Net neutrality leads to systemic risk

October 23, 2009

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.


“Anyone who does not completely oppose net neutrality is a corporate shill who lacks the forsight to imaging how devestating its impact would be to humanity”

You realize that NN takes the power AWAY from the corporations, right?

Posted by Cole Hood | Report as abusive

Lack of regulation must be why US consumers have less internet innovation than Japan, South Korea and Nigerian scammers.



Do you have kids? Because if you do, then you must be really, really stupid. Do you think that getting some money now to publish this nonsense is worth the trouble you are getting your kids in the future due to loosing the only way we have to express ourselves as individuals to the world? Money is not that important you moron.

Posted by MoneyBuysStupidity | Report as abusive

Really? Really? I think you’re missing the point of this entirely. There are some economic implications, yes, but I think concerns over free and equal access trump those.

Posted by Pat | Report as abusive

This guy said it best:

“What an absolute stupid article I didn’t expect to come from reuters. Network Neutrality has to remain in place for an open and fair network that doesn’t prioritise one set of information over the other. Sometimes things are more important than ISPs making profit. Network neutrality is one of them.

Do not fuck up a global network of information because of sheer greed.

- Posted by David “

Posted by Cpl. Gaines | Report as abusive

What a very poor reporter you are…

Posted by bobodamarley | Report as abusive

James, you appear to have accidentally the whole article.

“Net neutrality rules would amount to a federal mandate that broadband providers cannot block or hinder the internet traffic of any web site or service, regardless of whether or not that site or service completes with a similar site or service offered by the ISP itself. In other words, a telco ISP could not limit bandwidth used for Skype VoIP traffic, while maximizing bandwidth available for its own VoIP service”

The internet should be open and available without big brother telling you what you can and cannot see/use. A set of regulations opens the door to raise prices on the already expensive service. From a company’s standpoint, this would be ideal, but America should not cater to a company’s desires since they only have the bottom line in mind.

Speaking of price, how did you conclude that the median cost is only $20? Comcast charges $60 for internet alone. Bundled with cable, the cost drops to $45. With phone, it most-likely drops further, but that is not the true cost of the service.

At the very least, misinformed or monetarily persuaded journalists will continue to skew the facts. Now there’s your systematic risk.

Posted by Jason | Report as abusive

The Fed is not a government institution, dumbass.

Posted by john | Report as abusive

You (writer) are ignorant and a fool


\”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.\”

Another way would be for ISPs to make deals with corporate giants, and throttle Peer to Peer networking–you know, like they already do.

Posted by Alex Vance | Report as abusive

Would you work for free? If the corporations don’t make money, they won’t innovate or they will get out. Screwing others is not any sort of way to get them to do more for the public good. Just saying.


The author clearly has no idea what net neutrality actually is. Net neutrality is the digital equivalent of anti-discrimination laws.

I especially liked this ridiculous quote:
“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.”

The billions of dollars that people spend on internet access each *month* might help with that, just maybe?

Posted by Toasty | Report as abusive

You are proposing that it’s okay for USPS to charge you for sending your letter, and then charge some of the people who receive that letter, at entirely your own discretion. The next Google might not be able to provide its innovative service to the world if ISPs are permitted to discriminate against their traffic and only provide access to the current Google, which can afford to pay for network visibility.

Posted by PatrykD | Report as abusive

What ever the justification the corporations spit out the one thing that won’t change is that the Internet is a vital transport system for information that is used and needed equally by everyone.

The technology has become a necessity. As such neutrality makes it possible for EVERYONE to use the Internet and have an equal presence on the net with everyone else.

There is nothing good that will come from taking away the ability of the average citizen to have an internet presence, or to surf the web.

The idea of free and equal access is far too important to give way to some childish desire for profit.

And it was the UNIVERSITIES like MIT that created the Internet, not corporations. Corps advance the technology for their own profit and that’s fine. But there is no way they should be allowed to hijack the whole system just to turn a buck. They can make a profit with net neutrality in place. The only reason to get rid of net neutrality is so that AT&T and their kind can squeeze more money out of the average citizen just for doing the things they need to do to improve their business anyway.

The business sector used to talk so boldly about what a powerful force it is. But in the past few years these same “survival of the fittest” idiots have come to the government with their tails between their legs to beg for money from the people. They lobby and make secret deals to grease the palms of politicians that are willing to sell out the mandate of the people that elected them into office.

All this so that they can have a little extra silver cross their palms.

Net neutrality protects the citizen. Any one who does not understand this would do well to read up on the subject. If you give up the only protection you have, then you deserve every bit of suffering you get for believing thieves and liars.


Look at the open source movement and apply the same principles to technology.

The old saying is that “necessity is the mother of invention”.
These days people would like us to think that profit is the mother of invention. That is not correct.

Work is done to solve a problem or to fill a need. Profit as a motivator distorts the situation. Problems become opportunities to profit, but never become anything more than that. There is no need to recover the costs of building out new infrastructure directly by the builders because the amount of total business generated over those lines will allow all business to flourish across the board. This will more than make up for the individual costs of building out.

Businesses think only of their own survival and prosperity. They care nothing about the citizen. You are a wallet to them. That’s it. And if that wallet is empty then to hell with you.

So let the telcos bitch all they want. They only bitch because they want to be paid. And they are only too happy to ask for bail outs and other support from the very people they intend to gauge. We citizens have propped up a failing economy done in by liars and thieves of all sorts. We have had no bailouts. But we are expected to carry the burden for those that eat better and live better than we can afford to do.

And now we get more arguments from these profiteers that suggest that we should give up EVEN MORE by relinquishing the only consumer protection that keeps our Internet access open equally to all destinations.

Our money is worthless. And it’s business that has most of it anyway. So they can pay out to build for us. It’s not like we haven’t paid, gone without health care, gotten evicted from our homes, and been denied educations so that corporate America can profit.

It’s our time now. More and more people are waking up to the constant line bull shit being spewed on us and we aren’t accepting it any more. The many posts on this subject alone should be an indicator of this.C


What an awful article. You basically just pose questions and make conclusions without showing any proof, or even any theories to support your arguments. This is just a terribly written article.

And your argument sucks and is stupid.

Posted by steve | Report as abusive

I hope the author got a good payout from whatever ISP or TelCOM company he chugs pole for.

One of the biggest factors in “broadband” becoming cheaper is the definition is being changed, but the author prefers to mislead people.

Basically instead of everyone getting access to cheap cable modems, which is what people think of as broadband, jerkoff corporations try to define DSL and other crap internet that are slightly better then dial up, as broadband.

Nice work around.

Watch out too because McCain is trying to destroy net neutrality as well.

Posted by Moose | Report as abusive

This is a vast oversimplification of the forces at play here. The author acts as if allowing ISPs to regulate the content will leave the internet as it normally is. In Australia we already have metered bandwidth, with certain sites not counting towards that bandwidth in an attempt to encourage them. It blows.

Posted by Aussiemoo | Report as abusive

Telcos/isps are actually lobbying politicians to stop net neutrality from seeing the light of day: rprise_mccain_biggest_beneficiary_of_tel coisp_lobby_money.html

This is from a guy who doesn’t even know how to use a computer.

How is it best for people if there is no regulation of the big boys? We’ve already seen what a “market failure” is with the banking industry. Regulations were ripped down; the destruction of the Glass-Steagall is a prime example of this. Contrary to popular belief (this fallacy is also mentioned in the article) the FED is not government body; it is a privately owned organization owned by private banks. Alan Greenspan has admitted to this.

Check your facts Pethokoukis.

Posted by Bob Zinger | Report as abusive

Article author is a corporate shill, otherwise the article makes no sense.

Posted by Teacher | Report as abusive

I have to admit that I have read Mr. Pethokoukis’ blog several times to try to understand his points. His statements show a lack of understanding of the issues as well as not understanding of how business models are changing due to the Internet.

The issue at hand is the ability of service providers to use technology to control the consumer’s experience while using the Internet. For example, certain providers slow down their competitors Internet Phone (VoIP) service using what is know as “traffic management”. While there are benefits to “traffic management”, the issue at hand is that it needs to be applied in a way that is service provider neutral.

Mr. Pethokoukis refers to consumer choices. While having choice among who delivers your Internet connection is certainly good, it is choice of content that is the focal point of this discussion and in fact the value of the Internet is to enable consumers to access a diverse set of content.

The telecom business has evolved over the past 100 years to meet changing consumer demands and competition. This has meant that telecoms needed to evolve their business models to adjust to geometric rises in demand, predatory pricing strategies and changing network traffic from voice to data.

Having spent most of my career building networks and developing business models for networks, I will say that keeping the Internet open will not lead to all the doom that we hear and read from people like Mr. Pethokoukis. I will say that telecoms will need to evolve to compete; otherwise they will be relegated to become just a low margin utility that passes high margin content over their “network plumbing”.

But, of course this is not the first time the telecoms have faced this challenge and they have been bruised a bit but still remain in business and very profitable.

Posted by Tom Golway | Report as abusive

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