‘Net Wars — Does It Matter?

In a scintillating previous post about telecom regulation, I gave a brief overview of the “net neutrality” fight. Net neutrality may be a fringe issue, but the politics surrounding it are very heated. And here’s the funny thing: I’m wondering if, from an economic perspective, the fight is of any real importance.

Let’s assume that Congress adopts net neutrality and prohibit the ISPs from charging fees to content providers. The ISPs would instead turn to their subscribers for additional revenue. The fear among net neutrality critics is that the ISPs will jack up rates equally on all users, whether a YouTube devotee or the little old lady who just uses the Internet to check e-mail and read the paper. But I seriously doubt that would happen — instead, the ISPs would likely target their heaviest broadband users with ”premium service” fees in exchange for consistent fast service. (Such differentiation already exists in the cost and quality differences between dial-up and broadband.) So, if I’m right, the YouTube devotee will have to pay extra in order to keep enjoying his favorite website.

Now, suppose Congress doesn’t adopt net neutrality, and the ISPs start mailing invoices to the broadband-intensive Web content providers. The content providers would likely respond by charging subscription fees to their visitors. So, in this scenario as well, the YouTube devotee will have to pay extra in order to keep enjoying his favorite website.

Notice: If I have this figured right, then no matter what Congress does, heavy bandwidth users will ultimately pay for the necessary Internet capacity expansion. The question is, on which bill — the ISP’s or the content provider’s — will the cost actually appear?

From a public policy perspective, there is an accompanying question: Would it be more efficient for that cost to appear on the ISP bill or the content provider’s bill? A priori, I see no reason why one would be more efficient than the other. Hence my wondering if this fight really matters.

This is not to say that we shouldn’t care that Congress may stick its nose into this issue. Politicians don’t have a strong reputation for enhancing efficiency and consumer welfare when they intervene in the marketplace. Indeed, I’d argue that Congress’ interest in net neutrality is prima facie evidence that neutrality would not be efficient or welfare-enhancing. But then, I’m a bit of a cynic.