Marc Oestreich, Legislative Specialist at the Heartland Institute
Dear Friends:
No doubt you have all heard net neutrality in the news recently. Many have taken to partisan lines and politicized this issue, but regardless of your ideological bent the economic outcomes of such a policy are inarguable.
I am writing to you because I think you might be interested to read a new Research and Commentary of mine. I examine much of the emerging literature on the economic downfalls of an FCC-run policy of neutrality. In short, the policy could cost the U.S. as much as $60billion in GDP and more than 500,000 jobs. It would stifle innovation and choke out emerging technologies like tele-medicine and the like.
Proponents of net neutrality argue that internet service is a duopoly, but an examination of trends in service show that wireless and satellite internet providers are growing at amazing rates. The market will soon be flooded with competition.
Research & Commentary: The Real Cost of Network Neutrality
On June 17, FCC Chairman Julius Genachowski pushed through a 3-2 vote along party lines to begin his agency’s process of reclassifying broadband Internet access under a more restrictive regulatory regime known as Title II. Once the Internet is reclassified as a telecommunications service rather than an information service under Title I, the FCC will have seized the power necessary to micromanage the vibrant medium we take for granted.
Numerous studies have found FCC enforcement of net neutrality rules would harm the digital economy and consumers. The research on net neutrality points out regulation would stifle innovation and impose costs that would be passed on to consumers. Study after study finds net neutrality is an attempt to fix a “market failure” that doesn’t exist.
A recent study from New York University concluded net neutrality would cost Americans 500,000 jobs and $62 billion over the next five years. The international market research firm Frost & Sullivan found net neutrality regulations would likely pass on to the consumer up to $55 per month in additional costs. These and other studies show a hands-off approach to Internet regulation maximizes social and economic welfare.
The following articles discuss the economic consequences of an FCC-driven network neutrality policy.
High-Speed Internet Rules Might Prove Costly
http://www.businessweek.com/print/technology/content/jun2010/tc20100616_751009.htm
This report describes a New York University School of Law study of the expected cost of an FCC net neutrality policy. The report concludes enforced net neutrality would cost the U.S. economy $62 billion and eliminate 502,000 jobs over the next five years.
Net Neutrality: Impact on the Consumer and Economic Growth
This report on network neutrality finds the policy could pass on an upcharge of as much as $55 per month to the consumer, in addition to current charges. The author finds a “policy which seeks to manage competition by influencing the investment decisions of operators could have a significantly negative impact on consumers, job growth and the economy generally.”
Unintended Consequences of Net Neutrality Regulation
http://www.nextgenweb.org/wp-content/uploads/2008/01/litan-singer-unintended-consequences-of-nn.pdf
Robert E. Litan and Hal J. Singer find an FCC mandate on network neutrality “would be detrimental to the objectives that all Americans seemingly should want–namely, the accelerated construction of next-generation networks, and benefits of lower prices, broader consumer choices, and innovations these networks would bring.”
Network Neutrality or Internet Innovation
http://www.cato.org/pubs/regulation/regv33n1/regv33n1-6.pdf
Christopher S. Yoo identifies the inherent price and quality tradeoff in regulations on network neutrality. He concludes, “Social welfare would be maximized if the network provider could price discriminate on both sides of the two-sided market.” Yoo suggests the FCC does not understand the economic complexity of the market and uses an ahistoric and simplistic model to view complex and ever-changing problems.
The Economics of Net Neutrality
http://econ.gsia.cmu.edu/Ecommerce/Economics%20of%20Net%20Neutrality.pdf
Robert Hahn of the American Enterprise Institute finds, “’Hands off the Internet’ was good policy when the Internet was brand new, and it’s good policy now.” Noting several attempts at regulation that currently prohibit competition and stifle innovation, Hahn views additional regulation as directed toward a nonexistent problem. If competition should decline, current antitrust law would solve any problems, he observes.
The Impact of Regulatory Costs on Small Firms
http://www.sba.gov/ADVO/research/rs264tot.pdf
This study finds government-enforced net neutrality would disproportionately punish small Internet service providers and decrease competition in the industry.
The Dangers of Network Neutrality Regulation
http://www.cato.org/event.php?eventid=5694
This video from the Cato Institute tells how network neutrality will stifle innovation from current Internet service providers (ISPs) and add a barrier to market entry.
For further information on the subject, visit the InfoTech & Telecom News Web site at http://www.infotech-news.org or The Heartland Institute’s Web site at http://www.heartland.org.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. If you have any questions about this issue or the Heartland Web site, contact Marc Oestreich, legislative specialist in education, at 312/377-4000 or moestreich@heartland.org.
Your friendly LPIN.org Editor with updates from the home office! 
I’d like to see ISPs run their fee schedules like utilities do. Set a rate for data transfer. That way users begin to think more carefully about their downloads. Just like anything else in life, when people who have access to something that is ‘free’, they consume without discretion.
It would be glorious PR for the internet providers to simply meter use and bill accordingly. Most users would see their fees go down. I know I only use about 5% of the capacity my $40/month allows me. The teenaged kid a few houses down no doubt downloads 2x his. All the emo and hip-hop tunes he can stuff onto his hard drive.
When resources face scarcity, the best solution is to raise the rates.
Mike Kole, I couldn’t agree more. Basically all users like yourself are just subsidizing the bandwidth for power users like myself.
That being said if they started pricing everyone fairly most people would save a lot of money, the power users would then either pay more, use less, or shop around for other providers. The ISPs would loose a lot of money, which of course they deserve to loose, and then even more money because they would then have to directly compete for the amount of bandwidth they can deliver over how fat their pipe is. This alternative leads to fair prices for everyone and people like me asking a lot of questions about things like: bandwidth, latency, upstream, downstream, limits, LSA, etc…
ISPs would hate to to accidentally inform 99% of their user base of what they’re actually paying for and make them into savvy consumers.
It’s much easier to advertise “10 MB DOWNLOAD SPEEDS *results may vary”
And good luck getting anything close to that when the students are in town and awake.
Anyone who has ever paid for web hosting, knows that bandwidth pricing always either goes down or the amount of bandwidth you get doubles every few years. Not quite like that on the client side of things, prices just keep going up while bandwidth remains the same or gets spread thinner and thinner.
All that being said, if Net Neutrality doesn’t happen… get ready for even more confusion in the bandwidth market. You’re going to start paying for premium, plus, etc.. types of bandwidth just to be able to watch something on Hulu or Youtube, not to even mention the local video blogger.
As far as that “Research Study” where net neutrality is going to cost jobs, that’s just plain silly. Consider how many less jobs would exist if there would be no YouTube, no Skype, heck there would be no VOIP at all if the phone companies had their way. This is not to mention all the other companies that depend and thrive on this net neutral internet. Companies like Cicsco get more business because more companies are out there, they creates more routers, employ more people. It’s a big trickle down effect that actually works for a change.
Also the fact that these types of studies are heavily funded by the telecom companies themselves, they cannot be trusted to be ‘neutral’.
For an article on the research and challenges to it feel free to read this PCWorld article.
PC World :: Study: Net Neutrality Rules Would Cost Telecom Jobs
“This industry-funded research is based on deeply flawed assumptions, and amount to nothing more than anti-net neutrality propaganda,” said Andrew Jay Schwartzman, senior vice president and policy director of the Media Access Project, a media reform advocacy group.
The only thing not having net neutrality will do is add a lot of options to your internet bill… options that you were already getting but will now have to pay extra for. The basic rate won’t be any cheaper but will be much more limited. And the only end result is the concentration of more money in the hands of the telecoms, stifling of entrepreneurial innovation, and putting the ability to innovate on the internet back in the hands of those with serious financial backing.
It’ll be ok though because we can sit back and watch our Hulu Plus streamed to us in HD, which we’ll gladly pay $10 a month for, through our $45 internet, and the $15 NBC affiliate streaming bandwidth package that we’ll have to get to even see our beloved Hulu. Meanwhile behind the curtain all serious garage/basement/dorm-room style innovation will move overseas along with whatever programming jobs that are still being done in this country.
I take offense to your jersey hookers, comment, Kaiser.