Net Neutrality: More Unintended Consequences

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Net Neutrality: More Unintended Consequences

What if the FCC could force FedEx and UPS to charge the same rates for delivery regardless of how many days it takes to get a package delivered and/or the weight of a package?

Stairway to Trouble

A large tech company found many of its workers were using gadgets when walking up and down the stairs and as a result after numerous internal meetings they decided in order to create a better work environment they would communicate with the workforce about the perils of multitasking while walking on the stairs. As you might have guessed, the decision was made to put signs in the stairwells warning people to not multitask.

The problem of course was that more and more employees started to read signs while they traversed the stairs – including the people who weren’t multitasking to begin with. Obviously this increased the risk of someone falling down the stairs.

The law of unintended consequences once again reduced the impact of good intentions – many might even argue it would have been better to leave well enough alone.

The Internet is the ultimate democratic tool

Today, the Internet is the ultimate democratic tool allowing any person in the United States and many other countries to have access to virtually all information which exists online. Only occasionally have there been companies which have acted in ways which have limited the ability of consumers to access services or information.

Works fine as is

So generally speaking, the Internet works very well as is and except for limited cases, democracy is flourishing because of it and access to broadband is becoming more widespread as prices have generally gone down for bandwidth.

Moreover, consumers can stream massive HD video files at their whim and in some cases do over the lowest cost tier of DSL quite often costing under $20 per month.

Some could easily argue that the current state of broadband while far from perfect is increasing broadband speed to consumers at lower prices – a goose laying golden eggs so to speak.

Do we need net neutrality?

In an ideal world where theory trumps practice, net neutrality makes sense – allowing all packets and services to be treated fairly equally. If you are in college, this may seem like the perfect utopian world because in this realm you don’t worry about investors or how companies have to make money, payroll or maintain networks.

In the real world however there are major concerns which arise when unelected bureaucrats get involved in private industry to regulate at a granular level. For example, does the spammer deserve net neutrality protection? What about the company pushing malware and other senders of questionable but not illegal content?

My favorite part of the argument is who decides what is appropriate to send? Someone in Washington? A lobbying or special interest group?

This leads us to the obvious question – why don’t spammers get together, form a trade group and spend money to lobby for spam to be protected under net neutrality principles?

Competition is Lacking

Perhaps the best argument for net neutrality is that there is a lack of competition and too much market power resting with a few companies. Well, this seems to be the case in industry after industry. But isn’t this the situation in the market for shipping packages today as well? Think about the following:

What if the FCC could force FedEx and UPS to charge the same rates for delivery regardless of how many days it takes to get a package delivered and/or the weight of a package?

Is this concept not generally what net neutrality is?

The FCC’s Intentions?

The FCC says its goal is to ensure open access to applications by consumers which in-turn will increase broadband adoption which in turn will increase investment in broadband which in turn will accelerate the cycle.

How Will They Accomplish Network Neutrality?

The principles are fairly straightforward as broadband providers will need to:

  1. Be transparent in how the manage their networks – for example if they impede certain traffic or applications they need to explain why.
  2. Not block or impede lawful content and/or devices and applications.

Interestingly we could make the same argument about shipping – if packages were not discriminated against, the price to ship would be reduced and as a result there would be more shipping. This in turn would lead to more investment by FedEx to upgrade their trucks and airplanes.

Why is net neutrality needed again?

So what the FCC is saying is that in order for broadband carriers to be more successful they will force a certain behavior when carrying traffic which they deem to be in the best interest of the carrier.

But if carriers are already abiding by net neutrality principles and doing otherwise would harm their business by reducing broadband adoption, why do we need to force them to do what is in their best interest?

The Unintended Consequence

The FCC’s meddling in a system that works fairly well could kill the goose that lays the golden egg in the following way. Video streaming is already catching fire in the US and with these new rules in place, video providers may be able to secure ever-greater investment for streaming video content online. On the face of it, this is great news but there are a few problems which we should be concerned about.

The rapid decrease in TV set prices and the proliferation of new devices such as tablets means consumers are already be sucking down more and more high-quality video content to their machines. The government may have just added a turbocharger to a race car meaning carrier networks may end up being even more severely strained under the load.

In addition, many broadband carriers make tens of billions of dollars in affiliate fees. Accelerating the move to over-the-top video means the broadband providers will see a more dramatic than expected decrease in revenue.

In other words the cycle the FCC is so concerned about protecting may have been disrupted by this move.

Even worse, they may have just changed the slope of the bandwidth per dollar curve because as competitive services take away profits from multi-play providers, they may have less money and incentive to invest in faster broadband connections.

My changing perspective

Of course we want what is best for consumers and time after time the government says it wants to help but doesn’t. I have lived through bubble after bubble which has either been induced by or amplified by government interference and to be honest I am horrified at the prospect of any more help. Even when the government did things which no one could argue with like increasing competition in the telco market by allowing CLECs to form, they set up a situation where a massive bubble formed and popped.

This bubble may not be something we can blame the government for but it shows even the ideas with the best intentions can have ramifications which are very bad for the markets they are looking to help.

Unintended consequences

Generally speaking unintended consequences may be understood to apply to tangential problems which manifest themselves as a result of some action. Recently however John Stossel had an entire television show which shows quite often government programs designed to help a certain group of people often hurts the very same group.

 

CNBC too had a special which shows how government guaranteed student loans are contributing to the cost of college increasing at an astronomical rate. They suggest this nearly one-trillion dollar problem may be the next government-induced bubble fueled by good intentions which will burst.



Something to like

The free market-lover in me however has to give credit to the FCC for increasing carrier transparency. I believe in the age of the Internet, transparency will allow citizens to stay informed and make better decisions. Moreover, social networking allows consumers to shame companies into acting in ways which society deems correct.

In fact with proper transparency, citizens using the Internet can do a far better job regulating the companies they buy from than unelected bureaucrats.

Where do we go from here?

The future role of the FCC and federal government boils down to the type of government we want to pass down to our children. If these central planning bureaucrats consistently fail in getting the desired results via well-intentioned regulation, should we change our approach or keep protecting ourselves from falling down the stairs by posting more signs in the stairwell?

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