Net Neutrality Is Another Equality Mandate

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The Federal Communications Commission(FCC) announced that it plans to force internet providers to treat all web traffic equally, neither favoring their own services over others nor throttling applications that hog bandwidth.

What is the legal principle behind this policy? What is the political principle behind this policy? What is the economic principle behind this policy? And what would happen to our country if these principles were broadly applied across the entire economy?

The creation of the FCC was justified by the view that the airwaves were a scarce public resource, and hence needed to be managed for the public good. In addition to regulating access to the airwaves and controlling the type and nature of the content transmitted over them, the FCC was legally empowered to regulate the statutory telephone monopoly once known as the Bell System.

Large blocks of spectrum have been auctioned off to carriers that paid a pretty penny for the right to invest countless billions to build networks. New technologies of frequency re-use and digital modulation took a commodity once so scarce that only a handful of television and radio stations could share it and transformed the airwaves into a cornucopia of abundance.

The Bell System was broken up in the 1980s. A bevy of competitors have since spent billions wiring the country with fiber optic cable. Consumers now have choices unimaginable under the FCC's historical resource scarcity regime. Yet the FCC lives on, seeking new justifications for its existence as it serves the whims of its masters.

The political principle behind network neutrality is that the rights of buyers to buy what they please trump the rights of sellers to sell what they choose even if sellers have to be forced to sell competitors' products at a loss. This principle does not rest on the statutory obligations of the government to protect the public safety or prevent consumer fraud. Like rent control, the primacy of buyers' rights is based on raw arithmetic. Buyers outnumber sellers so politicians freed from constitutional constraints on power can win elections by pandering to buyers. While aggrieved sellers may make their voices heard through campaign contributions, in the case of network neutrality other sellers looking for a free ride such as Google and can make offsetting contributions that drown out the voices of those sellers who fear losing control of their property.

The economic principle behind network neutrality is based on a classic utilitarian ends-justifies-the-means argument coupled with the increasingly fashionable single-entry bookkeeping technique in which highly visible short-term public benefits are counted but less visible long-term private costs are ignored. Network neutrality provides the greatest good for the greatest number in that consumer choice and convenience is maximized when internet providers are forced to unbundle transport and content, making transport services available on a non-discriminatory basis. Thus content providers who have not invested in building networks can compete on a level playing field with content providers that have. The fact that this playing field did not fall from the sky but was built by rational investors who may learn an important lesson if their property is confiscated does not seem to deter policy makers. After all, these investors can't get their sunk costs back. Sure, in the long run they may stop building new networks or upgrading existing networks as these level playing fields begin to choke on unthrottled traffic served up by free riding competitors. But as the rehabilitated Lord Maynard Keynes once said to justify his celebrated economic logic, "in the long run, we are all dead."

So, what happens when misapplied legal principles of scarcity, vote-pandering political principles of buyers' rights, and single-entry economic principles of utilitarianism are applied across our economy?

Supermarket owners would be forbidden to offer preferred shelf space or lower prices for house brands but will be forced to carry the products of any supplier demanding shelf space neutrality.

Newspaper publishers would be forced to make blank pages available to any independent journalist demanding newsprint neutrality.

Manufacturers would be forced to build products designed by any inventor demanding factory neutrality.

Razor manufacturers would be forced to build razors that accommodate the blades of any competitor demanding shaving neutrality.

Theater owners who make their margins from candy concessions will be forced to open up their lobbies to competing fast food vendors demanding popcorn neutrality.

Late night comics will be forced to tell jokes written by any aspiring TV writer demanding Leno neutrality.

Do these examples sound absurd? We'd better get used to it. Once the rule of law is replaced by the rule of men, anything goes.

Bill Frezza is a fellow at the Competitive Enterprise Institute, and a Boston-based venture capitalist. You can find all of his columns, TV, and radio interviews here.  If you would like to have his weekly columns delivered to you by e-mail, click here or follow him on Twitter @BillFrezza.

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