Imagine you own an important highway, used by countless drivers. Since yours is a private one, consumers forcefully have to pay you a toll everytime they want to drive down there. Which would be the optimum price that should be charged?
Basically, since your lanes are scarce and shared simultaneously by several users, one can imagine you would follow some sort of “size and usage” principle, charging a higher fee to lorries or big vans in comparison with small cars or motorbikes. Assuming that heavier vehicles implies higher maintenance costs, a price strategy like this one is quite better than imposing a uniform tariff to all users. The higher your need is, the higher your toll must be.
Otherwise, imposing uniform fees, less frequent users would be unfairly financing most frequent ones. However, if these more sporadic consumers considers the toll expensive enough, then it would be expected that they find other alternatives. Namely, they would choose cheaper and worse roads.
At the end of the day, a good road would be used relatively less (and it will be poorly maintained) than it should be. Or, if there’s no such a second choice to scape, an unfair decision would be imposed and consumer satisfaction will be lower. What’s more, the road probably will tend to collapse in the long run due to heavy vehicles taking advantage of the beneficial situation for them.
Fortunately for us, the free market process naturally tend to lead to optimal solutions like this so-called “price discrimination” I’ve just explained (that’s why we use to have different toll even in semi-private roads). To put it simply, without government intervention the price system itself finds the best solution for allocating scarce resources like our lanes.
Why am I telling you this story? Because, unfortunately, the current internet market is not working like it should, like your road. Despite broadband is as scarce as the lanes of your road, the so-called net neutrality means (among many other things) that a bureaucrat forbids internet providers to offer different prices for different internet consumers.
Therefore, a consumer who compulsively requires more broadband for watching those Netflix series (for instance, Netflix now accounts for almost 37 percent of USA Internet traffic) is stealing money from those who hardly ever use internet but pay the service. As there are no clear internet substitutes like there were for your highway (wifi?), the result is also slower and deficient internet supply.
Hence It’s not strange that the repeal of net neutrality is openly criticized not only for industry giants of content delivery such as Google, Amazon or our aforementioned Netflix (of course), which are being obscenely subsidised, but also for big providers such Verizon (secretly lobbying for the maintenance).
Bureaucrats, needless to say, are angry as well.
How come? The ruling class, backed by these big corporations, will lose its political power to decide who can and cannot play in the market. Getting rid of this absurd regulation, the market will be open to real competition allowing small players to innovate in different and new ways. Consumers will finally enjoy price reductions, something that despite all the technological advances of last decades, has hardly happened in the recent past. Rather, the opposite.
Artificially high barrier entries will disappear and with them the slow technological development of a sector consciously controlled by few cronies, not to mention that the internet will be no longer “a public utility” regulated by orwellian states and its censors.
Internet socialism is dead…or soon it will be.
Internet socialism is dead by Manuel Fraga is licensed under a Creative Commons Attribution 4.0 International License.
“Internet socialism is dead…or soon it will be”
Last ECJ judgements don’t seem to agree with this prediction ?
When I was reading your post, Manu, I couldn’t stop thinking about this comic:
https://xkcd.com/386/
I don’t think I can disagree more with the point you are making. The main problem is your misconception of what net neutrality is. Net neutrality is not about unlimited Internet access for everybody, nor is it related to the flat rate (paying a fixed fee for the Internet connection regardless of usage).
Your example of roads and tolls would be valid if what we are discussing is a ban on flat fees. With flat fees, users who barely use their Internet access would be subsidizing users with high bandwidth consumption. I think that we all agree on this point. In DSL, cable or fiber connections, ISPs (Internet service providers) usually offer flat rates because it is simpler and more cost-effective for them than establishing a variable fee. However, this is not the case when it comes to mobile connections—mobile bandwidth is much more expensive than wired connections. That is why most telecommunications companies offer different data plans.
Nevertheless, what we are discussing here is net neutrality which is an entirely different concept. Internet connections work by sending small amounts of data called packages. These packages “travel” through the ISPs infrastructure from the client to the server and from the server to the client. Net neutrality is about ensuring that all packages that travel over the Internet are treated equally.
Why is this so important? If we believe in the free market, we should be able to pay more for priority access. This argument seems correct, but in reality it is fallacious. If we want more bandwidth, we can actually pay more to get a faster connection (all ISPs offer different connection speeds)—net neutrality has nothing to do with it. In contrast, if we remove net neutrality, we give to the ISPs the power to slow down services at their discretion. Be aware: abolishing net neutrality does not mean speeding up some web services, but degrading the rest. If you want to visit certain web pages, you will have to pay me more, otherwise I will destroy your user experience with terrible speed. But this is just the beginning, what happens if a company degrades the quality of all the web pages with certain political ideas? Without net neutrality, companies can charge you an extra fee for being able to access any website with minimal quality, even if you have the fastest Internet connection available. And we know that the Internet infrastructure market is not free at all: a few companies control most of the infrastructure and the cost of competing in this market is massive. Therefore, without a free market, we cannot ensure the availability of competitors that do not censor the Internet at their convenience.
Another argument against net neutrality is that large tech companies benefit from it because it gives them a huge subsidy. Once again, this denotes ignorance about how the Internet works. Those companies that make extensive use of Internet bandwidth are actually paying a lot to their ISPs. Without Netflix, Google or Facebook, ISPs will not have clients. Without General Motors or Toyota, who will use roads? When somebody wants a server to be accessible on the Internet, they have to pay like we do. The more connections their servers receive, the more money they will have to pay. This is why big tech companies (see https://telxius.com/en/marea/) also make important investments in Internet infrastructure, they want to cut their Internet bills by becoming ISPs. In short, without net neutrality, only ISPs win.
For these reasons, net neutrality has nothing to do with socialism but with freedom. In the modern world, if we believe in freedom, net neutrality should be the first article of the “Universal Declaration of Digital Rights”.
Hi Dani.
First of all, thanks for your comment, and for your explanation of how the Internet Market currently works.
However, there are some misleading assumptions 😛
For example. Indeed the Internet infrastructure market has not been not really free so far in many ways, but this is one of the funniest things of the debate: when pro-NNs complain about the current lack of competition they ignore this is a logical consequence of the previous intervention on the market (largely explained by economic literature).
In fact, your last point is a beautiful example of how a freer market tend to work. Big Tech are the first ones who are not stupid, they were already seeking for ways to decrease costs…and now they will have more reasons to do so. Game is open!
What’s more, note that if “Without Netflix, Google or Facebook, ISPs will not have clients”, you shouldn’t be afraid of higher prices or worse quality. They simply wouldn’t be interested in those practices, since a potential competitor could always offer a fairer solution to them and they would lose the market power.
Your fear (“the” fear) is not based on economic grounds. Price discrimination only means optimal contracts, not ruining the consumer! Even if prices might temporarily increase for some people, as I said before free prices foster very strong incentives to innovate.
This sector is incredibly dynamic. In the long run (here it’s only a matter of few years) prices will plummet. Now they are prices practically stagnant!
Finally, as the most hated man on the internet said, “F.C.C. would simply require internet service providers to be transparent about their practices so that consumers can buy the service plan that’s best for them.” Rule of Law still exist, this is not the apocalypse. Private companies have duties and…way more reasons to treat you well than the State.
I’m not saying free market is perfect, because humans are not…but this is better. We have momentarily avoided a dangerous Big Brother, an alliance between the State and Big Corporations. Luckily for us, we are not in China.