Net neutrality may be harder to achieve than we thought

[Commentary] Network neutrality requires a lot of neutrality to be effective. Put simply, in situations where consumers have a direct pricing relationship with content providers (such as is the case with Netflix), if you prohibited ISPs from charging different access fees to different content providers, ISPs could use consumer charges to undo any real consequences of that.

Also, the mechanism by which an ISP obtained rents from content providers was by charging consumers more for content from ‘high value’ providers. Strong net neutrality will put all content providers on the same terms and so that mechanism will not be available. Thus, content providers will hang on to the surplus they create in competition with other content providers while ISPs will capture only baseline value common across all content.

Then there’s the critical question of ISP investment incentives. Their investment increases the value of all services. If that increase is correlated positively or is independent of content value, then net neutrality regulation has no impact on the ISPs ability to capture the marginal value of their investments.

So this is not a situation where price discrimination allows ISPs to cover fixed costs they would not ordinarily cover. Instead, when it comes to network quality, net neutrality regulation does not stand in the way of investments that increase quality in a more or less neutral fashion.

Finally, there’s competition amongst ISPs. Many commentators -- myself included -- have suggested that if only we had enough ISP competition there would be no role for net neutrality regulation. Even strong net neutrality will not be effective in ensuring that content providers receive profits consistent with competitive outcomes.