Weighing the economic impact of net neutrality

Both sides of the net neutrality debate argue that economics support their position--who is right?

It seems that the battle for net neutrality has boiled down to an argument over economics. Dueling reports paint vastly different visions of the economic outlook for the broadband and Internet industries should the US FCC be successful in imposing net neutrality guidelines.

On the one hand, you have Dr. Coleman Bazelon and The Brattle Group, with a 23-page report titled "The Employment and Economic Impacts of Network Neutrality Regulation: An Empirical Analysis." The report--funded by a group called Mobile Future which includes AT&T among its membership--seems to reflect the views of the major corporate players opposing net neutrality. Here are the key findings:

• Revenue growth in the broadband sector could slow by about one-sixth over the next decade;

• Broadband sector jobs lost could be expected to total 14,217 in 2011, growing to 342,065 jobs by 2020;

• Economy-wide, 65,404 jobs could be put in jeopardy in 2011, with the total economy-wide impact growing to 1,452,943 jobs affected by 2020 due to reduced revenue growth in the broadband sector.

With the economic turmoil the United States has gone through recently, and the massive job losses experienced over the past few years, any implication that a legislative measure could result in additional job losses or economic adversity is guaranteed to create a political minefield. Based on The Brattle Group report, net neutrality is obviously not a good idea.

On the other hand, another report titled "Free to Invest: The Economic Benefits of Net Neutrality" from the Institute for Policy Integrity at the New York University School of Law concludes "While opponents of net neutrality are correct that it may have some downsides--including decreased investment incentives for ISPs and potential impacts on technological development--the government has tools at its disposal to mitigate these downsides. Moreover, the benefits of net neutrality, especially maintaining investment incentives for the development of new content, are very high."

Comments filed with the FCC by the Media Access Project and its partners take a harsher angle in addressing the competitive landscape of broadband Internet. "Opponents of the [net neutrality] rules claim, incorrectly, that there is no need for them because the competitive marketplace will allay concerns regarding discrimination and degradation of free expression on the Internet. To the contrary, the record demonstrates that there is no effective competition in broadband Internet access services, and that the market structure, market power, and incumbents' advantages require open Internet rules."

In a separate comment filed with the FCC, Media Access Project also maintains "The reality is that many providers have dragged their feet when it comes to building out in disenfranchised communities. There is no reason to believe that adopting nondiscrimination rules somehow will prevent the deployment of affordable broadband into disenfranchised communities, especially since providers have already failed to invest in those communities."

This point seems reasonable enough. Broadband and Internet providers that are already not willing to invest in building infrastructure to rural or less affluent communities can not also turn around and imply that changing the rules will somehow prevent such investment.

The problem with the argument from the major players is that history does not support their case. Yes, broadband--both wired and wireless--has grown. However, that doesn't change the fact that it has not kept pace with the rest of the world, or that areas of the United States that don't offer enough profit potential are not being serviced.

Basically, broadband in the United States has grown to the extent that major providers can achieve the greatest profit, but with little competition between providers and even less incentive to push the envelope or develop an infrastructure that meets the needs of the country.

The ideals of free market capitalism are based on an assumption that there will be competition and choice. In many areas, though, there is only a single provider, or no provider at all. There is a sort of equilibrium between the major providers that makes them more like quasi-monopolies sharing the balance of power than competitors fighting to earn customers.

The report from the Institute for Policy Integrity seems to take the most balanced approach. It recognizes that major broadband players may have less incentive to invest in infrastructure, but also acknowledges that not applying some form of net neutrality guidelines could impede investment in content development.

The content is of little use without the infrastructure, and likewise the infrastructure is of little use without the content. The "sky-is-falling" alarmism of a report claiming massive job losses makes me automatically skeptical of its accuracy, though.

If the broadband market were truly competitive, and that competition was driving investment and innovation, and customers really had a choice between providers, perhaps we wouldn't need to have this discussion at all.

But, the industry has not lived up to the smoke its blowing and there is no reason to expect that a lack of net neutrality rules will somehow lead to a fundamental shift in business models that will result in delivering the speed and scope of broadband that the United States needs.

Tony Bradley is co-author of Unified Communications for Dummies. He tweets as @Tony_BradleyPCW. You can follow him on his Facebook page, or contact him by email at tony_bradley@pcworld.com.

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Tony Bradley

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