Wither Net Neutrality Regulation? Net Neutrality Special Issue Blog #3

[Commentary] Network neutrality rules are not the way to maintain a free and open Internet, according to Michael Katz, professor of economics and director of the Center for Telecommunications and Digital Convergence in the Haas School of Business at the University of California, Berkeley. Regulation never “levels” a playing field because that assumes we know the optimal balance between firms. We don’t, and if an optimal balance exists today it might be different tomorrow.

In this case, proponents believe tilting the field more towards edge providers is important for innovation. One problem with that belief, Katz argues, is that the Internet has never been neutral. For example, the Internet was designed in a way that “works relatively poorly for applications that are highly sensitive to packet loss and require very low latency (e.g., telepresence) and works relatively well for applications that require little bandwidth and are not time sensitive (e.g., email).” Another problem with the level playing field argument is that it should apply to many industries and services, not just the Internet. Yet, we know that paid prioritization has become crucial in other areas, like package delivery (think FedEx, UPS, or expedited shipping in e-commerce). Finally, the argument tends to focus on particular firms that might not do well with paid prioritization at the expense of consumer welfare. However, consumer welfare may be improved by new services that cannot currently exist, or must exist via workarounds that are not technically “paid prioritization.” The point is not that one of these necessarily outweighs the other, only that it is incorrect to automatically conclude that the net effect of paid prioritization is negative.