Marcello E. Miranda

@marcelloecm

Why Pro-Net Neutrality is not Anti-Free Market

July 20th 2017

It feels like it’s been months, rather than years, since the tech community last banded together in support of net neutrality, and achieved an unprecedented victory over broadband providers.

And yet, once again, we are forced to fight for a more free, more fair internet, one where internet providers can’t use their positions in the market to crush competing services we use every day.

Under the Trump Administration, net neutrality is once more under threat, and both incumbent ISPs and FCC chairman Ajit Pai himself are arguing that net neutrality laws represent burdensome regulation, and stifle free market competition. I’ve even seen misinformed consumers fighting for net neutrality concede this, particularly libertarians and others concerned about big government, as if fighting for net neutrality contradicted one of their core tenets.

That simply is not true, though. We just have to delve into the murky, messy history of the broadband industry to see it.

Origin of the telecom industry

The broadband industry, as we know it today, was born through the Cable Communications Policy Act of 1984, otherwise known as the 1984 Cable Act. The act was passed with the intention of clarifying the relationship between municipalities and cable providers, with the goal of gradually improving cable expansion throughout the continental United States.

In essence, the act allowed regional cable providers the right to invest in local cable infrastructure, in exchange for becoming the area’s sole provider. At which point, municipal and other providers could no longer compete.

Over time, these local providers began to consolidate with neighboring local providers, growing ever-larger as they merged, until at last municipalities found themselves negotiating with billion-dollar companies, and losing.

Although Congress later passed additional legislation intended to correct some of the issues stemming from the 1984 Cable Act, by this point local providers had merged into some of the same broadband companies now leading the fight against net neutrality.

Cable companies grew to become some of the most powerful telecom and media companies of our time, and faced barely any competition on the way.

Protectionism and competition today

Despite its crucial role in the research, development, and advancement of the internet, the U.S. is nowhere near the best country in terms of internet speed or cost. We would expect that in a healthy competitive environment, market forces would drive prices down and broadband access up.

Unfortunately, there is no healthy competitive environment for broadband in this country.

Instead, when we consider the average download speed (in Mbps) that $50 per month will buy you around the world, American cities fare quite terribly.

Cost aside, the U.S. continues to lag behind other developed countries in average connection speed.

Attempts to compete with the broadband monopolies have mostly come from municipal governments and energy cooperatives wishing to provide better internet access, particularly in rural areas where major telecom providers aren’t willing to go.

These attempts have faced severe opposition from incumbent ISPs, however, who have actively — and successfully — lobbied to block competition from municipal governments in several states. Not surprisingly, the most active lobbyists for the telecom industry have been some of net neutrality’s biggest opponents, and they have spent tens of millions on these efforts:

Courtesy of OpenSecrets

Make no mistake: on rare occasion, when a competitor does successfully enter a market dominated by one of these incumbents, some real magic happens. Incumbents not only increase internet speeds dramatically, but also lower their prices. Kansas City and Charlotte, North Carolina recently experienced this effect firsthand when Google announced plans to install Google Fiber in those markets.

Competition favors the customer, forcing incumbents to differentiate and offer better options at lower prices. This is a battle most ISPs are not prepared for, one they have never particularly had to worry about.

What does this all mean for net neutrality?

It means that ISPs have never depended on the free market. They were not born out of the free market, they did not grow to their current size through the free market, and they have not maintained their customers or their market share through the free market.

If the market for internet access in the U.S. was truly free and competitive — if 48% of the country didn’t have only one choice for broadband — then perhaps the market could incentivize the sort of behavior mandated by net neutrality.

That’s just not the case, and the cost of infrastructure is an extraordinary challenge. Incumbent ISPs remain unwilling to expand to many rural areas, and even Google has had trouble setting up Fiber in many metropolitan areas. Recall that when cable companies were originally tasked with setting up infrastructure, they at least had temporary exclusivity to look forward to.

Today? All you have to look forward to is severe competition, and possibly opposition from lobbyists. It is no longer economically viable to start an ISP as we know it.

We can’t go back in time and simply deny cable providers the government-mandated monopolies they built their successes on. What we can do today is recognize the unique circumstances that gave birth to some of the most hated companies in America, acknowledge the role that history has played in their success, and start treating them more like the utility companies they always should have been.

In short:

Cable companies have never played by the rules of the free market; they should not get to reap its benefits.

Marcello Miranda is a tech fanatic, and frequently writes on startups. Follow him on Medium and Twitter, and if you enjoyed this content, leave a few claps to help spread the word!

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