By Brenda Wenning
For nearly two decades, the Internet has been capitalism’s engine, driving the creation of the country’s largest and most successful companies.
Amazon, Google, Uber, Airbnb, Facebook, Twitter, Pinterest, LinkedIn and thousands of other companies wouldn’t exist without it. In fact, pretty much all of the 176 companies on Fortune’s list of unicorns (startups valued at $1 billion or more) wouldn’t exist without the Internet.
The Internet has improved our quality of life, providing us with entertainment, online shopping, directions when we’re lost and the ability to communicate with anyone, anywhere at any time. It’s beginning to improve healthcare and should save lives and lower costs – if we let it.
Libertarians would point to the Internet as the most compelling example in history of how businesses can grow, create jobs, contribute to the economy and produce tax revenue when left practically untouched by government regulation.
Net Neutrality
But lovers of government regulation have protested at the home of Ajit Pai, chair of the Federal Communication Commission, because he’s attempting to “destroy net neutrality” by overturning rules adopted by the FCC in 2015 under his predecessor, Tom Wheeler.
Net neutrality supporters have also crashed the FCC website with negative comments, and created organizations with noble-sounding names like Fight for the Future and Save the Internet.
So what is “net neutrality” and why is this attempt to deregulate causing such an extreme reaction? According to Save the Internet, “Net Neutrality is the basic principle that prohibits internet service providers like AT&T, Comcast and Verizon from speeding up, slowing down or blocking any content, applications or websites you want to use. Net Neutrality is the way that the internet has always worked.”
Of course, “net neutrality” is not “the way the Internet has always worked,” given that net neutrality regulations didn’t exist until 2015. That’s when Pai’s predecessor, Tom Wheeler, led the reclassification of the Internet from being an “information service” to being a “telecommunications service,” which makes it subject to Title II of the Communications Act of 1934. As a result, the Internet is being regulated like a Depression-era utility.
Before the new rules took effect, did you ever have content blocked by your Internet Service Provider (ISP)? Private businesses like ISPs respond to the needs of their customers if they want to remain in business. There are thousands of ISPs in the U.S., so if yours decided to block content that you want, you could move your business to another ISP.
But net neutrality isn’t really about unblocking content. It’s about adding regulations.
In an interview with The Wall Street Journal, Pai said it would be more accurate to substitute the term “Internet regulation” for net neutrality, “because the essential question is whether we want it to be governed by technologists and engineers and businesspeople, as it was under the light-touch approach during the Clinton administration, or by government lawyers and bureaucrats here in Washington.”
In other words, net neutrality is the Internet equivalent of socialism. All data will be treated equal; that is, it will be developed at a slower speed with lower quality and a higher cost.
Higher Prices, Less Innovation
To determine what net neutrality will do to the Internet, consider what FCC regulation has done to other industries.
According to Investor’s Business Daily, “the FCC has a long and miserable record of thwarting innovation and raising prices in the industries it regulates. Forcing Internet companies to justify business decisions to federal regulators would have the same effect.”
Ironically, the biggest beneficiaries of an unregulated Internet in its early days – Google, Facebook and Netflix – have come out in support of net neutrality. As large companies have the capital and staff necessary to comply with complex government regulations, they can afford net neutrality. Startups, meanwhile, will need to find another business model. Big companies are willing to comply with complex regulations if it means having fewer competitors.
Lawyers also benefit from net neutrality. The more regulation, the more lawyers we’ll need to implement it and ensure that Internet service providers are in compliance. Given that telecommunications lawyers typically charge $350 to $2,000 an hour, they’re likely to find ways to spend billable hours ensuring that ISPs are complying with net neutrality regulations.
What about consumers? The cost of implementing net neutrality regulations will, of course, result in higher costs, which will be passed on to consumers. According to a study by Stratecast, net neutrality “could impose anywhere from $10 to as much as $55 each month on top of an average broadband access charge of $30.”
“To the extent consumers were unwilling or unable to incur such costs,” the study says, “net neutrality could, ironically, have the effect of actually reducing broadband penetration.”
In other words, users in rural areas waiting for faster speed can just keep waiting. So much for the equality of government-regulated Internet access.
Given the costs of compliance and potential legal costs, we can expect less business investment, fewer startups and less innovation if net neutrality remains in effect.
Former FCC Commissioner Robert M. McDowell wrote in The Wall Street Journal that wireless prices have fallen 25% in the past decade, including a reduction by 10% last year alone, because of intense competition. As the cost of net neutrality reduces competition, prices will increase.
Already, Pai told The Wall Street Journal that the 12 largest ISPs decreased broadband capital expenditures by 5.6% or $3.6 billion between 2014 and 2016. Less investment is likely to result in less innovation and higher prices.
Open-Ended Regulation
Pai’s deregulation efforts would include elimination of the “general conduct” standard that enables the FCC to police ISP behavior to ensure that ISPs are following the will of the FCC.
“This gives the agency wide-ranging powers,” according to The Washington Post, which notes that The Electronic Frontier Foundation, which is pro-net neutrality, found that “bringing a case under the general conduct standard would be an expensive process that only the wealthiest companies can afford, and the policy risks giving the FCC too much latitude.”
Yes, Pai appears set to “destroy net neutrality.” And anyone other than lawyers, bureaucrats and large companies should be supporting his effort to do so. Anyone who suggests that we need government regulation to have a free and open Internet doesn’t know much about government regulation.
Brenda P. Wenning is president of Wenning Investments, LLC of Newton, Mass. She can be reached at [email protected] or 617-965-0680. For additional information, visit her blog at www.WenningAdvice.com.