Communications - February 2009

alone. It creates value by enabling us to do things we could not do otherwise, or to do things more efficiently. Applications are the tools that enable us to realize this value. Through the applications and content it offers, the Internet has enabled us to become more productive in our professional and private lives, to interact with relatives, friends, and complete strangers, to get to know them, communicate, or work with them, focusing on anything we like, to educate ourselves using a wide variety of sources, and to participate in social, cultural, and democratic discourse. In the process, it has spurred economic growth, improved democratic discourse, and created a decentralized environment for social and cultural interaction in which anyone can participate.

ISPs ability to discriminate changes this. In a world without network neutrality rules, ISPs determine which applications and content can become successful, distorting competition in the markets for applications and content. As we have seen, who network providers decide to support and who they decide to exclude may be motivated by a number of factors that are not necessarily aligned with users’ preferences, leading to applications that users would not have chosen and forcing users to engage in an Internet usage that does not create the value it could. If I am working on an open source project that uses Bit Torrent to distribute its source code, and the network provider chooses to single out BitTorrent to manage bandwidth on its network, I am unable to use the application that best meets my needs and use the Internet in the way that is most valuable to me. If I am interested in content that my network provider has chosen to restrict, my ability to educate myself, contribute to a discussion on this subject, and make informed decisions is impeded. Instead, ISPs gain the power to shape public discourse based on their own interests and idiosyncratic content policies. In addition, the risk of being cut off from access to users at any time and at the sole discretion of the network provider reduces independent innovators’ incentive to innovate and their ability to secure funding. Throughout the history of the Internet, successful applications such as email, the Web, search engines, or social networks have

network providers
may have an
incentive to block
unwanted content
that threatens the
company’s interests
or does not comply
with the network
provider’s chosen
content policy.

been developed by independents, not network providers. By threatening the supply of all those exciting new applications that have not even been thought of yet, discrimination by network providers reduces the Internet’s ability to create even more value in the future.

But do we really need regulation? That competition will solve any problems, should they exist, is a common argument against network neutrality. If AT&T blocks an application that its customers want to use, the arguments goes, customers will switch to another provider that lets them use the application.

This argument comes in many flavors: Some, like many European regulators, use it to argue that the problems that network neutrality is designed to address are caused by the concentrated market structure in the U.S.,

but are not relevant to European countries that, due to open access regulation, have more competition among ISPs than the U.S. Others, particularly e

in the U.S., argue that governments should focus on increasing competi-

e In the U.S., most residents have a choice between at most two providers, the local telephony company and the local cable modem provider (residents in 34% of ZIP codes in the U. S. have only one or zero cable modem or ADSL provider who serves at least one subscriber living within the ZIP code). These providers are not required to (and generally do not) let independent ISPs offer Internet services over their infrastructure. By contrast, Europeans often have the choice between cable and DSL services, and can choose among a number of ISPs offering their services over the DSL network.

tion among ISPs instead of enacting network neutrality rules.

These arguments neglect a number of factors that make competition less effective in disciplining discriminatory conduct than one might expect. First, if all network providers block the same application, there is no provider to switch to. For example, in many countries all mobile network providers block Internet telephony applications to protect their revenue from mobile voice services, leaving customers who would like to use Internet telephony over their wireless Internet connection with no network provider to turn to.

Second, customers do not have an incentive to switch if they do not realize the network provider interferes with their preferred application. If network providers secretly slow down packets or use methods that are difficult to detect, their customers may attribute an application’s or Web site’s bad performance to bad design, and happily switch to the network provider’s supposedly superior offering.

Third, finding another ISP and making the switch requires significant time, effort, and money, reducing customers’ willingness to switch. All this suggests that while increasing competition is good for other reasons, it is not a substitute for a robust network neutrality regime.

Finally, some argue that allowing network providers to discriminate against applications and content is necessary to foster broadband deployment. This argument concedes that network providers have an incentive to discriminate to increase their profits. By removing the ability to discriminate, network neutrality rules reduce network providers’ profits.

Fewer profits may mean less money to deploy broadband networks. I am not convinced that network neutrality rules would reduce ne twork providers’

profit enough to push deployment incentives beyond the socially efficient level, or that network providers would f

really use the additional profits to deploy more networks instead of using the money to please their shareholders.

f After all, network providers would still be able to offer their own applications or content, but they would not be able to give them an advantage over competing products.