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A public policy blog from AEI
The Internet is the ultimate free-enterprise zone, an island of economic freedom in a world where the tide of state-managed capitalism seems inexorably on the rise. But is America about to mess that up?
“The question is whether to allow Internet-enabled innovation to continue transforming the economy — dramatically reducing the cost of and raising the quality of our education and health sectors, for example — or to allow the internet growth to be choked off by cronyism?,” write Reihan Salam and Patrick Ruffini in the chapter they contribute to the marvelous “Copyright Unbalanced: From Incentive to Excess.”
Which brings to the ongoing debate over net neutrality, the idea that Internet service providers should give equal treatment to all data that traverse their networks. Net neutrality advocates worry that the “open Internet” will be ruined by ISPs offering “fast lanes” to content providers will to pay up. But as the above chart shows, fast lanes already exist. Here is the WSJ’s L. Gordon Crovitz referring to the above Wired magazine chart:
The Wired graphic shows that the Internet is already full of fast lanes. In the early days, websites simply connected to the Internet backbone, which consumers accessed through Internet service providers. But as Internet use grew, sites like Google created their own fast lanes by sending data directly to ISPs such as phone and cable companies via what are called “peering” arrangements. Sites like Netflix created another set of fast lanes using “content delivery networks” to place their computer servers inside local ISPs so that video and other bandwidth-hoggers can be delivered smoothly. In other words, fast lanes won’t kill the Internet. They’ve saved the Internet.
In other words, the popular conception of the net neutrality, “open Internet” hasn’t existed for some time. Robert McMillan in Wired:
The net neutrality debate is based on a mental model of the internet that hasn’t been accurate for more than a decade. We tend to think of the Internet as a massive public network that everyone connects to in exactly the same way. We envision data traveling from Google and Yahoo and Uber and every other online company into a massive Internet backbone, before moving to a vast array of ISPs that then shuttle it into our homes. That could be a neutral network, but it’s not today’s Internet. It couldn’t be. Too much of the traffic is now coming from just a handful of companies.
As McMillan goes on to write, the real issue here isn’t some techno-wonk one of fast lanes vs. neutrality, but something fair simpler and basic — competition: McMillan:
Because every web company has no choice but to go through these ISPs, the Comcasts and the Verizons may eventually have too much freedom to decide how much companies must pay for fast speeds. … What we should really be doing is looking for ways we can increase competition among ISPs—ways we can prevent the Comcasts and the AT&Ts from gaining so much power that they can completely control the market for Internet bandwidth. Sure, we don’t want ISPs blocking certain types of traffic. And we don’t want them delivering their own stuff at 10 gigabits per second and everyone else’s stuff at 1 gigabit. But competition is also the best way to stop these types of extreme behavior.
I think the net neutrality issue is very difficult. I think it’s a lose-lose. It’s a good idea in theory because it basically appeals to this very powerful idea of permissionless innovation. But at the same time, I think that a pure net neutrality view is difficult to sustain if you also want to have continued investment in broadband networks. If you’re a large telco right now, you spend on the order of $20 billion a year on capex. You need to know how you’re going to get a return on that investment. If you have these pure net neutrality rules where you can never charge a company like Netflix anything, you’re not ever going to get a return on continued network investment — which means you’ll stop investing in the network. And I would not want to be sitting here 10 or 20 years from now with the same broadband speeds we’re getting today. So the challenge, I think, is to accommodate both of those goals, which is a very difficult thing to do. And I don’t envy the FCC and the complexity of what they’re trying to do.
The ultimate answer would be if you had three or four or five broadband providers to every house. And I think you actually have the potential for that depending on how things play out from here. You’ve got the cable companies, you’ve got the telcos. Google Fiber is expanding very fast, and I think it’s going to be a very serious nationwide and maybe ultimately worldwide effort. I think that’s going to be a much bigger scale in five years.
So, you can imagine a world in which there are five competitors to every home for broadband: telcos, cable, Google Fiber, mobile carriers and unlicensed spectrum. In that world, net neutrality is a much less central issue, because if you’ve got competition, if one of your providers started to screw with you, you’d just switch to another one of your providers.
Recently, Andy Kessler explained how established Internet service providers are trying to block Google from deploying Google’s superfast, gigabit broadband service. His solution:
The FCC can change this overnight. Instead of allowing municipalities to dictate onerous terms and laws that lock in (slow) incumbents, the FCC can mandate right-of-way rules similar to those granted Google Fiber to all credible competitors. If only the federal regulator would promote progress and focus on what’s best for the U.S. economy rather than for those it regulates.” Regulation should promote innovation and competitive churn, not protect revenue streams of existing players.
America — not to mention the world — needs superfast Internet, but via competition, not cronyism.
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