At the end of this month, the Federal Communications Commission will meet to consider whether to issue new rules to regulate the Internet. Under the pretense of maintaining “net neutrality,” the rules would prevent broadband suppliers from blocking the Internet, slowing down service, or creating “fast lanes” for those who pay for faster service. The FCC received over four million comments on the FCC’s proposed rules, most of them supportive.
FCC Chairman Tom Wheeler is proposing that the FCC reclassify the Internet as a communications service under Title II of the 1934 Communications Act (no, that’s not a misprint). Heretofore the FCC has treated the Internet as an information service and the switch to communications would allow it to treat the Internet as a public utility, although Wheeler promises the agency would “forebear” from exercising all of the power it would hold under Title II (insert laugh here).
Advocates of net neutrality are mostly liberals who love the idea of aggressive regulation, and no doubt salivate at the prospect of taxing the Internet. Such advocates argue that government regulation is needed to keep barriers to the Internet low for new websites and applications and to foster innovation. The innovation argument is especially funny coming from liberals whose ideology all but guarantees a stagnant economy and society.
It is doubtful that Internet providers are blocking or slowing down Internet service to the extent imagined by net neutrality supporters, so the FCC’s proposed rules seem to be a solution in search of a problem. Questions about slowing or prioritizing Internet traffic, however, imply that broadband congestion may be a genuine problem. Which is to say that broadband is a scarce resource that appears to be in short supply.
But appearances can be deceiving: scarcity doesn’t necessarily create shortages. As we learned in Econ 101, government price controls usually cause shortages by keeping prices below the level that would otherwise exist in the market. Artificially low prices increase consumer demand at the same time they induce sellers to reduce supply and, as these incentives work themselves out, say hello to a shortage. Scarce resources are best shared through a market system where prices truly reflect supply and demand.
Broadband providers operate in (mostly) free markets, but their pricing practices lead to the same shortages as government price controls. Customers typically pay providers a flat monthly price instead of paying for the actual amount of data they use each month. Under flat-rate pricing, heavy broadband users have little incentive to control their consumption so as to save some broadband for the rest of us.
The answer to the broadband congestion problem isn’t heavy-handed regulation by the FCC, but a simple rule that requires broadband providers to charge customers for the amount of data they use. We pay for almost everything we consume in our daily lives on a per-unit basis, and Internet usage should be treated the same. Under a metered-pricing rule, market forces would still determine prices, not the FCC.
Of course, the broadband hogs will throw a fit at the idea of paying for the data they actually use. Heaven forbid that heavy users should moderate their streaming of movies, videos, and games (not to mention their porn videos and, ahem, related activities). And we might also expect the liberal tech companies to join the outcry. Perhaps Wikipedia will threaten to shut itself down again in protest.
But if broadband suppliers switched to a metered-pricing approach, the congestion problem and net neutrality concerns would disappear almost immediately. At some point, however, increasing demand would cause prices to rise as capacity is squeezed. Heavy users may not like this, but as pointed out above, increasing prices would provide an incentive for suppliers to increase capacity, which would ease the pressure on price.
No one could legitimately complain about metered-pricing. Heavy broadband users have no grounds for demanding that light users subsidize their movies, videos, and gaming, which is one result of flat-rate pricing. And heavy users would respond to metered-pricing by incrementally reducing the number of movies and videos they view. No one, not even low-income users, would be deprived of email, shopping or reading the news or gossip on-line because these are not the marginal activities.
Although a simple solution to the broadband congestion problem exists, the Democratic majority at the FCC will probably vote to impose regulations anyway. Like the broadband hogs, liberals are unable to restrain themselves. No sector of the economy is safe from them and our lives are worse off for it.