Net Neutrality Would Make the Internet More Expensive
With Obama-era net neutrality regulations officially repealed, Democrats have been scrambling to muster the votes in Congress to overturn the FCC’s decision. As of late January, they had garnered more than 50 supporters. But if Democrats care about making internet access more affordable, they should embrace the repeal.
Net neutrality rules, passed in 2015 by the FCC, regulated the internet under Title II of the 1934 Communications Act. The rules were designed to prevent Internet Service Providers (ISPs) from treating traffic differently when it came from different websites. Unfortunately, the rules mostly succeeded in hurting consumers.
Robust broadband investment matters because it keeps the internet affordable. Over the past 20 years, demand for data has skyrocketed. Users went from texting to video conferencing, from reading documents online to streaming movies. Despite that, the price of data has fallen dramatically. In 1995, AOL charged users $9.95 for 5 hours of internet usage. Today, the average American adult spends over 40 hours per week online. If we paid 1995 rates for present-day usage, the average bill would total $320 per month. And, of course, it would be dial-up, not 4G LTE.
In the face of rising demand for data, why haven’t prices risen or even stayed flat? Because the supply of data has risen even more dramatically. ISPs can offer video streaming in 2018 more affordably than dial-up in 1995 because they’ve invested heavily in broadband. As new technologies like virtual reality demand more data, we need a set of rules that maximizes broadband investment to keep the internet affordable.
Unfortunately, net neutrality led to decreased broadband investment. Since 2006, broadband investment has only decreased twice: in the depths of the Great Recession and after net neutrality was passed, per statistics from the industry’s trade association.
Why did investment drop? Net neutrality imposed Title II regulations on the ISP industry, which created a permission-slip framework for innovation that required ISPs to submit proposals to the FCC for new business models. Under net neutrality, innovation was subject to the whims of government bureaucrats. Facebook felt compelled to ask the White House for permission to launch a curated-web app called Free Basics. The FCC spent a year debating whether or not T-Mobile should be allowed to offer users unlimited Netflix and HBO streaming via a service called Binge On. In this environment of permission-based innovation and regulatory uncertainty, is it any surprise investment slumped?
In addition to discouraging investment, net neutrality would drive up the cost of internet usage. Binge On allowed users to stream Netflix as much as they wanted without worrying about eating up all of their data plans. T-Mobile gave customers what they wanted. According to BI Intelligence’s Digital Telecom Consumer Survey, unlimited streaming was important to users — so much so that 40 percent of Verizon customers said they would consider switching carriers if a competitor offered this service. By offering Binge On, T-Mobile identified and fixed a crucial pain point for users.
The FCC eventually allowed Binge On. But many net neutrality advocates argue that T-Mobile’s promotion violated the spirit of the 2015 regulations. As Stanford law professor Barbara van Schewick wrote in 2016: “As currently offered, Binge On violates key net neutrality principles and harms user choice, innovation, competition, and free speech online. As a result, the program is likely to violate the FCC’s general conduct rule.” It’s far from clear that under net neutrality’s permission-based framework of innovation, the FCC wouldn’t prohibit this kind of service.
More perniciously, net neutrality rules meant that T-Mobile couldn’t charge Netflix or HBO for inclusion in Binge On. While net neutrality advocates argue that this sort of pay-to-play service would punish consumers, it would actually help us by shifting costs onto other businesses and away from customers.
If T-Mobile can gain revenue by charging businesses for inclusion in services like Binge On, it might just pocket the extra money for a few months. But pretty soon Verizon will recognize the opportunity and start partnering with services such as Netflix. Verizon could then lower its prices to lure users away from T-Mobile, with the increased revenue from Netflix making up for the shortfall. If T-Mobile were to slash prices in turn to avoid losing market share, the biggest winners would be consumers.
This isn’t just economic theory — the most-used internet services are paid for not by consumers, but by other businesses. Ads on Facebook and Google fund the Silicon Valley giants’ immense infrastructure costs and lets them offer their service free to consumers.
ISPs may never offer $0 data plans, but any business model that generates money from entities other than the consumer will make the internet more affordable for the average user.
Advocates worry that repealing net neutrality will tilt the playing field against small online businesses, who won’t be able to buy the same bandwidth as Netflix and other giants. This is unlikely. Net neutrality rules weren’t enacted until 2015. Before that, the internet spawned a wealth of small businesses, from bootstrapped startups to one-man blogs. Facebook started in Mark Zuckerberg’s dorm and turned into an online giant. Two college kids founded Google, taking on and beating big search engines like Yahoo. The internet helped small businesses succeed for decades before the FCC passed net neutrality regulations — repeal isn’t going to change that.
What about the idea that repeal will give big corporations license to jack up prices? The American Enterprise Institute found that, over the past 20 years, the price of cellphone service decreased by almost 50 percent. Most of that decrease occurred before the Obama-era regulations. Given this trend, is there really any reason to expect prices to start rising?
The internet thrived for decades before net neutrality rules. Quality of service rose as prices fell. Given all the evidence, the burden of proof should be on net neutrality supporters to explain why the sky will fall if their 2-year-old regulations aren’t put back in place.
Julian Adorney is a Young Voices Advocate. He has been published in Playboy, National Review, The Federalist, and Lawrence Reed’s bestselling economics anthology “Excuse Me, Professor.”