Like Jason Voorhees in each new iteration of the “Friday the 13th” franchise, net neutrality is coming back from the dead. With a Democratic majority now in place on the Federal Communications Commission, the commissioners recently voted 3-2 to reinstate net neutrality rules the FCC repealed in 2018. This decision to reclassify how broadband is regulated also sets the stage for even more expansive rules than the ones that existed before.
In its eagerness to regulate, the FCC risks prohibiting a broadband practice that actually benefits consumers: setting prices based on use.
Net neutrality is the idea that internet service providers such as Comcast and Verizon have to treat all traffic equally. They can’t make fast lanes for their own streaming services while slowing down rivals’ content. During the Obama administration, the FCC imposed sweeping net neutrality rules, but the Trump-era FCC repealed them, on the grounds that they stifled the potential for innovative new services.
When the rules were repealed, net neutrality proponents like Senator Bernie Sanders of Vermont said it would be the “end of the internet as we know it.” But that has not come about. There’s no evidence that internet service providers (ISPs) are holding back access to rival streaming services like Netflix to benefit their own video offerings.
Advertisement
What has flourished without net neutrality is usage-based pricing plans that have made broadband more accessible and affordable.
Usage-based pricing often takes the form of monthly data allowances, whereby broadband consumption beyond a set threshold triggers extra fees. For example, a basic plan might include 300 gigabytes per month, with $10 charges for every 50 gigabytes of additional data. This option is good for consumers: By charging the heaviest data consumers more — think of someone who streams video games for six or more hours a day — ISPs set low prices for the basic service tiers.
Advertisement
But now the FCC’s expected net neutrality rules include broad “internet conduct” standards that would give the agency discretion to limit or ban such pricing practices.
Net neutrality advocates claim usage-based pricing plans are a way for providers to price-gouge consumers and discourage internet use. What the advocates fail to recognize, however, is that usage-based pricing gives ISPs a reason to cater to, rather than discourage, the most data-intensive applications. Specifically, because these pricing plans allow ISPs to cover their costs and earn a profit even on the most data-heavy users, they have a strong incentive to support applications like high-quality streaming and gaming. The world is moving more and more toward exactly those kinds of applications. A ban could discourage the investments needed to keep up with rapidly growing traffic and new data-intensive applications. After all, no company is going to invest in improving its networks if it can’t find ways to make money from doing so. And restricting usage-based pricing would effectively force the customers who use the least data to subsidize those who use the most.
Usage-based pricing also can reduce network congestion. More innovative pricing strategies, such as allowances based on peak usage, could shift demand to off-peak times or deter excessive use by a small share of customers. These practices would also encourage the development of technologies that reduce data use without sacrificing quality. In both cases, the result is improved performance for everyone. This is especially important as remote work and streaming push networks to their limits.
Advertisement
To be sure, there’s always the possibility that usage-based pricing could be employed in ways that harm consumers. For example, a zero-rating system — in which an ISP exempts from the monthly data allowances its own services or the services of partners that pay the ISP — could be implemented in a way that is anticompetitive. But in that hypothetical situation, antitrust law is well equipped to handle such bad actors. The FCC has not shown that these problems are widespread or that they justify preemptive new rules.
Before disrupting the broadband market, the FCC should study how these evolving practices are working on the ground. Otherwise, the FCC risks prohibiting innovations that already make the internet faster and more affordable for consumers.
Brian C. Albrecht is chief economist of the International Center for Law & Economics (ICLE), a private research organization. Jonathan W. Williams is professor of economics and director of the Center for Regulatory and Industrial Studies at the University of North Carolina at Chapel Hill and an ICLE academic affiliate.