Net neutrality leads to systemic risk
The decision by the Federal Communications Commission to begin the process of imposing an Internet neutrality rule is curious as well as wrongheaded.
The financial crisis should be a potent reminder to communications regulators that the best of government intentions can create horrible, though unintended, consequences. Easy monetary policy by the Federal Reserve, for instance, aimed at countering a recession in 2001, helped create a dangerous housing bubble.
Like physicians and Fed governors, regulators should first seek to do no harm. And that is especially true when they are trying to impose a solution in search of a problem.
Broadband prices, for one, are on the decline. The average cost of consumer broadband has dropped to less than $20 a month from $50 in 2001. And more people have access. As late as 2004, 70 percent of households still used dial-up modems for web access. Today, just 10 percent do, with broadband speeds doubling over that period. Tough to find a market failure here.
Of course, the Internet has hardly reached its potential. But future network upgrades to handle high bandwidth applications will be costly. One way to pay for them would be to charge higher rates to Google, Amazon and other corporate users who generate huge volumes of traffic.
Not surprisingly, content providers are in favor of net neutrality and the de facto government-created subsidy it would create at the expense of telecommunications companies.
Net neutrality is merely another form of rent-seeking that seeks to manipulate regulators for private gain. The goal: Use the FCC to turn the telcoms into highly-regulated utilities that would absorb the cost of future network build-outs — before passing it along to consumers, of course.
The Open Internet Coalition, which represents Google, Amazon and eBay, sees things differently, saying the FCC decision advances a regulatory framework that “promotes innovation and consumer choice on the Internet.”
But not only do more consumers have access to ever-faster broadband, they have more choices. In addition to the telcoms, America has four nationwide 3G wireless providers and a fifth, Clearwire, readying a nationwide launch of a 4G WiMax service.
The FCC nonetheless is pushing forward with seemingly little concern about the unintended consequences of intervening in a well-functioning sector vital to the American economy.
At the very least, the FCC will likely face years of court battles over the rule, that could serve to paralyze the sector. Now there’s your systemic risk.