Uneconomical vs. Economical Net Neutrality at the U.N. Part 11, Uneconomics vs. Economics Series

Published August 14, 2013

Information may want to be free, but physical networks are costly.

Few proponents of net neutrality appreciate the trillions of dollars of investment it has taken to build and upgrade the Internet’s vast and varied infrastructure that we all enjoy today. Simply, the Internet is not free of cost.

Economical policies have made the Internet universal and have enabled users to access the content, apps, and devices of their choice – what net neutrality is supposedly all about. On the other hand, uneconomical policies that discourage economic growth, return-on-investment, or respect for property can have unintended consequences and can threaten the proverbial goose that lays the golden eggs.      

Currently there is a strong working consensus in support of net neutrality, i.e. that a user should be able to access the legal content, apps, and devices of their choice on the Internet. Most all of the political controversy over net neutrality occurs when uneconomical expectations confront real world economic realities.

Specifically, what is extremely controversial is when some try and leverage the current working net neutrality consensus as a Trojan horse to advance an uneconomic digital commons agenda. Digital commons activists define net neutrality as effectively neutering private ownership of Internet networks, bandwidth, spectrum, software, and content; and as effectively neutering private commercial freedom to commercially offer differentiated speed tiers, usage-based pricing or specialized Internet services.

Without the market forces of competition, market pricing, return on investment, property rights, etc., the Internet as we all know it would cease.

That said, it’s important to spotlight the latest uneconomic net neutrality expectations on the horizon. They come from the current draft of a “Model Framework on Net Neutrality” produced by the Dynamic Coalition on Net Neutrality and Human Rights” which is part of the United Nations Internet Governance Forum.

Let me explain the fundamentally uneconomic aspects of the Coalition’s current draft (which can be found at the end of this post in italics – or here online.)

First, the draft incorrectly defines the Internet; this undermines the credibility of everything else in the draft. The draft incorrectly says: “The Internet is the public electronic communications network of networks…” No, the Internet is an international computer network of networks using Internet Protocol that can be private, public, business, government, or academic networks.

Trying to deem the Internet as only “public” implies a political bias and an uneconomic political agenda that there should be no private ownership or operation allowed on any part of the Internet — by definition. The economic reality of the Internet is that most of the most universal, modern, fast and highest-capacity parts of the Internet are privately owned and operated – and they are that valuable precisely because they are economic and economically-sustainable – not uneconomic.

Second, the draft indicates a bias for imposing or mandating the draft’s version of net neutrality on everyone on the Internet despite the fact that most everything successful to date about the Internet is because the Internet is voluntary and not coerced. The draft asserts that “the net neutrality principle shall apply to all open electronic communications networks using the Internet Protocol.” Simply, the current draft appears to signal an eventual UN intent to change the voluntary (free), bottom-up (open) Internet of today, to more coercive, uneconomic, and top-down, U.N.-regulated Internet of the future.

Third, if the drafters have no uneconomic intent in their draft, the draft should be changed to add explicit language stating the importance of an economically-sound Internet and endorse what actually makes the Internet economic: i.e. being open to private investment and competitive returns; allowing speed/usage pricing and service specialization; and respecting property rights.

In sum, information may want to be free, but physical networks are costly. Economic risks and rewards have been essential to making the Internet as universal, accessible, and valuable as it is today.

We should all expect users to be able to access the content, apps, and devices of their choice on the Internet, and recognize that most essential enabler of that choice on the Internet is sound economics and market forces.   

DRAFT – of the Dynamic Coalition on Net Neutrality:

Model Framework on Network Neutrality

1) Network neutrality is the principle whereby Internet traffic shall be transmitted without undue discrimination, restriction or interference so that end-users are able to send and receive content of their choice; use the services or run the applications of their choice; connect equipment and use the programs of their choice; provided that the aforementioned activities are legal and do not harm networks.

2)  The neutrality principle shall apply to all open electronic communications networks using the Internet Protocol, regardless of access mode (landline or wireless). Exceptions to this principle must be carefully crafted and overseen.

3) The Internet is the public electronic communications network of networks that use the Internet Protocol for communication with endpoints reachable, directly or through network address translation, via a globally unique Internet address.

4)  The expression “Internet service provider” refers to any legal person that offers Internet service to customers, being “Internet service” the connection of an Internet end-point or network to the rest of the Internet.

5)  Internet service providers shall refrain from any interference with or restriction to the transmission of Internet traffic and Internet users’ freedom to access and distribute content through applications and devices of their choice, unless such interference is strictly necessary and proportionate to:

a) minimize the effects of congestion, giving equal treatment to equal types of traffic;

b) preserve integrity and security of network, service and terminal equipment;

c) restrict spam if the subscriber has given consent;

d) give effect to a legislative provision or court order; or

e) comply with an explicit request from the subscriber, provided that this request is given freely and does not imply lower subscription fees or similar incentives.

6) Internet service providers shall provide intelligible and transparent information with regard to their traffic management policies, notably with regard to the coexistence of Internet access service and specialized services and the criteria whereby network-capacity is shared between them. 

Uneconomics vs. Economics Research Series

Part 1: Is Long Tail Just a Tall Tale? 7-2-08

Part 2: Uneconomics 101: as Taught by Free Press 4-23-09

Part 3: More Uneconomics Nonsense: Regulation Doesn’t Discourage Private Investment 10-22-09

Part 4: Systemic Uneconomics: Financial Crisis Root Causes 1-21-10

Part 5: FCC: Forced Access Uneconomics & Selective Math? 2-12-10

Part 6: Paid Prioritization: The Demonization of Market Economics 12-13-10

Part 7: FCC Creates Abundant Uncertainty 9-27-12

Part 8: The Uneconomics of Data Price Cap Legislation and Regulation 12-20-12

Part 9: The BitCoin/Virtual Currency Bubble: Beware of Alchemy of Abundance Economics 7-3-13

Part 10: A la Carte TV Uneconomics 7-25-13