Does Net Neutrality Promote Competition?


Should the FCC's Internet policy seek to level the playing field between the big web content providers and their smaller, start-up competitors? That was one of the questions that came up yesterday during my appearance on NPR's On Point opposite Harvard's Jonathan Zittrain.

The topic of discussion for the segment was the Internet policy framework proposed jointly by Google and Verizon last week, and at the end of the discussion, Zittrain—who, I think it's fair to say, holds a much more favorable view of Net neutrality than I do—raised the possibility that the enhanced services that would be allowed under the proposal could impede smaller competitors. So what if, say, Google can afford to pay for faster delivery for content served by YouTube (which Google owns)? Doesn't that make it more difficult for smaller entities to enter the market? It's a version of the case he made on his blog last week

Verizon could say to Google: regardless of what you pay your own ISP to get your bits launched on the Internet, pay us more and we'll make sure your YouTube videos get to our subscribers all the more quickly as they come in for a landing. Google might well be able to pay—and then leave poorer content providers behind.  The next two guys who want to start, say, ShmouTube won't be able to do it if they've got to negotiate business development deals with one ISP after another in order to reach those ISPs' subscribers.  And that's the real danger: when each ISP can, in effect, speak on behalf of its unwitting subscribers, serving as the troll under the bridge offering up different conditions for access to them, the economics of the Net will start to favor the consolidated, the well-connected, the well-heeled.  Verizon and Google each have reason to take the trouble to negotiate with one another to begin with—they've both big, and each can offer uniquely desirable benefits to the other.  The generative power of the Internet is that it has offered a perch for anyone who wants to plant a flag in the ground.  Set up, and people the world over can beat a path to it or not as they please.

The exact details of how the proposal would work are yet to be perfectly ironed out, but it's true that, if the Google-Verizon policy framework were to be adopted, Google would quite possibly be allowed to pay more to guarantee speedier service for the videos it hosts. And it's also likely that a smaller, leaner, start-up competitor without Google's sizable financial resources would not be able to afford the same tier of services.

But is this really so worrisome? If anything, it seems like consumers would benefit from larger web providers being able to offer nifty, advanced services that a smaller competitor might not be able to afford.

Nor am I convinced that our theoretical tiny competitor's inability to pay for speedier service is a concern serious enough to warrant regulatory meddling. Part of the fear here seems to be that ISPs will ignore smaller web operations in favor of bigger companies with better financial backing. But there's no reason to think that ISPs will not be able to handle customers purchasing multiple service tiers. Think of how FedEx and UPS operate: Some customers pay to have their packages delivered to their destinations faster, yet no one thinks of this as harmful to those who choose regular speed delivery. Why should it be any different with ISPs, which are essentially delivery networks for data rather than physical goods?

The fact is, larger companies will always have more resources, financial and otherwise. As it stands, Google can buy bigger server farms in more locations, offer higher salaries to top talent, and attract innovators and creative thinkers by building elaborate toy-and-game filled office spaces on incredibly expensive real estate in Manhattan. Yet I don't see anyone at the FCC debating a no-slides-in-offices rule.

Start-ups always face long odds against entrenched competitors, which is why the majority of new businesses fail relatively quickly. But the best start-ups compete through genuine innovation, not by taking advantage of government-enforced business-model barriers. Who's to say that the next YouTube won't succeed because its creators figure out how to deliver high quality video content with less bandwidth, or less server power, or over choppier delivery networks? (Or, for that matter, by figuring out how to be profitable quickly and on low overhead? After years of massive capital investment, YouTube is only expected to become barely profitable this year.) Zittrain is correct to think of Internet policy in terms of how it promotes competition and innovation. But FCC-imposed limitations on how the web's most successful players can operate don't strike me as all that likely to be successful in doing either.