TCS Daily

Net Neutrality: Where's the Beef?

By Jerry Brito and Jerry Ellig - July 24, 2007 12:00 AM

The Federal Communications Commission recently asked for evidence that broadband Internet companies currently engage in data discrimination that would justify regulation of the Internet. Thousands of filings flowed into the FCC, but when the flurry of paper shuffling settled, not one shred of evidence could be found.

In its recent "Notice of Inquiry," the Commission explicitly asked commenters to "provide specific, verifiable examples with supporting documentation, and [to] limit their comments to those practices that are technically feasible today." Close to 10,000 comments were submitted to the FCC, yet all but 143 were what the FCC calls "brief text comments," many of which were form letters generated at the behest of advocacy groups.

Of the 143 more extensive comments, only 66 are longer than two pages, and of these only 20 advocate some form of new regulation. None of these 20 offers any significant empirical evidence to suggest that there currently exists a "market failure" or other systemic problem justifying regulatory intervention in the name of net neutrality.

In general, "net neutrality" means that Internet service providers have to treat all data "packets" exactly the same. All those e-mails, e-Bay auction offers, and pet hamster videos sent over the Net get broken down into pieces called "packets" before they're transported. Traditionally, Internet service providers transported data packets on a "best efforts" basis, with no particular packets receiving priority treatment. But Internet service providers can block, slow, or charge differently for different content if they treat different packets differently.

Such discrimination can help or harm consumers, depending on the circumstances. Antitrust and consumer protection laws already prohibit practices that would most clearly thwart competition or shaft consumers. The FCC has also adopted a nonbinding "Internet Policy Statement" that puts companies on notice about specific practices that might trigger further regulation.

The FCC has not yet decided what to make of the underwhelming evidence it received, but the Federal Trade Commission has. The FTC recently released a staff report summarizing the results of a two-day workshop, as well as research conducted by the commission's Broadband Task Force.

The FTC staff concluded that there is little evidence of actual anticompetitive conduct by broadband providers: "[T]here is little evidence to date of consumer harm from anticompetitive practices by ISPs or any other network operators; the allegations of anticompetitive conduct focus mainly on effects that may occur if certain actions, such as exclusive agreements or vertical integration, are undertaken in the future."

The FTC staff urged caution in adopting new regulation: "The primary reason for caution is simply that we do not know what the net effects of potential conduct by broadband providers will be on all consumers, including, among other things, the prices that consumers may pay for Internet access, the quality of Internet access and other services that will be offered, and the choices of content and applications that may be available to consumers in the marketplace."

One might think this lack of evidence would effectively end the net neutrality debate. But not in Washington.

While no one has proved that network owners engage in discrimination that harms consumers, many parties have argued that such discrimination is possible. That's enough to keep the debate rolling. And sometimes, the argument that "bad things might happen" is even enough to trigger new regulation.

The FCC's inquiry has unearthed the same lack of evidence as the FTC's research. Nevertheless, the FCC is rumored to be considering an order that would impose "net neutrality" rules on a chunk of spectrum that will be auctioned for wireless services later this year.

Preventive regulation is sometimes justified. If network owners are very likely to adopt business practices that clearly harm consumers, then some new regulation may be prudent.

But common sense suggests that regulation's proponents should prove that anti-consumer discrimination is highly likely, not just possible. As the FTC staff noted, "The potential for anticompetitive harm exists in the various Internet-related markets, as it does in all markets." The mere possibility of harm, however, does not mean that new regulation is prudent or necessary.

Sensible and effective regulation focuses on business practices that clearly harm consumers and are clearly likely to occur. Discrimination by broadband companies may be such a problem - but thus far, two federal agencies have found little evidence that's true.

Dr. Ellig is acting director of the Mercatus Center's Regulatory Studies Program and has previously served as deputy director and acting director of the Office of Policy Planning at the Federal Trade Commission. Jerry Brito is a senior research fellow at the Mercatus Center at George Mason University.and studies telecommunications regulation, intellectual property, and cyberlaw at the Mercatus Center.


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