The Economic Case for Net Neutrality

A blog about business and economics.
Jan. 16 2014 10:49 AM

The Economic Case for Net Neutrality

185859533-cables-hang-in-the-4g-equipment-area-at-an-at-t-mobile
A series of tubes

Photo by John W. Adkisson/Getty Images

So-called network neutrality principles took a blow this week, but the fight rages on. You ought to understand this regulatory wrangling as first and foremost a dispute between different classes of firms. On the one hand you have broadband companies, and on the other hand you have online services companies. What broadband companies want is to use price discrimination tools to capture a larger share of the flow of money out of your wallet and onto the Web. Online services companies want to stop them from doing that, leaving a larger share in their own pockets.

So why should you care?

You should care because, fundamentally, the structure of those two industries is very different. Think about a major segment of online services such as video. I regularly watch major video content from Netflix, from Amazon, from Apple, and from Hulu. What's more, there are smaller-scale video enterprises such as YouTube and Vimeo that clearly have the technical capacity to serve content.

Advertisement

Or take audio. I use Rdio, iTunes, and Amazon regularly. Spotify and Google are also out there as options.

Now take broadband. I use Comcast. If I don't want to use Comcast, I can opt for drastically inferior Verizon DSL. There are no other options. For fast broadband Internet, I can use Comcast or I can go without fast broadband Internet.

And this is generally what you see. In almost any online services marketplace you see a few competing firms, and you see opportunities for new firms to get into the game. The online services also to some extent compete with offline services (going to the movie theater, etc.) or cross-modally (play games rather than watch movies). Broadband Internet, by contrast, is a profoundly uncompetitive marketplace. So a regulatory shift that pushes money out of the online services sector and into the broadband sector is a regulatory shift that pushes profit opportunities out of a competitive sector and into an uncompetitive sector. That's bad news for the economy.

At least that's how it looks to me. Now maybe you think that making the broadband sector more profitable will be enough to spur massive infrastructure investment and the creation of a robustly competitive marketplace where the vast majority of customers have three or four broadband providers to choose from. To me that sounds like a fantasy that flies in the face of the basic economics of infrastructure construction. And that's why the broadband industry needs to be regulated in such a way as to prevent it from swallowing all the surplus that exists on the Web.

TODAY IN SLATE

Medical Examiner

The Most Terrifying Thing About Ebola 

The disease threatens humanity by preying on humanity.

I Bought the Huge iPhone. I’m Already Thinking of Returning It.

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

Students Aren’t Going to College Football Games as Much Anymore

And schools are getting worried.

Global Marches Demand Action on Climate Change

Politics

Blacks Don’t Have a Corporal Punishment Problem

Americans do. But when blacks exhibit the same behaviors as others, it becomes part of a greater black pathology. 

Why a Sketch of Chelsea Manning Is Stirring Up Controversy

How Worried Should Poland, the Baltic States, and Georgia Be About a Russian Invasion?

  News & Politics
Weigel
Sept. 20 2014 11:13 AM -30-
  Business
Business Insider
Sept. 20 2014 6:30 AM The Man Making Bill Gates Richer
  Life
Quora
Sept. 20 2014 7:27 AM How Do Plants Grow Aboard the International Space Station?
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Tv Club
Sept. 21 2014 1:15 PM The Slate Doctor Who Podcast: Episode 5  A spoiler-filled discussion of "Time Heist."
  Arts
Brow Beat
Sept. 21 2014 2:00 PM Colin Farrell Will Star in True Detective’s Second Season
  Technology
Future Tense
Sept. 19 2014 6:31 PM The One Big Problem With the Enormous New iPhone
  Health & Science
Bad Astronomy
Sept. 21 2014 8:00 AM An Astronaut’s Guided Video Tour of Earth
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.