Why You Don’t Want Net Neutrality

Net neutrality is a big topic lately since the Supreme Court is hearing a case about it.  Net neutrality is the requirement that internet service providers (ISP)s provide all users with the same download speed regardless of what they are doing or how much they are paying.  This would prevent a company from slowing down the download speeds of a consumer watching a video at home in order to allow a higher paying business customer to stream a presentation, for example.

For the non-tech savvy, think of a four lane highway with cars and trucks travelling down it.  Everyone wants to get down the road.  Those with the semi trucks take up a lot more room than the little cars, so the more people you have driving semi trucks the fewer people can get through at any given time.  Eventually, if a lot of people started driving semi trucks, a lot fewer people would be driving per mile and it would take a lot longer for everyone to get where they were going.

Without new neutrality, those who wanted to regularly take up a lot of bandwidth – those driving the semi trucks for a living – would pay a bit extra to have preference when the traffic starts to build up.  Those who didn’t typically use a lot of bandwidth or who were willing to use bandwidth off-peak times might choose a standard plan for a lower price.  The guy who uses a lot of bandwidth all the time might pay $150 per month, while the guy who just checks emails at night might pay $30 per month.  A lot of the time the guy with the $30 plan would get the same speeds as the guy with the $150 plan because traffic would be light.  It would just matter when the traffic started to build.

The problem with net neutrality is that it interferes with the free enterprise system’s ability to find the optimal level of services for the optimal price.  This happens when you have enough businesses competing for business and enough customers wanting a service.   It also interferes with free enterprise’s ability to naturally cause conservation of resources that become scarce.  By raising prices on things that are scarce, companies cause people to scale back their use of those resources to the minimum required.  As bandwidth becomes scarce due to overuse this would cause companies to charge a bit more when customers wanted to use bandwidth during busy times.  They therefore would only use large amounts of bandwidth when really needed and change when they increase usage to less busy times.  It would also encourage companies to build more capacity when there was enough of a scarcity that it made financial sense to build more capability.

With net neutrality the ISP would need to provide equal access to the bandwidth for everyone.  He could not charge extra to consumers for preferential use of bandwidth.  At first this may seem great because you’re paying less than you would if you are a high bandwidth user (because people who aren’t using much bandwidth would be subsidizing your gluttonous usage).  What this would cause, however, is for people in general to be wasteful with bandwidth usage.  (Kind of like you might let the kids run the garden hose all day and night in the yard if you paid a flat rate for water.)  In fact they may use more because of the perception that 1)it costs them no more to use more and 2)if they don’t the are being taken advantage of by people who do.

When this happens either the web will come to a crawl for everyone or the ISP will build the “highways” bigger to accommodate the increasing bandwidth.  In this never-ending effort to satisfy ever-increasing demand, prices will go through the roof and even high bandwidth users will end up paying far more than they would have.  Another possibility is that the government would step in and start rationing bandwidth, giving preference, of course, to those with political connections.

It is true that free enterprise doesn’t work at times (think about the early 20th century in America where a few large corporations and owners, through a process called “Morganization” after J.P. Morgan, forced people to work long hours under dangerous conditions for little pay.  This is generally caused by too few businesses in the marketplace to cause competition (both for customers and for workers) or collusion between businesses to fix prices.  Both of these things can, and should be fixed by government intervention if the market is unable to correct the issue.  There are also times when competition is impractical, such as when building roads between two cities or delivering power to a city because there is only so much space for roads and power lines.  Breaking the law of supply and demand by hampering the ability to set prices at levels that account for the scarcity of a resource or not allowing companies to charge customers based upon their usage only leads to waste and higher prices in the future.  While net neutrality sounds good on the surface, one can see that free enterprise would be better if one digs a little below the surface.

Contact me at vtsioriginal@yahoo.com, or leave a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

2 thoughts on “Why You Don’t Want Net Neutrality

  1. You are missing an important issue that is good about net neutrality. Not having net neutrality will allow the the ISPs to play favorites with online services, especially ones that are competitors of their own services. For instance Comcast owns NBC-Universal now, what if they wanted me to use one of their streaming services rather than Netflix or Hulu Plus. Without net neutrality they will be allowed to slow down the packets of their competitors. There will be no plan that puts them on an even ground like you suggest above.

    • Good point. The trouble you’re running into there is either collusion or a monopoly. Either one keeps free enterprise from working correctly because it limits competition. If you had five ISPs to choose from and some of them preferred a certain streaming service and others did not, consumers could pick one over the other if they wanted a choice in a streaming service. If you only have one choice and they either own a streaming service or are have an agreement with a streaming service to prefer their service, consumers don’t have the ability to choose a different service and monopoly service and prices start to occur.

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