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Why we should think twice about ‘net neutrality’

Author: Douglas Holtz-Eakin
March 16, 2006
Financial Times


Web users around the world may be intrigued to see how members of the US Congress have developed an interest in managing internet pricing. Under the slogan “network neutrality” they propose to legislate to prevent providers of network capacity from discriminating in their charges to customers. “One price fits all” sounds benign—who could be opposed to ensuring neutrality in a network?

A minor glitch in this vision of utopia is that one cannot find a real-world network that operates neutrally. Try freight transport. If I want to buy a case of French wine, I can have it shipped ocean freight. If I want it quickly, I can pay more and have it flown to the US. A starker example is last-minute Christmas shopping. You can order basics, books or baubles and have them shipped normally—and slowly—and be in big trouble. Or you can pay extra to receive them the next day, averting a crisis.

Or consider personal travel. I live in Washington and travel frequently to New York. As I do so, I do not pay the same for highway driving, regional train service, express train service and air travel. I pay more for the right combination of “content” (comfort, quiet, reliability) and speed.

Finally, think of traditional poles-and-wires-telephony. Even in those networks, many consumers have the option—and parents of teenagers typically pursue it—of paying more for greater capacity, or “call waiting”.

These arrangements have flowed naturally from market forces and reflect the nearly limitless capacity of tailored contracts to meet the dual goals of cost recovery and optimising customer satisfaction. Ah, but, the argument goes, the internet is different; it is free, and free of "business as usual"—no global corporations, no profit motives and no rules.

On the internet, people voluntarily share the fruits of their imaginations and collaborate openly. It is a beautiful vision. But it does not tell us how to cover the costs of connecting billions of computers, laying millions of miles of cable, erecting countless wireless transmitters and building the capacity to ship a film from Beverly Hills to Birmingham to Bangalore.

Reasonable proponents of network neutrality do not pretend the internet is free. But they do cling to a one-size-fits-all approach. Charging everyone the same amount means that when grandparents pay for their weekly check of e-mail from the grandchildren, they subsidise online gamers and film downloads. It means that holiday-season web-shoppers subsidise daily video-conferences. There really is no free lunch even on the internet, and flexible contracting arrangements are the most efficient way to pay for it. Rigid average cost prices in the US will spill globally, drive millions away from the web—especially in poor countries—and cripple the internet.

Societies have been down this path before. The profound desire to pretend that highways are free has produced massive urban congestion—and a revolution in the form of toll roads and even congestion pricing. When London decided to charge for its valuable automobile capacity at peak times, the city did not disappear. Instead, it raised the social value of the overall traffic network by creating explicit priorities and the open opportunity for all to choose—or not—to pursue them.

Indeed, network engineers recognise that establishing priorities is an integral part of network functioning. A traffic grid does not have red-light neutrality—some lights change more quickly than others to ensure overall traffic flows efficiently. (Indeed, the internet now contains such engineering protocols; legislating true bit-by-bit neutrality could devastate the web.)

There is no role for government in managing the evolution to new business models and consumer products. Abusive monopolies must be countered whether they operate over fibreoptic cables or at petrol stations. Deceptive consumer practices should be attacked to permit informed choice.

But much as the heralded “new economy” of the late 1990s turned out to be the same old economics in new guise—rotten products found no buyers; the absence of profits spelled doom—the proved techniques will still work.

It is impossible to predict the future scope, diversity and scale of internet services. But pairing consumer-driven economic incentives with engineering protocols is a proven recipe for delivering a greater social contribution than inflexible, legislatively determined approaches.

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