Remember the debate over
whether net neutrality regulations would stimulate or suppress broadband
development? Opponents of the regulations asserted that suppressing business
opportunities for internet service providers (ISPs) would lead them to cut back
on broadband investment. The regulation proponents struggled to make clear
arguments that imposing net neutrality would stimulate investment, but the
argument that was most solid was that ISPs might limit network capacity in
order to stimulate demand for fast lanes.

It turns out that business opportunities matter: A new empirical study of net neutrality regulations in 32 Organisation for Economic Co-operation and Development (OECD) countries found that the regulations suppress broadband subscriptions and investment in fiber optics.

Prior to this study, the arguments were largely theoretical, ideological, and anecdotal. In 2018, I summarized the existing scholarly research in an article in Network Economics. As one might expect, the theoretical conclusions depended on assumptions made about how the world worked. But it appeared to me that the theory papers arguing that more regulation stimulated investment made assumptions that were difficult to justify.

I will not bother summarizing
the ideological arguments as they were at best sloppy or even vacuous. Such
arguments dominated the Federal Communications Commission’s (FCC) 2015 decision
adopting net neutrality regulations. At worst, the ideological arguments were
hostile and personal, later including threats against FCC Chairman Ajit Pai,
who led the reversal of the 2015 decision, and harassment of his family. The
people involved in such activities and those who funded them should be
embarrassed.

Because net neutrality regulations are recent, all empirical evidence prior to 2020 was anecdotal. In my opinion, the best arguments were made by economist Hal Singer. He wrote articles in Forbes and other outlets where he carefully dissected the financial reports of ISPs and found that the 2015 decision appeared to trigger a rare decline in new broadband investment.

The new study fills a void by statistically
analyzing the data that emerged from the diversity of net neutrality decisions
by the OECD countries over time. In the authors’ words:

Our paper provides the first estimation results on the causal impact of net neutrality regulations on new high-speed (fiber-optic cable-based) infrastructure investment by Internet service providers (ISPs) and on related consumer subscription to fiber-based broadband connection services. . . . We find empirical evidence that net neutrality regulations exert a direct negative impact on fiber investments and an indirect negative impact on fiber subscriptions.

Why didn’t the theory that ISPs
would suppress investment to drive demand for fast lanes prevail? The research
made two critical assumptions that didn’t hold in the real world. One was that
network performance could be modeled as though the network was a single
monolith. This is too simplistic, meaning that in reality the incentives
analyzed applied differently in every network juncture. The other assumption
was that broadband subscribers would respond less to network speed than content
providers would. Apparently not.

What’s the bottom line? If the Joe Biden administration is serious about following science, it won’t try to resuscitate net neutrality. And hopefully Chairman Pai’s investment in economics at the FCC will lead a Biden FCC to be more evidence-based in its decision-making than the last Obama FCC.

The post If Biden is serious about broadband, he should oppose net neutrality appeared first on American Enterprise Institute – AEI.