An Unpersuasive Argument against Regulation

by on November 10, 2006 · 12 comments

Last week, my friend Brooke was kind enough to link approvingly to my post on the phantom threat of network discrimination. Brooke agrees with me that those who think “Verizon is just itching for the opportunity to detect and block every packet of data it carries that mentions the Second Amendment” are nuts.

She goes on to offer an example of a case where network discrimination would be beneficial:

One fear, however, didn’t make Tim’s list; it’s the fear that the ISPs will do exactly what we think they’ll do, which is to introduce tiered pricing for content delivery…

Suppose some new tech-tinkering über-geeks come up with a search engine even better than Google. Because they lack brand recognition, they need to keep expenses at a minimum while word of mouth slowly spreads about their better quality. In net neutrality America, they cannot keep expenses down by opting for lower quality delivery than that offered by Google. Delivery speed is not a viable option for competition; everyone has to ship at the $11 rate. Now imagine that one of the über-geeks is a trust fund baby. He’s so sure that his product is superior, he invests his trust fund in über-geeks, Inc. so they can buy higher speed delivery than Google offers, thus giving Google a serious competitive run for its money. Sadly this too is not an option in net neutrality land.

Prices and price flexibility are essential to competition. The fear that content competition will suffer without regulation is absurd on its face. Indeed, net neutrality regulation will rob new innovators and content creators of the very tools that would make challenging already established businesses possible. It’s little wonder then that the already established businesses–like Amazon, E-bay, and Google, to name a few–are fighting for net neutrality tooth and nail.

With all due respect to Brooke, I don’t find this example very compelling. She suggests that a web site might want to accept slower connectivity in order to save money. But bandwidth these days is incredibly cheap–so cheap that it’s a trivial fraction of most Internet companies’ budgets. Putting yourself at a competitive disadvantage in order to save a few dollars on bandwidth costs doesn’t make any sense.

Brooke also suggests that a site might pay Comcast extra for faster delivery. But Google already measures its page load times in fractions of a second. If Google’s home page loads in, say, 0.6 seconds, it’s not obvious how much of a competitive advantage it would be to have your home page load in 0.4 seconds.

Even if you don’t buy those objections, the kind of charges Brooke describes would be extremely impractical, because broadband ISPs like Comcast and Verizon don’t have any good way to collect them. A web site pays its own ISP for connectivity, and it’s the ISP’s job to negotiate interconnection agreements with other ISPs. Web sites don’t negotiate separate service agreements with every single ISP. Hence, even if Comcast wanted to charge individual web sites higher or lower rates for different levels of service, the administrative overhead of identifying and billing millions of tiny websites would make it more trouble than it would be worth.

(And that’s assuming they would even have the leverage to get web sites to cough up cash. I don’t have time to flesh out the argument here, but I think there are good reasons to think that they wouldn’t)

I feel bad picking on Brooke, because she’s far from the only person on the anti-neutrality-regulation side of the fence to make this kind of argument. I think free marketeers generally undermine their own case when they argue in favor of this sort of discrimination. It’s not a good idea to have every ISP charging every web site for access to its customers. In fact, it’s such a bad idea that I suspect that any attempts to do it will quickly fall flat. Indeed, that’s a big part of the reason I’m against new regulations.

There’s always a tension in libertarian thought between “X is good” and “X is bad, but it shouldn’t be illegal.” The drug war is an example of an issue where you’ve got libertarians (and libertarian-leaning conservatives) making both arguments. The first question–“Is X good or bad?”–is not an ideological or policy question. In this case, it’s a computer science question. And although there’s certainly some dissent, the overwhelming majority of the computer scientists seem to believe that network neutrality is an important principle of Internet architecture, and that it would suck if it changed. That includes critics of regulation like Brad Templeton and Ed Felten.

There might be limited circumstances in which there are plausible reasons for discriminating, but I’ve yet to see anyone make a serious argument that network neutrality should be abandoned as the Internet’s broad organizing principle. I think that the free-market side in the network neutrality debate undermines their own case when they argue otherwise.

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