“Net Neutrality” Is an Oxymoron When Government Logs On

President Obama released a video on Monday, November 10, asking the Federal Communications Commission to adopt rules that would keep the Internet what it always has been – “free and open.” The buzzword is “neutrality,” meaning that no telecom company or internet service provider (ISP) would be allowed to discriminate against some content providers by charging differently higher fees for delivering text or video recordings to consumers.

In other words, the “pipes” forming the Internet’s backbone would be treated like a “common carrier” and, like any other older economy service delivery platform (public utilities supplying your electricity and natural gas, railroads, and motor carriers), they would be required to provide access to all users on substantially equal terms. Neutrality in cyberspace means that broadband “hogs” (think Netflix or Amazon Prime’s video streaming service) would pay essentially the same fees to reach subscribers that other content providers pay.

Because this issue is still in the FCC’s hands, no one can know for sure what rules the agency will adopt. One important question, though, is: will neutrality apply to wireless services or only to cable-based ISPs, such as Comcast, Time Warner, and AT&T? In addition, will failure to preserve the status quo slow down the speed at which Internet connections and broadband capacity expand (because ISPs won’t be able to shift more of the expansion costs onto the “hogs”)? And what exactly is wrong with ISPs wanting to charge content providers higher prices for more bandwidth and faster, more reliable downloads?

More certain, however, is that regulations requiring “net neutrality” will end up benefiting the large, established ISPs. Incumbent firms have gained from “common carrier” regulation throughout U.S. history. As a matter of fact, the FCC predictably will be captured (if it has not already been) by the very companies President Obama wants to regulate “in the public interest.”

The president’s call to action sounds eerily similar to demands for federal railroad regulation that ultimately led to the creation of the Interstate Commerce Commission in 1887. Until it was put out of business in the early 1980s by President Jimmy Carter, the ICC allowed the railroads and, later, motor carriers and pipelines to charge prices exceeding competitive levels, thereby trying its best to protect the carriers’ profits at consumers’ expense.

The FCC’s chairman, Tom Wheeler, says he prefers a nuanced approach to net neutrality. “What you want,” he told representatives (i.e., lobbyists or rent seekers) from Comcast and other major industry players, “is what everyone wants: an open Internet that doesn’t affect your business…. What I’ve got to figure out is how to split the baby.”

Expect news soon that the baby is on life support or on the way to its funeral. When a politician or regulator claims to have consumers’ best interests in mind, hold on to your wallet.

William F. Shughart II is Research Fellow and Senior Fellow at the Independent Institute, the J. Fish Smith Professor in Public Choice at Utah State University, past President of the Southern Economic Association, and editor of the Independent book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.
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