At long last, with the end of “net neutrality,” competition could soon come to the industry that delivers internet services to you. You might be able to pick from among a range of packages, some minimalist and some maximalist, depending on how you use the service. Or you could choose a package that charges based only on what you consume, rather than sharing fees with everyone else.
Internet socialism is dead; long live market forces.
With market-based pricing finally permitted, we could see new industry entrants, because deregulation promotes competition. Competition will lead to innovation and falling prices in the long run. Consumers will find themselves in the driver’s seat rather than crawling and begging for service and paying whatever the provider demands.
A Fed for Communication
The old rules pushed by the Obama administration had locked down the industry, with regulation favoring incumbent service providers and major content delivery services. They called it a triumph of “free expression and democratic principles.” It was anything but. It was actually a power grab. It created an internet communication cartel, not unlike the way the banking system works under the Federal Reserve.The public at large should have been rising up in opposition, but people were largely ignorant of what was going on with net neutrality. Consumers imagined that they would get censorship-free access and low prices. That’s not what happened.
Industrial Giants
What was sold as economic fairness and a 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.If we try to understand the position of the large content providers, we see the obvious special interests at work. Netflix, Amazon, and the rest don’t want internet service providers to charge them or their consumers for their high-bandwidth content. They would rather see the providers absorb the higher costs of content streaming. It is in their interest for the government to make it illegal to set different prices for different usages. It protects their business model.
By analogy, let’s imagine that a retail furniture company was in a position to offload all their shipping costs onto 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.
So why did the internet service providers (the truckers by analogy) not oppose this rule? 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 the other options.
Costs as Barriers to Entry
So 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 competition seeking to poach consumers from you.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.
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 were the costs to the rest of us? It may have meant no price reductions in internet service and not much innovation and improvement. It may have meant that your bills went up and there was very little competition. It 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 noncompetitive 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. We should gladly accept our deregulation when and where we can get it.
