Considering the internet a global common good has become fashionable. Calling for net neutrality is even more in vogue. Most importantly, lawmakers and regulators worldwide are subscribing to the idea of an unalienable right to a nondiscriminating, and possibly free, internet. Well, all this is bad news. The consequences of governments forcing net neutrality might be dire. Not only is net neutrality based on bad economics, but it also takes its toll—on internet users.
It is undeniable: the internet is an important part of many people’s everyday life, of the global economy and of many essential services or facilities. It is equally hard to make a case against the falling costs of accessing the web. Free hotspots, flat rates and immense data packages are witnesses of this development. It might be concluded, then, that the internet is a reality and a necessary tool for modern life. Therefore, the net should be neutral. That is why the web is often compared with the highway system, and its maintenance and management to broadcasting.
But not only are both these comparisons problematic, but the very idea that there ought to be a nondiscriminating, neutral and possibly free internet is false at best. Turning its implementation into a further task of government is even worse. It puts the very fabric of the internet at risk, delaying investment, lowering its service levels and creating more potential for discrimination.
Let’s review this: first, the mental imagery used to make the case for net neutrality, and second, the economic arguments that support—or do not support—the claim.
Getting Metaphors Right
The internet is often compared to a highway system . In the U.S. legal system, an analogy was made to broadcasting licenses . Both these images are wrong because they focus on some features but by far not on all—and not on all the important—facets of public roads and broadcasting. Especially, they fail to mention the less successful aspects of their subjects. If one is searching for an image, it is much more realistic to compare the internet to a shopping mall . Here is why.
The highway metaphor : Data moves through cable and signal waves. Where there are no wires, information cannot pass. Where there are no signal transmitters, there is no net. The picture seems clear enough.
Many people conclude, then, that if there is enough cable and transmitter capacity, there is no need for managing whatever moves through them. In other words: if there is enough capacity, the surplus of capacity guarantees neutrality in its use. (And many would even claim that if there is no capacity, the government should simply build some.)
However, there is more to a highway system than the actual traffic. First, highways are not privately owned; the cables and transmitters of the web are. Second, the road system has been built with public money and maintained with taxes; internet infrastructure providers are financed with private money and cannot impose or collect taxes. And third, highway systems compete with other public roads, pay-per-use private expressways and so on. Therefore, there is room for user discrimination according to their preferences and profiles.
By the way, there is further non-neutrality, such as in the case of traffic jams, where the police often direct the flow of vehicles, giving preference to some. And there are those places with mobility pricing , which is the most non-neutral a road system can get. This shows that if you want net neutrality, highways are the wrong way to think about the web.
The broadcasting license analogy : this image is more serious, since the FCC and U.S. courts seem to be fond of it. The Radio Act of 1927 established that the radio frequency spectrum belongs to the public, and licensees have no property rights to use it. The analogy to the internet roughly assumes that broadband is a similar case of public domain, and that therefore whoever is licensed to operate it must provide public service, in this case nondiscriminatory traffic. What is wrong with that analogy?
For starters, among economists, even those of a more institutional persuasion, the idea of licensing is considered inefficient. The economist Ronald Coase proposed that, as for other resources (such as land and metal), the market should regulate the use of the radio spectrum: with well-defined property rights, the free market will allocate resources to their most efficient use. Then, we all know how public-service broadcasting turned out: its programs usually consist of vintage features, and its commercial breaks disrupt every program. No wonder consumers are willing to pay more for nonpublic channels like HBO, or switch altogether to disruptors of broadcasting like Netflix.
Here, again, the point becomes obvious: the very regulation aiming at neutrality lowered the level of service by neutral providers while creating the potential for discrimination. There is, however, a third argument against this analogy. While the radio spectrum is somewhat limited, broadband is expandable. Those firms whose business model is running the net create broadband. Their return on investment is on the provision of infrastructure and less on the usage of existing systems. So, here again, the analogy misses the important points—points that would deeply affect the web.