“The decision will ensure that start-ups like Northwordnews or The Gold Coast Beacon, or bloggers – those modern day Thomas Paines – can compete on the same fast playing field as giant corporations such as [Patch and Newsday],” reads an editorial from our Sea Cliff neighbors.
I agree with the characterization. We are the “modern day Thomas Paines” in that we offer an alternative to the Goliaths of the establishment, whether it’s Red vs. Blue, or Newsday vs. Patch. But the recent 3-2 ruling to adopt so-called “Net Neutrality Rules” supported by the editorial endangers the creative destruction process unfolding in the Internet industry by placing it under much more government control.
The argument for the FCC’s Net Neutrality rules was that sites like this could not compete on a fair playing field, because internet service providers (ISPs) might try to charge bandwidth consumers more for “fast” lanes in a tiered system. Under this scenario, they warned that ISPs would load the rest of our sites (like this one) at 56K-like speeds or even block access.
President Obama, who pressured the FCC to pass the rules, summed up his side’s argument: “We cannot allow Internet service providers (ISPs) to restrict the best access or to pick winners and losers in the online marketplace for service and ideas.” For example, “a high school student’s blog shouldn’t be unfairly slowed down to make way for advertisers with more money,” he explained. We can reach one of two conclusions–Mr. Obama experiences fear not based in reality, or he was pressuring the FCC to adopt rules based on shoddy foundations.
Not to say that this sort of tiered system should be feared. Most free-market economists have noted that this is the norm virtually everywhere else. For instance, a consumer who needs to send or receive a package overnight can pay a lot more for that service, while others who don’t need it done right away can pay less for slower delivery at a much lower rate. This kind of arrangement exists at sporting events and concerts, grocery stores where corporations pay for prime placing on shelves, and hotels where the price differs between the garden room and the presidential suite. Both bandwidth and Billy Joel tickets are scarce resources which have alternative users. Nobody in their right mind would call for something like “Billy Joel Ticket Neutrality” because we understand there are only so many front-row seats. Internet bandwidth is no different.
But to the contrary, the profoundly unregulated nature of the high-speed broadband industry has allowed for innovation and a rapidly diminishing cost on the supply-side. I remember at the turn of the century when my family switched from dial-up to our first cable modem. Yet today, 97 percent of American households can choose from 3 or more high-speed providers, and it’s only getting better.
President Obama’s narrative is especially absurd because there are no examples of his scenario even happening in reality. Internet bandwidth is made so abundant, that sites like Google and WordPress will host anybody’s blog–for free! So to fix a problem that doesn’t exist, the FCC had to step in and reclassify Internet providers as public utilities under Title II of the Communications Act of 1934. This has the industry concerned about the potential of price controls, above all else, and arbitrary regulation whenever bureaucrats call it “just and reasonable”.
FCC Chairman Tom Wheeler has promised that the new rules would not lead to rate regulation, but recall that the biggest voice behind Net Neutrality was… President Obama, the same man who infamously quipped, “if you like your healthcare plan, you can keep your plan, period.” No surprise that Democrat commissioners, testifying before Congress, have admitted that the reclassification could indeed lead to rate regulation (price controls).
The argument against government control is that prices and the quality of service would be better determined by the free market. When the price of broadband is high, perhaps temporarily suppliers (ISPs) may “gouge” consumers and the smaller publications, but not for long. The high price and promise of profits attract new entrants to the market, which tends to push the cost to consumers down to prices favorable to consumers. This process usually unfolds unless the market is what is called a natural monopoly, i.e. commuter transportation, with colossal startup costs and low marginal costs–these are very rare in reality. It’s much more common when government imposes barriers to entry, such as cost-imposing regulations, permits, and licenses.
This is what Reason‘s Nick Gillespie and FCC Commissioner Ajit Pai spoke about in a recent interview (embedded above). “To the extent that cable companies once had absolute local monopolies, it was precisely due to local governments granting them that,” Gillespie wrote in a follow-up article. “There are all sorts of things that local, state, and federal governments–not to mention nominal independent agencies such as the FCC–might do to reduce or remove barriers to entry for competitors.”
Glen Covers ought to be natural adherents to this kind of understanding. Recall a time when there was only one game in town: “The absence of a competitor has long left residents with no option other than Cablevision, and complaints of steep bills and no recourse,” the Glen Cove Patch reported in 2013. Sounds like a monopoly.
Though Verizon Fios’ franchise was finally granted in 2014, politicians wanted to impose more costs on the new entrant to the market. It was if the privilege to provide services to residents was the politicians’ to give. For example, an opponent argued FiOS, which hadn’t yet sold one package in Glen Cove, should be mandated to provide free service to the schools and government departments (valued at $300 thousand). To be sure, no provider should be forced to provide free service. But most politicians see private business as revenue-generators, rather than Davids, voluntarily toiling to up against Goliaths while creating value for residents. This mindset is why we have a higher tax for businesses in Glen Cove, and the highest corporate tax in the developed world at the federal layer.
And the fight for FiOS competition demonstrates that we don’t need government to protect us from greedy monopolists. We need government to get out of the way.