How to Unlock the Free Market Possibilities of Net Neutrality's Repeal
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Past all the incendiary rhetoric, one of the key differences between Democrats and Republicans is the question of how far-reaching government intervention should be. Nowhere is this more apparent than in the most recent battleground over regulations: net neutrality.
Federal Communications Commission (FCC) Chairman Ajit Pai -- a Republican appointee -- championed a commission vote in December to repeal net neutrality regulation, arguing that deregulating internet service providers would bolster the economy.
Under a repeal, broadband providers would no longer be prohibited from blocking websites or charging for higher-quality service or certain content. The FCC, under Pai's leadership, says that ISPs like AT&T and Comcast will offer a better variety of niche services to enhance the customer experience if they are liberated from pesky regulations.
The issue is hardly settled: Democrats in the U.S. Senate disagreed with the FCC move and last month voted 52-47 to quash the repeal, but their bill is not expected to pass the House. And, even if it does, President Trump is extremely unlikely to sign it. As it stands, the repeal of net neutrality is set to take effect today, June 11.
The FCC’s repeal uncorked a tidal wave of outrage from net neutrality advocates, who fear a future of slower internet service, higher costs and fewer consumer choices. But those advocates should hold on -- because the loosening of regulatory hurdles actually fits into a market-oriented mindset that breeds entrepreneurial innovation. Here's how:
Tempest in a teapot
Most of the fears about dissolving net neutrality are misplaced. There’s the fear, for instance, that internet service providers (ISPs) will monopolize internet access and price-gouge consumers, but this is a strange way of looking at things. In fact, deregulation and monopolies aren’t as scary in the real world as they are in our imaginations.
In practice, goods and services can cost only as much as people are willing to pay for them. It’s not like the government is the only thing keeping AT&T and Comcast from arbitrarily doubling their pricing. Economics simply doesn't work that way.
The fact is that some people use more internet bandwidth than others, and offering uniform access is an inefficient model. Think of it as being like a city with congested rush-hour traffic: If there’s no cost to use a given resource, such as a road, it will be used more.
We decrease city traffic with carpools and public transportation and allow priority access to emergency vehicles. Of course, none of these controls add cost to the service; they just lead to greater efficiency because people are given different levels of access, depending on their usage.
The net neutrality kind of approach treats all drivers the same, whether they’re driving a bus, a motorcycle or an ambulance. And public safety announcements and other important information are given the same priority as online gaming and pirated movies.
It’s not an ideal situation.
Finding a better way
Even as internet users mourn the loss of net neutrality, entrepreneurs willing to play in the deregulated environment can take advantage of slower-moving competition. Here’s what they need to know to get started:
1. Businesses will pay premiums for guaranteed bandwidth. A free service that doesn’t work is costlier in the long run than is paying for guarantees. Imagine that a Skype call with an important client has massive consequences for your company, but your connection suddenly freezes.
Paying a few bucks to guarantee the bandwidth involved could make the difference between keeping and losing that client. Nearly 90 percent of American adults are online, according to Pew Research Center, and net neutrality effectively prevents ISPs from making specific promises to anyone. With net neutrality removed, however, guaranteed bandwidth offers are likely to gain popularity.
2. New services will be able to take advantage of guaranteed access. Remote surgery and telemedicine aren’t prolific these days because medical services compete with gaming and everything else online. And in other sectors, new services can’t be offered because they likely require fast access to specific servers and reliable connections.
The ability to differentiate is a vital component of innovation, and separating high-bandwidth users and guaranteed-bandwidth users could be key. According to research by Verizon, nearly all businesses use the cloud, and this situation comes with delays in data transmission.
That's why Google and others are laying fiber-optic cable around the world to speed things up and get around the problem, but repealing net neutrality will speed up the process more.
3. Entrepreneurial companies will be able to offer software to allocate network traffic. HBO's Game of Thrones is one of the most popular shows on the air. Whenever a new episode drops, it’s often enough to crash HBO’s streaming service. This leads some users to abandon legal channels and resort to piracy for their knights and dragons fix; and as global internet traffic continues to rise and popular shows to be aired, things will only get worse.
Any company that can relieve this congestion is sure to gain the attention of companies such as HBO, and the various ISPs.
4. Entrepreneurs will be able to sell on-demand data. The average American household has 14.7 connected devices using 190 gigabytes per month online, according to iGR. Netflix, YouTube and other online video streaming services eat the bulk of this data.
Offering on-demand a la carte internet services to travelers in hotel rooms and other public places could become a big business for anyone offering it. ISPs aren’t the only ones capable of setting up public hotspots in major cities.
There’s immense value in innovation that we’re not tapping into right now, simply because under net neutrality, ISPs aren’t allowed to differentiate between users and uses. While equality sounds great on paper, it ignores what it really means to categorize and segregate customer traffic.
Once the repeal goes through, some people might choose to pay more for increased or dedicated bandwidth or simply the promise of specific speeds when needed; and those funds could be used to upgrade current internet infrastructure with better technology and more broadband capabilities.
The only people who will lose in this scenario are the small minority of heavy users (e.g., online gamers) who currently cannibalize all the bandwidth. These are the people who are most vocally opposed to net neutrality’s repeal, and they’re the reason it needs to be repealed in the first place.