The Economic Pitfalls of Net Neutrality Reinstatement

In recent days, the FCC Chairwoman reignited the debate on net neutrality by sharing a proposal with her colleagues aimed at restoring the net neutrality rules discarded during the Trump administration. The reinstatement of these regulations is seen by some as a means to maintain an open and equitable internet. From an economic standpoint, however, this policy comes with several drawbacks that will outweigh its purported benefits.

One of the primary economic concerns surrounding net neutrality is the potential stifling of innovation. Virtually every telecommunications company, large and small, argues that net neutrality regulations could stall the development of new internet technologies. Whereas technological advances such as self-driving cars, Generative AI, remote surgery, and augmented reality will demand even greater broadband performance, net neutrality will likely hinder the evolution of internet infrastructure necessary to support these innovations by implementing a more costly regulatory approach and diminished returns on existing investment. Some will choose to invest elsewhere, or slow existing expenditures in capital, as alternatives become more attractive.

As evidence, under the recent Open Internet order (which created Net Neutrality regulations from 2015-2017), direct investment in broadband infrastructure declined by more than $3 BN, at a time when the economy was expanding. After its overturn, investment rebounded by more than $5 BN over the course of a couple of years, leaving vastly improved internet speeds and a closing “digital divide” in its wake.

Additionally, net neutrality laws may have adverse effects on consumers' wallets, particularly in the context of still burgeoning video streaming services. As these services continue to flourish, net neutrality laws force internet service providers to deliver faster speeds to keep up with streaming demands. In a world of ubiquitous streaming, faster speeds are a tremendous benefit. But, there is no need to force carriers to provide any particular level. Streaming, and even basic broadband cable competition is already so diverse that open competition is requiring ISPs to deliver, or be further cut. As cable companies continue to lose their traditional cable TV base of customers, they are ever reliant on their broadband services and have invested heavily to ensure the maintenance of this band of customers, improving pricing along the way. Their very existence requires it. Diminish their ability to do so and the chances are high that costs, or poorer service, will be passed along.

A more free and open regulatory approach that allows providers to throttle and prioritize network traffic has continually improved the user experience. The more flexible framework we have maintained in recent years has enabled better management of network resources, leading to enhanced service quality and user satisfaction, a requirement when the entire country - from casual YouTube browsers to entrepreneurs - has shifted towards total dependence on broadband services.

While the intent behind reinstating net neutrality rules may be to foster a more open and fair internet, it seems like another regulation chasing a problem that does not exist. Further, the economic ramifications suggest a need for a more balanced and data-driven approach in formulating internet regulation policies. The pursuit of an open internet should not come at the expense of technological innovation, economic efficiency, and consumer welfare, but it will if we apply an antiquated regulatory regime to an outdated problem.