By Tarunima Parbhakar
1/29/2016
The Internet has long been hailed for bringing about limitless possibilities for the society. We can think of classrooms without teachers, ‘smart’ cities, real time data collection… While the Internet is revolutionary, treating new technologies as panacea for extant problems, as Tim Wu points out in his book ‘The Master Switch,’ is a common feature in history. In 1922, Alfred Goldsmith was certain that the radio would result in new cultural appreciation: “Whatever he most desires- whether it be opera, concert or song, sporting news or jazz, the radio telephone will supply it.” Just as neither the radio nor the television had the impact their ardent fans imagined, it is possible that the actual influence of the Internet will also fall short of our expectations.
There are several factors that can undermine consumer welfare from a new technology. A predominant one, as economic theories inform us, are large monopolies or oligopolies trying to maximize profits through market control of the technology. A trite example to support this theory is AT&T’s telephone market domination in the 1900s. In absence of adequate government regulation, AT&T, after killing competition from smaller telephone companies, had absolute independence in determining prices of its services. After the forced breakup of the company in 1983, several competitors such as Sprint entered the market, call rates became cheaper, and service quality improved.
However, it is commonly ignored that a collusive system has oftentimes led to a more efficient market. The economies of scale inherent in communication technologies and information goods encourage monopolies. The smaller companies that initially competed with AT&T provided connectivity only within their communities. By integrating these smaller companies, AT&T could build a nationwide network, allowing consumers to make long distance calls. Similarly, the radio, which in its initial years was used by hobbyists to run personalized shows, evolved into a commercialized medium to enable long distance public broadcasting reaching broad audiences simultaneously for the first time.
It is useful to see the recent debates on Internet neutrality, more commonly known as ‘net-neutrality,’ in this historical context. While there is no unique definition, for purposes of this article, net-neutrality is the principle that Internet Service Providers (ISP), such as Comcast and Verizon, charge users only for the service of the Internet without discriminating between the kind of applications used (video streaming, social networking, torrents), or the specific websites run on the service. Since its inception, the evolution of the Internet and business models around it were driven entirely by market forces and most ISPs until recently did not resort to discriminatory pricing. However, as a lot of tech analysts foresaw, there were growing incentives for businesses to deviate from this practice:i an ISP was found delaying Bittorrent uploads in 2007. What many have disagreed upon is whether this deviation is a good or a bad thing.
The issue of Internet neutrality came into broader public prominence when Comcast decided to slow down Internet traffic from Netflix in late 2013, asking Netflix to pay Comcast for restoring speeds for Netflix data to normal. This led to widespread backlash against Comcast and pro net-neutrality lobbying in at the federal level. Consequently, in February 2015, the Federal Communications Commission (FCC) reclassified Internet from an information service to a telecommunication service. The Internet, like traditional telephone services, is now a public utility and hence subject to greater regulation by the government. In essence, the U.S. voted against discriminatory pricing of services on the Internet. In contrast, in September 2015, the European Union voted against amendments that prevented ISPs from discriminatory pricing. While the service providers in Europe will be barred from differential pricing to consumers, ISPs will be allowed to prioritize certain kinds of applications over others. For example, ISPs in EU could stagger Bittorrents to prioritize email traffic.
With a technology as unprecedented as the Internet, it is difficult to predict which of these paths will be better suited for enabling innovation and competition. As FCC’s 2009 notice of proposed rulemaking aptly put it, “The key issue we face is distinguishing socially beneficial discrimination from socially harmful discrimination in a workable manner.”ii For simplicity, the debate on net neutrality is often framed in binary terms such as proponents/opponents, but it is necessary to recognize that there are prominent disagreements even within the two camps. More importantly, each country now debating ‘net neutrality’ operates under different constraints and will consider a different form of deviation from a neutral Internet.
People often look back to history to guide future regulations, but, as the history of radio and telephone exemplify, there are no clear answers as to whether regulation, if at all and in what form, is in the best interest of citizens. Some, often on principal and for practical considerations of the harmful impacts of a monopoly, insist on the original ideal of “preserving a free and open Internet.”iii They believe that in absence of regulation, ISPs would resort to differential pricing, as Comcast did. The issue is especially pertinent in developing countries.
By charging content providers such as Netflix, Youtube, and Facebook to prioritize their services over others, ISPs can reduce the cost of Internet to end consumers, which some claim is prohibitive for low-income consumers. However, such a move might raise the barrier of entry for newer startups. A startup like Lyft might not have the resources to pay ISPs to speed up its services, which an older company like Uber might have, given its advantage of being the first in the market. Some studies show that given a choice between faster and slower services, users would resort to the faster one, in effect eliminating the slower one.iv A non-neutral Internet could “reduce innovation at the edge of the network.”v On the other hand, some studies depict that differential pricing is necessary for incentivizing investment in the sector to enable broader reach of better quality Internet service. Antitrust regulation instead of net-neutrality regulation may be in the best interests of consumers.vi
The debate over the need, merits and de-merits on Internet regulation is a heated one in many countries today. The empirical evidence on either side of the debate is limited. As Chris Marsden, telecoms law expert at the University of Sussex put it, “It’s an extremely difficult area and there are probably no absolutely right answers.”vii The debate has also underlined the challenges of public consultation in regulatory processes, on a technically complex topic like the Internet. John Oliver exhorted his viewers to write to FCC expressing their support for ‘net-neutrality’ in 2014. AIB did the same in India in 2015. Last month, Facebook in India asked Facebook users to express their support to their ‘Free Basics’ platform, which is in violation of net-neutrality. These media campaigns led to thousands (and in the case of India, millions) of new comments to the respective regulatory bodies.
While it is commendable that citizens were spurred into action, the comments also highlighted that people don’t necessarily understand the issue they are responding to; several people who responded to AIB in support of net-neutrality also responded to Facebook’s call for the opposing legislation. Internet regulation is both a technical and a political problem, and a vote by majority will not necessarily result in the best solution. The Internet affects all of us. As citizens trying to participate in a political process with limited technical information, we can begin by understanding the issue we aim to address. Critical reading and questioning of the ongoing of the debate is perhaps more productive than taking a stand based on rhetorical arguments.
[i] Becker, G. S., D. W. Carlton, and H. S. Sider. “Net Neutrality and Consumer Welfare.” Journal of Competition Law and Economics 6, no. 3 (2010): 497-519.
[ii] 103, Preserving the Open Internet; Broadband Industry Practices, Notice of Proposed
Rulemaking, F.C.C. 2009. http://www.wired.com/images_blogs/business/2009/10/fcc-09-93a1.pdf
[iii] “Preserving a Free and Open Internet.” Federal Communications Commission. Accessed January 24, 2016. https://www.fcc.gov/news-events/blog/2010/12/01/preserving-free-and-open-internet?fontsize=.
[iv] Krishnan, S. Shunmuga, and Ramesh K. Sitaraman. “Video Stream Quality Impacts Viewer Behavior: Inferring Causality Using Quasi-Experimental Designs.” IEEE/ACM Transactions on Networking IEEE/ACM Trans. Networking 21, no. 6 (2013): 2001-014.
[v] 70, Preserving the Open Internet; Broadband Industry Practices, Notice of Proposed
Rulemaking, F.C.C. 2009. http://www.wired.com/images_blogs/business/2009/10/fcc-09-93a1.pdf
[vi] Sidak, J. G. “A Consumer-Welfare Approach To Network Neutrality Regulation Of The Internet.” Journal of Competition Law and Economics2, no. 3 (2006): 349-474.
[vii] Baraniuk, Chris. “EU parliament set to vote on net neutrality rules”. BBC News. October 2015. Accessed November 2015. http://www.bbc.com/news/technology-34641515
Tarunima is an MPP student at the Goldman School of Public Policy.