FT : The Network Neutrality Debate

Monday, January 5, 2009

Does it make sense to ban businesses from charging higher prices to some customers for giving them preferential treatment over others?  That idea lies at the heart of Barack Obama’s promised policy towards the internet, a medium that had more than a passing role in his election to the White House.  It is a proposal that should be dropped from the new administration’s agenda as soon as decently possible.  Other countries where the issue has started to raise its head, such as the UK, should also tread carefully before attempting their own regulation.  The issue in question is a central one for the information age.  It concerns the rights and obligations of the companies that run the communications networks which, collectively, make up the internet.  Should they be permitted to charge higher prices for giving priority treatment to some of the traffic they carry?  And conversely, should they be allowed to downgrade the importance of other, lower-paying traffic, or even refuse to carry it?  Under the banner of “network neutrality”, Google, Ebay and other internet companies fought this battle on Capitol Hill three years ago, to no avail.  With little evidence of immediate harm, Congress chose not to regulate.  At the same time AT&T, the company which had been agitating most aggressively to introduce discriminatory pricing, agreed to a two-year standstill.  That period is now up, and the supposedly internet-savvy Obama administration has vowed to make network neutrality a central plank of its communications policy.

In essence, the proposal would forbid communications companies from selling access to special fast lanes on the internet, while also outlawing bans on any type of internet traffic: let everyone on to the road and, if that results in congestion, make them all sit in the same traffic jams.  That way, the networks remain open for all users on the same terms, and the network operators do not have an incentive to drive up demand for premium services by limiting capacity.  Companies such as Google also claim that the next time two students come up with a great idea for changing the world they will get the chance to compete on equal terms with even the richest companies.  This idea is well-meaning but misguided.  It prevents the market from rationing a scarce resource.  It ignores the fact that, in many industries, companies provide tiered levels of service without unfairly discriminating against certain classes of customer: economic self-interest leads them to try to maximise returns from each group.  Also, it is worth noting that the supposed level playing field of the internet is a myth: rich companies already pay to have their services delivered faster, for instance by buying the services of a specialised “content delivery network” such as Akamai.  A better option would be for politicians to leave well alone, particularly since legislation in such a fast-changing area could have unintended consequences.  Some safeguards may well be needed in two important areas, but these should be left to regulators like the Federal Communications Commission in the US and Ofcom in the UK.  One is to prevent network operators from deliberately slowing or blocking the traffic of particular internet services.  The FCC has already shown itself up to this task, taking on cable company Comcast recently over its restrictions on file-swapping service BitTorrent.  Anti-trust laws also act as a back-stop to prevent this sort of discrimination.  A second area for regulatory attention will be to ensure that the quality of the internet’s “slow lane” does not deteriorate.  Competition between broadband networks is the best answer, and the arrival of new high-speed wireless technologies such as WiMax should help.  In the meantime, regulators need to keep a close eye on network performance: any generalised deterioration will give politicians the excuse they have been looking for to intervene.

Reference : http://www.ft.com/cms/s/0/e6601ef2-da93-11dd-8c28-000077b07658.html

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