Sunday, April 30, 2006

Don't Neuter the Net

Many people seem to have the wrong idea about the principles at stake in the debate over Network neutrality. It may look like an issue of free speech, or encouraging high tech businesses, but I think it's really about cross subsidies, and favoring some business models over others. The proponents of Neutrality (prohibiting internet carriers from charging different prices for different kinds of data, or different prices to different customers) correctly point out that neutrality makes certain business models much more attractive, and they also argue that allowing carriers to discriminate would prevent some people from getting heard. The first argument misses the point, and the second is just wrong.

The proponents point out that the open policies that network providers have always supported to date have allowed many new businesses to flourish, and that they might not have been able to succeed if the rules had been different. This is true, but it misses the point that with other rules, other businesses would have been developed instead. (And no one can say with any confidence what those businesses would have been, or whether the overall economy would have been better or worse off.)

The companies that are considering charging different rates for different packets (or to different customers) would be pursuing a different customer base, and a different business model. There's little reason to believe that the current model is better or worse than any alternatives. The way we find out which is better is to allow companies to compete and see what their customers want to buy. Remember that AOL (like other ISPs in other eras) started out by offering a limited version of the net, giving advantages to the services they provide, or that paid for special access, and making it harder for their customers to reach others. This wasn't a matter of censorship: their customers were perfectly able to go elsewhere. AOL, at the time, just provided an easier starting experience for many customers, and this gave them the ability (and a reason) to make some services easier to reach than others.

I see prohibiting these different models as akin to the subsidies we currently provide to sugar and other crops. If we were to change the rules now, it would drastically interfere with the business model being pursued by many businesses, including candy and soft drink manufacturers, a big part of the economy. But maintaining the price supports is also a restriction, and it's mucking with the incentives, and giving people, companies, and the economy a false picture of the relative costs of different inputs. If we remove the price supports, the taxpayers would be better off because they wouldn't be paying growers, and they'd be better off because the economy would find a different equilibrium that made more efficient choices about what crops to supply, and what services and products could be produced at a profit. People would change their patterns of consumption, and with more money in hand they could choose either to spend more money on more expensive soft drinks, or spend the money elsewhere. Continuing to subsidize sugar because it keeps current price patterns stable only makes sense if your objective is to not effect the political balance of power among winners and losers in that trade-off.

The proponents also argue that all bits are the same, and companies shouldn't be allowed to discriminate among them. but this, too, is fundamentally misguided. There are many reasons to want different treatment for different kinds of bits. Browsing the web is interactive, and people want the net to be responsive, but email is store-and-forward so there's no need for those packets to be handled with the same urgency. Once people start watching movies or live video feeds over the net, those packets will need to be handled with even more dispatch, since a late or missing packet matters there in a way that it doesn't when you're browsing web pages. If some ISPs want to experiment with providing differential service for different purposes for different prices, that would enable many new kinds of business plans. Forbidding it would require the same kind of regulation we had of trucking until the early to mid nineties. It's not directly visible to consumers, but prices have fallen a lot since then, and there has been considerable innovation in packaging and pricing in that industry. Letting the carriers set their own rules and rates allows them to discover what distinctions matter to customers, and focus their business on delivering the services that make a difference.

And as to free speech? Use a different ISP if yours has restrictions you don't like. Free speech shouldn't mean that someone is required to carry your message; it means that the government shouldn't take a position, and shouldn't restrict the positions that people are able to publish using whatever means they can arrange.

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