Net Nonsense

by Julian Adorney Over the past few years, millions of […]

Image by © Dreamstime

Image by © Dreamstime

by Julian Adorney

Over the past few years, millions of concerned citizens have called on the FCC to pass Net Neutrality. Many claimed that without tight regulation, Internet service providers (ISPs) would wreak all kinds of mischief, from creating “slow lanes” for ordinary users to blocking access to certain sites. After a number of false starts and under pressure from the White House, the FCC gave in and voted to regulate the Internet as a public utility in order to ban such practices, thus saving the Internet from a variety of boogeymen.

This is a tempting narrative. It has conflict, villains, heroes, and even a happy ending. There’s only one problem: it’s a fairy tale. Such mischief has been legal for decades, and ISPs have almost never behaved this way. Any ISP that created “slow lanes” or blocked content to consumers would be hurting its own bottom line. ISPs make money by seeking to satisfy consumers, not by antagonizing them.

There are two reasons that ISPs have to work to satisfy their customers. First, every company needs repeat business. DISH Network couldn’t grow if customers signed up for one month, suffered from poor access, and then decided to spend their money elsewhere. If — as Net Neutrality advocates fear — DISH decided to throttle Internet access to regular users or small businesses, these irritated consumers would just switch brands.

For Internet service providers, getting new business is expensive. To convince me to sign up for their service, DISH must first spend a lot of money on advertising. After I sign up, they must pay for the dish itself and for employees to install it at my house. But after that initial up-front cost, the marginal cost to provide me with Internet access falls to almost nothing. Satisfying customers so that they continue subscribing is cheaper, easier, and more profitable than continually replacing them. ISPs’ self-interest pushes them to add value to their customers just to keep them from jumping ship to their competitors.

In fact, this is what we’ve seen. ISPs have invested heavily in new infrastructure, and Internet speeds have increased by leaps and bounds. From 2011 to 2013, the top three national providers alone invested over $100 billion upgrading their infrastructure to provide cutting edge service. In 2013, average broadband speed grew by 31 percent. These faster speeds have not been limited to big corporate customers: ISPs have routinely improved their services to regular consumers. They didn’t do so because the FCC forced them. For the past twenty years, “slow lanes” have been perfectly legal and almost as perfectly imaginary.

In one sense, ISPs do have fast and slow lanes, because customers can pay for higher speeds. When I called DISH, for instance, their sales reps offered me a variety of packages from 7Mbps (megabits per second) to 20Mbps. But tiered service is different from the nightmare scenario that Net Neutrality advocates are worried about.

To demo the slow lane it feared, for instance, Neocities dropped the speed at which their website was delivered to 28.8Kbps, or about 1/250th of the slowest speed DISH offered me. Brad Feld proposed an Internet-wide “slow day” of 1 or even 0.5 Mbps to show what life in a hypothetical slow lane might look like. For DISH to offer such slow speeds would be ludicrous: consumers would switch service providers in a heartbeat. ISPs shy away from creating slow lanes not because they have to but because they have a vested interest in offering fast service to all customers.

Contrary to the myth about ISPs being localized monopolies, 80 percent of Americans live in markets with access to multiple high-speed ISPs. While expensive regulations can discourage new players from entering the market, competition in most cities is increasingly robust. Google Fiber recently expanded into several cities, offering speeds up to an astounding 1Gbps (1,000Mbps), with predictable results. AT&T, Grande Communications, and other service providers have rushed to match the offer, and Verizon is pushing its own fiber optic services. Even the lumbering telecom giant Comcast is under pressure to upgrade its network.

ISPs still have to compete with each other for customers. If one ISP sticks them in the slow lane or blocks access to certain sites — or even just refuses to upgrade its service — consumers can simply switch to a competitor.

The second reason that ISPs seek to satisfy customers is that every business wants positive word of mouth. Consumers who receive excellent service talk up the service to their friends, generating new sign-ups. Consumers who receive mediocre service not only leave but badmouth the company to everyone they know.

In fact, this happened in one of the few cases where an ISP chose to discriminate against content. When Verizon blocked text messages from a pro-choice activist group in 2007, claiming the right to block “controversial or unsavory” messages, the backlash was fierce. Consumer Affairs notes that, “after a flurry of criticism, Verizon reversed its policy” on the pro-choice texts. The decision may have been ideological, but more likely Verizon reversed a policy that was driving away consumers, generating bad press, and hurting its bottom line.

In 2010, an FCC order made such “unreasonable discrimination” illegal (until the rule was struck down in 2014), but even without this rule, consumers proved more than capable of standing up to big corporations and handling such discrimination themselves.

In competitive markets, the consumer’s demand for quality prevents companies from cutting corners. Before the FCC imposed public utility regulations on the Internet, ISPs were improving service and abandoning discriminatory practices in order to satisfy their users. Net Neutrality advocates have spent years demanding a government solution to a problem that  markets had already solved.

Source: FEE


The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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