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The End of Net Neutrality Isn't the End of the World

November 22,2017 01:16

The more prosaic reality, however, is that a world without net neutrality will work just fine. I am therefore not incensed (or very excited) about the Federal Communications Commission proposal released Tuesday that will move away from net neutrality ...and more »


Eliminating net neutrality is, in the best and worst case scenarios, either necessary to keep the internet up and running, or will lead to a dystopian future where a few major corporations control our thoughts. The more prosaic reality, however, is that a world without net neutrality will work just fine. I am therefore not incensed (or very excited) about the Federal Communications Commission proposal released Tuesday that will move away from net neutrality.
Let’s put aside the heated rhetoric, and look at two recent studies.
QuickTake Net Neutrality
In the past, the FCC went through a process to extend public-utility-style regulation (Title II) to internet service providers starting in early 2015, in response to a court order invalidating its earlier net neutrality policy. In essence, the agency moved to reinstate net neutrality under a slightly different and more legally defensible guise. Most relevant corporate share prices didn’t much react to these events, which suggests that the net neutrality decisions weren’t so important for the sector. This study, conducted by telecommunications expert Robert W. Crandall at the Brookings Institution, looked at AT&T Inc., Verizon Communications Inc., Comcast Corp., Time Warner Cable LLC, Cablevision Systems Corp., Charter Communications Inc., the Walt Disney Co., Time Warner Inc., Viacom Inc., CBS Corp., 21st Century Fox Inc., Starz Inc., Facebook Inc., Twitter Inc., AOL Inc., Yahoo Inc., and finally Netflix Inc.
Many of these media companies did better than the S&P 500 across the critical part of 2015 when the new regulations were unveiled. That shows changing net neutrality is unlikely to cripple the U.S. media landscape. But is net neutrality such a big deal for keeping an open internet? After a statement by President Barack Obama in November 2014 in favor of new regulations, the shares of traditional media companies (owners of movie and TV content) did better than the shares of new media companies (Netflix, Facebook). That’s at direct disagreement with the story that net neutrality rules are necessary to prevent cable companies from levying extortionate access rates on bandwidth-intensive new media companies.
You might think these share price changes aren’t significant in assessing policy, because there are so many disparate factors impinging on the profitability of these companies. And that’s probably the correct intuition, but it also means net neutrality is just one factor of many shaping the future of media, rather than the decisive force.
Look at Netflix, a major bandwidth user, which had a volatile share price over this period. Most of that volatility seems to have come from general business conditions for the company. When the court first struck down net neutrality, Netflix shares rose in value. When Obama made it clear he would try to reinstitute net neutrality, Netflix shares fell in value. Again, those patterns reflect the opposite of the usual critical story that Netflix or its customers will be charged a fortune for bandwidth use if net neutrality is removed. Netflix shares have done fine over the last year, even in light of this expected revision to net neutrality policies.

One-Year View of Netflix Shares
Source: Bloomberg

To put these share price movements in context, stocks for businesses that would clearly benefit from tax reform rose in value immediately after President Donald Trump’s election. When clear costs and benefits are on the line, share prices seem to reflect this.
A second recent study is by José Francisco Tudón Maldonado, a doctoral candidate in economics at the University of Chicago. Tudón Maldonado looked at Amazon.com Inc.’s Twitch.tv, a popular platform for video games, eSports and musical performances, among other services. Twitch itself advocates net neutrality, but applies its own service prioritization rules within the system. Tudón Maldonado found that Twitch users benefit from this prioritization, receiving higher quality programs and suffering less from bandwidth congestion.
That’s only one example, and it hardly proves that service prioritization will benefit the internet as a whole. Still, we’ve been living with various forms of nonneutrality for some while, and when they’re not framed as such we typically don’t find them so outrageous.
Have you ever used your Kindle to connect to wireless to download new books from your Amazon account? That too is a kind of nonneutrality. You can download the books, but you can’t use that same wireless connection for more general purposes.
Proponents of net neutrality are typically worried about the monopoly and pricing power held by cable companies and other internet service providers. Options for access, however, are improving. Cellphone service is falling in price, smartphones are growing in size and quality, and Wi-Fi connections are all over the place. That said, a lot of monopoly power remains. But look at it this way: Those monopolists don’t want to distort the consumer experience too much, so they can keep charging high prices.
I used to favor net neutrality, but I now think we’re at the point where we’ll do just fine without it.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tyler Cowen at tcowen2@bloomberg.net
To contact the editor responsible for this story:
Stacey Shick at sshick@bloomberg.net

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