In a clear sign the pendulum is swinging the other way, this afternoon the FCC voted to reduce its regulatory power and put an end to net neutrality. By repealing Obama era regulations governing Internet service providers (ISPs), government oversight will now return to a more "light touch" approach. Anyone that has been online in the past few weeks has probably come across the dire predictions of advocates of these regulations. When repealed, its argued, the internet will cease to be the open and free landscape that has fostered so much innovation. The dystopian future would instead belong to monopolists who would shut down competition and nickel and dime customers for individual websites and essential services. We believe this view to be both alarmist and completely unfounded.
Even though the repeal effort has been framed as a massive giveaway to large corporations, it's important to remember this is simply a return to pre-2015 regulations. This means ISPs would no longer be subject to FCC oversight through "title II" rules under the Telecommunications Act of 1996. Further, there was no evidence of widespread abuse by ISPs leading up to the new rules being adopted in 2015. The changes were instead made based on the theoretical chance that abuse could happen in the future, setting a dangerous regulatory precedent.
Many argue that any step that we can take to protect against bad behavior is worth taking. However, regulation always has unintended consequences. The forgone opportunities from shifting resources from productive uses to compliance harms innovation and regulatory capture means more market power for the very companies that you set out to check. In many cases, government taxes and regulations effectively limit competition. Large incumbents can afford the costs of compliance while their smaller competitors can't. Lobbyists don't come cheap either, and are able to ensure that new laws and regulations favor established ISPs.
Finally, a major reason there is only one ISP in many localities, raising the specter of monopoly in the first place, is the result of prohibitive costs imposed by local governments. Companies must pay exorbitant amounts for "rights of way", the ability to run cable under public and private streets or buildings. On top of this, exclusive licensing agreements that include kickbacks like expanding service where it's not demanded or providing free broadband to government buildings are business as usual. These practices either reduce incentives for competitors to challenge the incumbent or keep them out altogether. If the main goal is to keep bad behavior from happening, competition is the best solution, which means these local government practices need to be reformed. Further, centralized approval of pricing and service plans through the FCC will inevitably slow down the rollout of alternative forms of internet delivery. High speed satellite internet, for example, stands to benefit small and rural localities with no options the most.
Many advocates of net neutrality cite the goal of keeping the internet as a virtual "wild west." It's ironic then that they're also the ones calling for the arrival of a sheriff. Considering the FCC's institutional history of censorship, giving it control over the biggest innovation in the distribution of free and open information should also give pause. Before net neutrality rules were adopted in 2015, internet access and speed for the average person had done nothing but expand and accelerate, and there's no reason to believe that will change after a repeal. Further, FCC Chairman Ajit Pai deserves applause for being a rare example of a regulator working to reduce his own power. Markets and competition, not government, are what have driven the incredible innovation we have seen through the internet, and a repeal of these rules means that innovation is here to stay.
Bryce Gill – Economic Analyst