Ev Ehrlich's Everyday Economics

Big Website and the Neutrality Trap

I’m now talking to the New American Foundation about an event in September at which I’ll make a presentation on the subject of a “public Internet” and “net neutrality.” As I understand it, I’ll be appearing opposite Derek Turner, Research Director of The Free Press, a leading and respected advocate of for both propositions, and NAF will publish a paper I’m writing for the occasion, which I’ll publish here once it’s out.

“Net neutrality” is the proposition, favored by the large websites – Google, E-Bay, Amazon, PayPal and the like -- that everything on the Internet should travel at the same speed once it’s been sent, whether it’s a securities transaction involving your life savings or a kid downloading a video of a cat playing the xylophone. The Big Sites like that because, like hyperactive squirrels, they’ve buried their nuts all over the Internet – that is, they’ve “cached” their content at many different physical locations, so when you go to “Google,” there’s always a Google server somewhere near you. This makes their gargantuan size a formidable obstacle to anyone trying to be “the next Google.”

One way for a competitor to overcome this advantage would be to pay the companies that own the big cables that make up the Internet for the right to have their stuff travel without interruption – that is, pay to get better service. It’s how business is done in the real world – you can pick FedEx or regular mail, drive in HOV express lanes or regular lanes, or buy Sears’ “good,” “better,” and “best.”

But the YouTubes and match.coms and other Big Sites of the world don’t want that kind of choice, because choice facilitates competition. So they’ve come up with this “neutrality” concept, which sounds so democratic you wouldn’t guess it was anti-competitive. I can just hear the corporate suits at the Big Sites talking about the great, democratic ideal of their bits and mine traveling at the same speed -- we’re all equal, all God’s creatures great and small, no one has an advantage. That’s great – can we all go to the same doctors and attend the same schools now, too? No, that’s proto-Maoist egalitarianism. The Internet is different, they argue, but the major difference I can see is that the Internet is their bread-and-butter. Not to be coarse about it, of course.

The “neutrality” proponents respond that if you can pay to get in the express lanes, that companies such as AT&T, Comcast, Verizon, and the like will abuse the privilege and control what content you get on your computer – for example, they’ll cut a deal with iTunes and then make it impossible for you to reach Rhapsody. I think this is paranoia masquerading as economics. Would you buy broadband access from a provider who told you that you couldn’t go where you wanted on the Internet? I mean, if the providers could do it, maybe they would, but they can’t because they’d be abandoned in favor of their competition, be it cable, or fiber, or telco, or wireless, or what-have-you. Besides, that’s why we have anti-trust laws – whoever’s willing to pay has the right to get what they’re willing to pay for.

What “neutrality” does is prevent innovation and competition. Imagine five different Skypes, each with different price points and different levels of service, depending on whether they chose to pay to avoid the signal interruption you get on free Skype today. Imagine remote cardiac monitors or other devices feeding real-time, uninterrupted health information to hospitals or practitioners. Imagine high-definition real-time entertainment – theater, music, sports – being delivered without interruption from buffering or packet assembling.

Every other system in our economy allows the consumer to match quality and price – be it parcel shipping, transportation, consumer goods, insurance, or what-have-you. The result is consumer choice, innovation, and competition. Why should the Internet be different? By championing a “neutral” Internet, its proponents are keeping us from realizing a truly competitive one.