to treat all internet traffic the same and preventing them from charging a “toll” to prioritize some content over others. At first glance, these rules seem to level the playing field among internet-based companies by preventing deep-pocketed competitors from buying their way into a broadband “fast lane.”

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But a closer look shows net neutrality rules can actually harm internet-based competition. Prioritization helps alleviate congestion (when more information packets arrive at a network node than that node can handle). Different applications have different sensitivities to congestion. A small delay in packet delivery may be imperceptible to someone browsing the web but can erode the quality of a video stream or a telemedicine app. Prioritizing congestion-sensitive packets could improve the experience for Netflix users or rural doctors without adversely affecting the web surfer. But net neutrality limits this type of pro-consumer traffic optimization because of fear of abuse.

Even the post office — the quintessential common carrier service — is allowed to offer tiers of delivery at different rates, because we recognize that some shippers need priority delivery and others can get by at bulk rate. But broadband providers are prohibited from offering similar tiers of service, which makes it harder for companies offering congestion-sensitive services to compete on the public internet. Netflix solved this problem by building a private alternative to public internet delivery, but less-capitalized video competitors could not do the same.

Net neutrality also inhibits competition among broadband providers. For example, wireless companies might exempt certain content from a customer’s monthly data limit, a practice known as “zero-rating.” T-Mobile famously targeted music-savvy customers by zero-rating streaming services. And until recently, AT&T zero-rated video content from corporate sibling HBO Max, effectively throwing in HBO for free as a way to gain share from Verizon. But net neutrality rules would likely curtail zero-rating. Common carriage imposes one-size-fits-all rules on broadband providers, limiting the planes of competition and reducing consumer choice.

These rules are especially problematic because in the history of the internet, there are few cases in which a company has caused actual harm from non-net-neutral conduct. In other words, net neutrality rules are prophylactic. Paid prioritization, zero-rating, and other traffic management practices can be pro-competitive. But the rules would strictly limit these practices because of the potential for abuse.

Much of the executive order is in the same vein, strictly regulating companies or conduct out of fear of future misbehavior. This is a departure from traditional antitrust doctrine, which typically looks at conduct on a case-by-case basis and only blocks actions where actual anticompetitive harm outweighs any pro-competitive justification. Consumers are likely to lose from the Biden administration’s “throw the baby out with the bath water” approach in the form of lower growth and reduced innovation.

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In law school we often joke that lawyers fear math; students of our profile who like math went to business school. In that sense, the executive order is a lawyer’s dream: antitrust without math. But there is a significant downside to this prophylactic regulatory approach, as it ignores the potential benefits that bigness can bring. 

Contrary to the White House’s suggestion, big is not inherently bad. What matters is not whether a firm is big, but whether it has misused its size in some way to harm consumers.

Daniel Lyons is a nonresident senior fellow at the American Enterprise Institute and a professor and associate dean for academic affairs at Boston College Law School.