Net neutrality rules a blow to free markets

December 21, 2010

Milton Friedman had it right. Business is no friend of free markets. The Federal Communication Commission’s “net neutrality” ruling is more evidence of this. What the FCC should have done is called it a year, went on holiday and left the Internet alone.

Instead, it found a solution in search of a problem. And that solution was more or less supplied by Verizon and Google last August. To a great extent, the new rules codify that blueprint, which — at least as those companies see things — acknowledged both the inevitability of some government rule-making and the need to better divvy up future costs and revenues between telecoms and content providers.

The FCC’s new rules would ban providers such as Comcast and Verizon Communications from blocking or delaying lawful Internet traffic, such as online services offered by competitors. But the giant telecoms and landline providers would be allowed to sell faster service to content companies such as Google and Amazon. And they could increase rates for subscribers who use the Internet for tasks that gobble bandwidth such as high-definition video.

Certainly, it could have been worse. As I wrote last April:

This regulatory debate has been turned into an unusual David (scrappy web firms) vs. Goliath (entrenched telecoms) morality tale. Despite being three times larger by market capitalization, Google, for example, still has far more cachet than Comcast, which challenged the FCC. But what it all really comes down to is who will pick up the tab for future network upgrades to handle applications such as high-definition video.

In a net neutral world where prices were fixed at, essentially, zero, the telecom operators would pay — before passing costs along to consumers, of course. On the other hand, maybe operators want to charge content providers tolls for putting their traffic into express lanes. Or perhaps another business model is just around the bend. Under net neutrality, the current system would be locked into place.

Government should have high hurdles to clear before setting prices. In the end, net neutrality seems little more than rent-seeking by content providers. It’s akin to a computer maker successfully lobbying for price controls on shippers like FedEx when transporting goods from China. When it bought new planes, the shipper would have to eat the cost or pass it downstream.

Now the fight turns to Capitol Hill, with Republicans especially eager to do battle. The GOP views the ruling as an initial effort by the Obama administration to push its agenda through regulatory agencies now that Democrats no longer completely run Congress. Expect the Republican-controlled House to quickly pass a disapproval resolution under the Congressional Review Act to overturn the ruling. If the measure then gets 51 votes in the Senate, it would be up to President Barack Obama to sign or veto.

Hopefully his recent pivot to the center will continue for at least a little while longer.

4 comments

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[...] gives government power to regulate web traffic; http://eicker.at/FCC Wozniak: Keep the Internet free! [...]

[...] This post was mentioned on Twitter by Tammy Bruce, Deetz and others. Deetz said: RT @DavidBugnon @JimPethokoukis #NetNeutrality rules a blow to free markets http://is.gd/jawyn #tcot #tech #news #internet [...]

The “free market” has not been very good for the US public. It merely frees business to operate for maximum profit and in a monopolistic mode, when possible. The public good is way down the list.
Comcast has only increased rates with a very notable decrease in programs which not endless repeats.
Some channels have nothing but old shows, from 6 month to 20 years ago. If they want to charge by what the Internet traffic is, then the public should have the right to have a la carte TV program selection.
It would thin out some of the silly and useless channels.

Posted by gunste | Report as abusive

The Republicans are eager to go and do battle for the companies that care only for their bottom line, not for free markets. They know where their bribes for campaign money comes from and will cater to their every whim. The public good is not a consideration when it comes to business. We are just supposed to buy and spend and keep their bottom line halthy.

Posted by gunste | Report as abusive

Or, we are just in a relatively immature stage of the process.

There absolutely will come a time when private “ownership” of the internet will be untenable. Maybe that will begin, for the wrong reasons, when a Kuwaiti company makes a play for a Comcast.

But the trajectory for the internet will be the same as it was for water. It’s public property, no matter who risked capital to dig the first wells and build the first reservoirs.

I give it a decade or two, max.

Posted by johncabell | Report as abusive

Thanks President Obama for another sell-out by your administration. You are now fully engaged in complete double-talk. This is not net neutrality and you know it. This is a complete cave-in- your specialty – to the ATT’s, Verizons, Comcasts and Googles of this world. Along with the tax-cut fiasco you really are racking up quite a record as a Republican. What about a few considerations for the people who fought hard to elect you.

Posted by jefflz | Report as abusive

[...] Hopefully his recent pivot to the center will continue for at least a little while longer. via blogs.reuters.com [...]

[...] his recent pivot to the center will continue for at least a little while longer. via blogs.reuters.com Share and [...]

[...] “Milton Friedman had it right. Business is no crony of free markets, a Federal Communication Commission’s ‘net neutrality’ statute is some-more justification of this. What a FCC should have finished is called it a year, went upon authorised holiday as great as left a Internet alone.” —James Pethokoukis, Reuters BreakingViews columnist [...]

[...] homegrown totalitarians are in tweeting their desire to repress free speech,” we twittered Reuters Money and Politics columnist James Pethokoukis, who [...]