Net Neutrality: Why Legislating It Is a Bad Idea

by: The Stalwart

The Stalwart submits: Writing recently here, I got a chance to write on a subject I've been thinking about a lot lately, that being the subject of monopoly and net neutrality. Allow me to be post-modern for a moment and quote myself:

One reason a Microsoft (NASDAQ:MSFT) monopoly isn't likely is that security software doesn't lend itself to a natural monopoly the way an OS does (not to mention the fact that the vaunted Windows monopoly itself is seen as weakening). On the issue of future investment in the area, this too seems like a red herring. Microsoft's monopoly hasn't killed innovation; in fact it prompted entrepreneurs and investors to pursue a radical new envisioning of how software could be developed and distributed using the web. Getting the government to preserve the status quo in the security space would be the last way to ensure a dynamic, innovative market.

For some reason it's tough for people to talk about monopoly disinterestedly, so there's a lot of faulty reasoning on the subject. Somehow the idea that if a company has a monopoly in an area, there will be no investment in the space has taken hold. That's what we were told for years by the anti-Microsoft crowd in the 90's -- now that there's every reason to believe that the monopoly has been broken (no thanks to the government), will they apologize or admit that they're wrong? Probably not, since even Google (NASDAQ:GOOG), who is doing much of the trust-busting, has argued that it should be illegal for Microsoft to include a searchbar with a default in its upcoming browser.

The irony is that the people arguing that, say, the government should breakup monopolies in the name of innovation tend to be plagued by a lack of imagination. They couldn't imagine that anything beyond the desktop OS would matter in computing. If they had seen a future whereby the web might supersede the desktop, they might not have worried.

On a personal note, I wouldn't argue that I have any foresight whatsoever, but hindsight works just fine. Simply looking at history should be enough to realize that one company can't dominate and seek rents on a market for too long. Simply the act of exploiting a dominant position prompts more effort and energy in the direction of beating it.

And on that note, let me segue into the current arguments about net neutrality, and why I suspect that legislating the principle would be a bad idea. If the telcos really do try to stifle what happens on the internet, there will be a lot of effort put forth to try and circumvent their grip. Julian Sanchez at Reason puts it as such:

If that duopoly were a given, though—a permanent fact about how we connect to the Internet—the case for mandating net neutrality would be much stronger. But while some academics believe that even in a competitive market, ISPs would have ample incentive to attempt to extract rents through net discrimination, most net neutrality proponents stress the relatively captive markets local cable and DSL providers enjoy. Yet there are a wide range of looming alternatives to the Big Two (or, more accurately, many local moderately-sized twos): free space optics cellular broadband, broadband over power lines, WiMAX, and satellite broadband, to name a few. And ironically, encouraging the emergence of those alternative broadband venues may depend on not mandating net neutrality.

Just as the anti-Softies didn't see a way around the OS, so too is the Save The Internet crowd unable (or unwilling) to look at the next generation of service options.

On the other hand, suppose legislation were passed, and it didn't turn out well. Imagine that the government telling the ISPs how to manage their networks doesn't turn out as intended (yeah, I know, real unlikely), how do you circumvent that?

Does anyone really imagine that a few years down the road, the congress might repeal the law? They just repealed a phone tax that was initially to finance the Spanish-American war. They're still enforcing contributions to the Universal Service Fund, even on VoIP providers.

So while I like the open internet, I like the emergent internet better. Better to take the risk that things will shake out well than play legislation roulette in hopes that yet another government regulation of communications will make things better.