On May 8, 2012, The New York Times’ published an article arguing that innovation requires an open network. The open network concept, referred to as net neutrality, includes as one of its principles the requirement that broadband providers such as Comcast, Verizon, Time Warner Cable, and AT&T, do not unreasonably discriminate against content providers by throttling their data speeds or entering into agreements favoring “high-occupancy” lane treatment for one content provider while relegating other carriers to slower lanes.
The concept of nondiscriminatory treatment of traffic has been in place since the first pages of content were placed on the World Wide Web in the early 1990s. Basic network economics, especially for a network that derives its value from information exchange, calls for openness because the value of the network increases as more information consumers and producers are able to connect their devices and exchange more information. The Federal Communications Commission recognized as much when it drafted its net neutrality principles in the first decade of this century and recently codified them by rule in December 2010.
What has been overlooked is how much of net neutrality is producer driven versus consumer driven. The earlier principles and the rules that were later implemented by the FCC do not address overall consumer demand, the value received by consumers from broadband services, or prices faced by consumers. As stated earlier, the rules address the prohibition of unreasonable discriminatory treatment of content providers by their internet service providers, most of whom are also content providers.
American consumers have been demanding high-speed internet, and have had a healthy appetite for higher speeds for most of the last decade. According to data from the Organization for Economic Co-operation and Development, historical high-speed penetration rates in the United States have increased over 400% between the second quarter of 2002 and the second quarter 2011. Increases in penetration levels started to taper off between the fourth quarter 2009 and second quarter 2008. The tapering off could be the result of the recession of 2007 as employment increased and private sector investor waned.
Consumers are also seeing consumer welfare disparities depending on where they live. If you live in American insular territories such as the United States Virgin Islands or Puerto Rico, there is a good chance that you do not have access to higher speed internet service. According to data from the FCC, 32% of households in the USVI have access to internet service that provides 200 mega-bits per second of data in at least one direction. In Puerto Rico, the percentage of households with the level of high-speed access is 40%.
In the southeastern United States where there is a significant African American population, penetration rates range from 44% in Mississippi to 64% in North Carolina. Meanwhile, northeastern and mid-Atlantic states see much higher penetration. New Jersey has a penetration rate of 78%; New Hampshire comes in at 76%; while Connecticut and Massachusetts come in at 75%.
Consumers have been facing increasing prices. According to the Pew Research Council, prices for broadband access fell from approximately $39 in 2004 to $34.50 in 2008. Prices increased sharply back to their 2004 levels in 2009. Part of the reason may have to do with how consumers responded to surveys on pricing where consumers may have provided information on bundled services versus broadband access service alone.
Another reason for reporting increased prices for broadband may have to do with supply and demand. Consumers may be willing to pay a premium for faster broadband access in addition to any other additional services that come with bundled packages.
Also, we are years beyond where internet surfing meant just text-based information. We are now streaming videos, sending larger files, and spending more time on blog talk radio sites and social media/networking sites which put stress on the amount of bandwidth we are using. Prices may be adjusting upwards to compensate for that.
This is probably the most salient point, and a point that The New York Times’ article either ignores or grossly undervalues. Consumers are deriving more value from the expanded services that they can now get online. The resources to provide them are finite and have to be paid for. Promoting a concept that basically says you can’t ration based on price would only lead to poor management of the internet. The results would be inefficient because of the congestion that can occur. All highways get clogged.
Also promoting regulatory action that only serves content providers creates regulatory uncertainty for broadband providers. Broadband providers will have to weigh serving the increased demand from consumers for broadband services with making the “mistake” of implementing a network management decision that could be challenged by the FCC and the net neutrality community, resulting in either a costly delay to meet consumer needs, or worse yet, not meeting consumer needs at all.
In short, because the net neutrality concept does not exist to increase consumer welfare by either encouraging investment in broadband facilities, or decreasing prices, the last thing it needs is additional promotion or endorsement. Net neutrality ignores the hundreds of billions of dollars already invested to meet consumer needs since 2005. If investment is to continue, net neutrality rules should only be enforced under the most egregious of scenarios and with the lightest of touches.