Tuesday, November 6, 2007 - The Progress & Freedom Foundation Blog

Bruce Owen on "Antecedents to Net Neutrality"

Bruce Owen, one of the finest communications and media economists of our generation, has written a powerful piece for Cato's Regulation magazine asking, "After the long fight to end the 'common carrier,' why are we trying to resurrect it?" He's referring, of course, to the ongoing efforts by some to impose Net neutrality regulation on broadband networks. In his new article, "Antecedents to Net Neutrality," Owen points out that we've been down this path before, and with troubling results:

[T]he architects of the concept of net neutrality have invented nothing new. They have simply resurrected the traditional but uncommonly naïve “common carrier” solution to the threats they fear. By choosing new words to describe a solution already well understood by another name, the economic interests supporting net neutrality may mislead themselves and others into repeating a policy error much more likely to harm consumers than to promote competition and innovation.

Net neutrality policies could only be implemented through detailed price regulation, an approach that has generally failed, in the past, to improve consumer welfare relative to what might have been expected under an unregulated monopoly. Worse, regulatory agencies often settle into a well-established pattern of subservience to politically influential economic interests. Consumers, would-be entrants, and innovators are not likely to be among those influential groups. History thus counsels against adoption of most versions of net neutrality, at least in the absence of refractory monopoly power and strong evidence of anticompetitive behavior — extreme cases justifying dangerous, long-shot remedies.

Owen then provides a detailed history lesson in the failures of regulation [make sure to read it] and then draws three lessons from that history:

First, as the examples above attest, there is little clear evidence that traditional regulation ever achieved even its narrow objective of making nondiscriminatory service available to all at cost-based prices. On the contrary, discrimination on the basis of factors correlated with price elasticity has been a commonplace of regulation from the time of the 1887 [Interstate Commerce Commission] Act to the present.

Second, the remedy makes the disease worse. Regulators and regulation often have served as deterrents to technical innovation, both by incumbent monopolists and potential entrants. ... The framework of regulation and the principles of administrative law give incumbent producers great leverage in preventing entry by competitors. This, in turn, reduces the incumbent’s own incentive to innovate.

Third, there is no body of learning or experience from other contexts suggesting that these failures might be remedied significantly by “better” regulatory practices. The long-run interests of consumers arguably are better served by unregulated (and therefore hopefully shorter-lived) monopoly than by regulated (and therefore likely semi-permanent) monopoly.

Make sure to read the whole thing.

posted by Adam Thierer @ 9:24 PM | Cable , Communications , Internet , Net Neutrality , The FCC