Net Neutrality: Triumph of the Ruling Class

Net Neutrality Succeeds

A triumph of “free expression and democratic principles”? How stupid do they think we are?

It’s been painful to watch the gradual tightening of government control in the name of net neutrality. The Federal Communications Commission’s decision to rewrite the rules and declare the Internet as a public utility seals the deal. It cartelizes the industry and turns a “Wild West” into a planned system of public management — or at least intends to.

All the rest is a veneer to cover what is actually a power grab.

This whole plot has had all the usual elements. It has a good name and its supporters say it is about stopping private and public control. It’s had the backing of all the top names in content delivery, from Yahoo to Netflix to Amazon. It’s had the quiet support of the leading Internet service providers. The decision to impose the rule has been declared by a tiny group of unaccountable bureaucrats operating with the support of the executive lame duck.

The opposition, in contrast, has been represented by small players in the industry, hardware providers like Cisco, free-market think tanks and disinterested professors, and a small group of writers and pundits who know something about freedom and free-market economics. The public at large should have been rising up in opposition but people are largely ignorant of what’s going on with net neutrality.

Here’s what’s really going on. The incumbent rulers of the world’s most exciting technology have decided to lock down the prevailing market conditions to protect themselves against rising upstarts in a fast-changing market. To impose a new rule against throttling content or using the market price system to allocate bandwidth resources protects against innovations that would disrupt the status quo.

What’s being sold as economic fairness and a wonderful favor to consumers is actually a sop to industrial giants who are seeking untrammeled access to your wallet and an end to competitive threats to market power. One person I know compared the move to the creation of the Federal Reserve itself: the creation of an industrial cartel in the name of improving the macroeconomic environment. That’s a good comparison.

Let’s back up and grasp the position of the large content providers. Here we see the obvious special interests at work. Netflix, Amazon, and the rest don’t want ISPs to charge either them or their consumers for their high-bandwidth content. They would rather the ISPs themselves absorb the higher costs of such provision. It’s very clear how getting the government to make price discrimination illegal is in their interest. It means no threats to their business model.

By analogy, let’s imagine that a retailer furniture company were in a position to offload all their shipping costs to the trucking industry. By government decree, the truckers were not permitted to charge any more or less whether they were shipping one chair or a whole houseful of furniture. Would the furniture sellers favor such a deal? Absolutely. They could call this “furniture neutrality” and fob it off on the public as preventing control of furniture by the shipping industry.

But that leaves the question about why the opposition from the ISPs themselves (the truckers by analogy) would either be silent or quietly in favor of such a rule change. Here is where matters get complicated. After many years of experimentation in the provision of Internet services — times when we went from telephone dial-up to landlines to T1 connections to experimenting with 4G data coverage — the winner in the market (for now) has been the cable companies. Consumers prefer the speed and bandwidth over all existing options.

But what about the future? What kind of services are going to replace the cable services, which are by-and-large monopolies due to special privileges from states and localities? It’s hard to know for sure but there are some impressive ideas out there. Costs are falling for all kinds of wireless and even distributed systems.

If you are a dominant player in the market — an incumbent firm like Comcast and Verizon — you really face two threats to your business model. You have to keep your existing consumer base onboard and you have to protect against upstarts seeking to poach consumers from you. A rule like net neutrality can raise the costs of doing business but there is a wonderful upside to this: your future potential competitors face the same costs. As an established player in the market, you are in a much better position to absorb higher costs than those barking at your heels. This means that you can slow down development, cool it on your investments in fiber optics, and generally rest on your laurels more.

But how can you sell such a nefarious plan? You get in good with the regulators. You support the idea in general, with some reservations, while tweaking the legislation in your favor. You know full well that this raises the costs to new competitors. When it passes, call it a vote for the “open internet” that will “preserve the right to communicate freely online.”

But when you look closely at the effects, the reality is exactly the opposite. It closes down market competition by generally putting government and its corporate backers in charge of deciding who can and cannot play in the market. It erects massive new barriers to entry for upstart firms while hugely subsidizing the largest and most well-heeled content providers.

So what are the costs to the rest of us? It means absolutely no price reductions in internet service. It could mean the opposite. Watch your bills. I predict that it is not going to be pretty. It also means a slowing down in the pace of technological development due to the reduction in competition that will immediately follow the imposition of this rule. In other words, it will be like all government regulation: most of the costs will be unseen but the benefits will be concentrated in the hands of the ruling class.

There is an additional threat to how to the FCC has reclassified the internet as a public utility. It means a blank check for government control across the board. Think of the medical marketplace, which is now entirely owned by a non competitive cartel of industry insiders. This is the future of the internet under net neutrality.

If you look at how all this shakes out, this is really no different from how most every other sector in life has come to be regulated by the state, from food to money to medicine to education. It always shakes out this way, with a sleepy public believing the propaganda, an elite group of insiders manipulating the regulations for their own benefits, a left-wing intelligentsia that is naive enough to believe platitudes about fairness, and a right wing that is mostly ignorant and for sale to the highest bidder.

No, I don’t believe that the net neutrality ruling means the end of times for the internet. But it does mean that progress going forward in the digital age will be slowed compared with what it would otherwise be. Future generations will laugh in bemusement: it was the dawn of a new age and yet they believed it could be controlled the same as all that came before. Fools.

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Jeffrey A. Tucker

Jeffrey A. Tucker is Founder and President of the Brownstone Institute. He is also Senior Economics Columnist for Epoch Times, author of 10 books, including Liberty or Lockdown, and thousands of articles in the scholarly and popular press. He speaks widely on topics of economics, technology, social philosophy, and culture.

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18 comments

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  • Worst case scenario is that a better web will rise from the ashes of government web. Best case scenario it will light a fire under enough people’s asses to build the worst case faster!

  • The passionate support of this change is a bit sad. I’m trying to be optimistic and remember that the market will find a way around this. Mr. Tucker is correct though that this new policy change is a cog in the works that will slow the market.

  • Government regulations of businesses invariably benefit the established economic interests of those already in business. As Jeffrey notes, “net neutrality” imposes higher costs on all players, and those in business are better able to absorb those costs. In the auto industry we’ve seen this situation lead to a trio of giant domestic automobile manufacturers and less than a dozen overseas competitors working with government agencies to rig the market to keep selling $2,100 of parts and labour for $18,000 or more.

    Of course, telecommunications entrepreneurs like Walt Anderson (who has been told he must pay all of his $500 million in wealth to the IRS for “tax” liabilities they say he incurred, and that their courts say are proper) would certainly be better off economically, and more able to innovate technologically, if there were no United States government. Getting to that result, however, has proven to be more than a little tricky.

    The good news is that a great many entrepreneurs and tech experts are very motivated to create censorship-free economic environments for people to innovate. Some of us have been doing that for a great many years, now.

  • I’d say in less than a decade we’ll all have switched to the meshnet (darknet) or some other alternative.

    Also doesn’t the federal court still have to approve it?

  • Great commentary with some great questions. Indeed, regulation for “the common good” has been government’s excuse for stepping in so many times before in different industries and the FCC in particular has quite a long history of this (radio, TV, etc.) It’s really disturbing how many people out there seem to think it is cause for celebration. I keep seeing tweets on hashtag #NetNeutrality saying “we did it!” or “a victory for us!” and I ask – Who do they think “we” are? Is this merely a symptom of advance-stage collectivism? I keep wanting to think they’ll regret it when they start having to pay that internet tax, but then I remember that even after the Healthcare.gov debacle and huge tax penalties, the Lefties still seem just as enthusiastic over Obamacare.

  • Google is already sending emails all over the place. Just got mine:
    “Dear M.:
    You may have heard that the Federal Communications Commission (FCC) just put in place rules to protect ‘net neutrality.’ That’s big news.
    But there was another important decision today to help keep the Internet competitive and open — and while it’s getting less attention, it may be just as important.
    As part of its agenda to encourage meaningful competition in high speed broadband for all Americans, the FCC supported allowing cities to make their own decisions about investing in new broadband networks. More needs to be done to drive innovation in bigger, faster broadband, but this is a good step.”

  • This is spot on Jeffrey. The other ramifications will be more bloat and bureaucracy. They will have to hire more government regulators who will create more rules…..eventually we could be forced to have an internet id or some kind of licensing scheme with permits for having a webpage etc.

  • Hi Jeffrey
    Thanks for the clarifying breakdown of the parts to the whole and takedown of the government’s usual hidden agenda! I finally got a grip on this slippery item!
    What has always impressed me about you, and those few anarcho-libs like you such as Wendy McElroy and Jeff Berwick, is your genial innocence, lack of the “Experts” arrogant ignorance with admission of uncertainty, gentle assertiveness, openness to trial and error without resort to guile and terror…so thank you for being you! Keep up the Work of the Good!
    Yours in Personally Responsible Freedom, Jack in China

  • I think that the Internet is a beast that cannot be controlled in the long run. The method of regulation that has now been adopted will be escaped with new technology. There will always be market players who eventually will provide a sound alternative, the regulations themselves providing the impetus for those alternatives. I am thinking that satellite-based ISPs, domiciled in foreign countries, will provide both Internet and telecommunication services, avoiding both regulation and spying. It can’t be that far away. Anyone who is expert on these things, please comment.

  • I don’t know what passes for “net neutrality” in the legislation or what rent seekers have managed to win under this label, but the net neutrality that proponents have championed for years is not a change. It’s how the internet has always worked. If you’re routing packets through a communications channel that you own, you don’t get to charge more for one packet than for another. Packet size or bandwidth is not the issue. Content is the issue.

    How can the owner of a coaxial cable charge more for transmitting my information without knowing whose information he’s transmitting? How can he charge more for packets that are part of a Youtube stream without knowing that they’re part of a Youtube stream? The way the internet has always been designed, he need not know and often cannot know what information he’s transmitting. Do we really want to change this design?

    Consumers do pay more to consume more bandwidth. Net neutrality as ordinarily discussed has nothing to do with charging more for more bandwidth.

    By government decree, the truckers were not permitted to charge any more or less whether they were shipping one chair or a whole houseful of furniture.

    I’m pretty sure that this analogy is faulty. A closer analogy would have the government (or another owner of a road) charging more for a truck carrying marijuana vs. a truck carrying the same weight of tobacco. This differential charging requires the road owner to know what’s being trucked and permits him to capture more of the value of goods with a higher value per unit of weight. Maybe road owners should have this right, but we need to be clear about what we’re discussing.

  • What’s most discouraging for me is to see so many people that I like and respect, and who are relatively intelligent in most other areas, get suckered into Net Neutrality. They fear Big Corp and see Big Government as the ultimate protector, rather than realizing the power they could possess as players in a free market.

  • When George Soros pours money (over $100M) in causes such as these – he even got a few people witht he White House and the FCC – the media doesn’t seem to object…

  • Funny. I was talking to someone the other day about this topic at work, describing how competition drives innovation and reduces costs, and how Net Neutrality is packaged as equal access to the Internet under the guise of protecting our freedom of speech. I’m worried about companies like Google stalling their fiber expansion now, since there’s little incentive.

  • As the front line champions of the market, we need to find a way around this. Anyone have any ideas?
    Here are a couple of thoughts….

    Satellite connection to the internet may work; I don’t see a way for the FCC to control satellite ISP connections, especially if the satellite is from another country.

    Another way would be if computers could start talking to each other directly, via WiFi connections of their own. Essentially a massive decentralized web of computers talking to each other would probably make the ISP monopolies completely obsolete. That would change the way our current internet functions, but at least we could have privacy and innovation could continue.

    Massive WiFi towers, probably would not work because they would have to be located within the FCC’s jurisdiction, unless somehow cell phone companies (and their towers) are not regulated under the net neutrality law (doubtful).

    I have heard about “The dark web” but I have no idea how it functions, any ideas?

    Anybody have any other ideas that could fix this situation?

  • Most of the people discussing this issue don’t seem to understand it. The conflict is between owners of the information channels (ISPs) and content providers. Owners of the information channels want to charge different content providers different rates based up on their content, not the number of bits transmitted across a channel but the arrangement of the bits, so AT&T can charge Youtube more (or less) per bit, than it charges some other streaming video provider, to move a bit from one end of its communications channel to the other. The ISPs are the ones who want to change internet protocols for this purpose, not the content providers.

    For example, AT&T might charge Youtube more to give Youtube a “fast lane”, but “fast lane” isn’t the best analogy here. Data moving across the Internet does not have a pre-determined route from a Youtube server to my computer in my house, so a particular packet of Youtube data, traveling from a Youtube server to my computer, might not cross a channel owned by AT&T while another packet does. What AT&T can offer Youtube is a priority, so when packets are waiting in line to cross a particular AT&T channel, a Youttube packets always moves to the front of the line.

    A network permitting AT&T to route data with a data-dependent priority is completely antithetical to “the dark web” (like TOR). TOR uses an “onion routing” protocol to protect the privacy of communicating parties. With this protocol, a router does not know (and cannot possibly know) either the ultimate source or the ultimate destination or the content of a particular packet of data.

    If the entire web were dark in this sense, AT&T couldn’t possibly give priority to one packet of data over another, because it couldn’t know who to bill. A dark web is inherently neutral in the “net neutrality” sense. People who want to eliminate this neutrality (which already exists and has always existed in the Internet protocols) want to make the network “lighter” in this sense, not “darker”.

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