The year 2023 marks the 20th anniversary of the publication of Columbia Law School professor (and former Biden administration technology and competition policy adviser) Tim Wu’s widely read paper that coined the term “network neutrality.” The catchy phrase has come to mean many things to many people—especially politicians, regulators, and anyone with an axe to grind with broadband network operators.

What began in Wu’s paper as a network antidiscrimination policy intended to enable the use and creation of safe equipment and apps now embraces:

• Precluding network operators from discriminating among applications when throttling traffic on their networks,
• Prohibitions on charging content providers for carrying traffic to end users, and
• Precluding “zero-rating” of charges against end users’ data caps for selected applications or discounting the data charges for specific applications.

Wu’s initial concern was that innovation in the internet economy would be suppressed by internet service providers (ISPs) who were either protecting their own turf or just being silly. Indeed, in 2003, he eschewed structural remedies such as access regulation in favor of an ambiguous principle of “direct scrutiny of broadband discrimination.”

Yet, as Christopher Yoo observed, if network neutrality were highly valued, it could be purchased from ISPs as required in an unregulated market. On the 10th anniversary of Wu’s catchphrase, Deborah Tate (a former commissioner of the Federal Communications Commission) argued eloquently that there was really no need for heavy-handed regulation, such as what had emerged in the EU, given that negligible evidence had emerged of harmful activities occurring.

Arguably, the current US case-by-case regulatory arrangements (and those in Australia, New Zealand, and South Africa, where the net neutrality debate is nearly nonexistent) are far closer to Wu’s original proposal—and have proved more conducive to innovation—than the EU’s highly prescriptive regulations.

In 2003, many US providers prohibited immoral or indecent use, running a server at home, having a Wi-Fi network, using virtual private networks, or all of the above, which could have proven harmful if they had been maintained. Over time, these prohibitions withered away and broadband networks slowly became “dumb pipes,” albeit very useful ones, carrying content for a vast array of innovative applications. The “Darwinian competition among every conceivable use of the Internet so that . . . only the best survive” that Wu envisaged has emerged and evolved at least in the application space where US firms dominate. Meanwhile, the quality and relative prices for telecommunications services continue to improve.

Yet calls for strict US regulatory provisions remain—despite growing evidence that these network neutrality regulations are necessary only when demonstrable failure of less arduous behavioral provisions has occurred. Moreover, they slow down the deployment of new fiber home connections. Indeed, concerns are emerging that unless ISPs can charge the companies generating the bulk of the traffic they must now carry (as much as 65 percent of traffic is video streaming from a handful of firms), the future of broadband investment and development is jeopardized.

As Table 1 shows, the internet in 2023 is very different from that in 2003. Most significantly, the application base has changed from when ISPs alone monetized internet traffic flows (Phase I). We are now in Phase III, in which the bulk of the traffic is of subscription content, for which the end user pays the content provider (for example, Netflix) directly. The ISP delivers traffic to the end user, the value of which (to the end-user) the ISP cannot fully capture since the end user has already paid the content provider. Furthermore, the traffic volumes are enormous and growing at a swift rate through increased time spent in front of a networked screen and steadily higher resolution and content quality.

Since the originators of the traffic are few and easy to identify, it seems natural for the ISP not only to charge the content provider for delivery of the data (cost recovery) but also to seek a partnership with the content provider to monetize part of the value that the content has for the end user (value sharing). The dogma of network neutrality makes both cost recovery and value sharing impossible. Thus, in the EU, even more regulations are being proposed to allow ISPs to recover costs that are already subject to commercial agreements in the US and elsewhere.

Network neutrality was originally considered necessary to maintain diversity and innovation. If we consider the 5 percent or so of content that resembles the internet of 20 years ago (essentially, websites and e-mail), diversity is still there. For the rest, the traffic is dominated by a very small number of companies with multiple avenues for monetizing it, so the case is no longer clear-cut. 

Perhaps it is time to take a break from the concept of network neutrality, in the happy knowledge that in the worst case, it will be just like Australia everywhere.

The post Twenty Years of “Network Neutrality”: Assessing Its Legacy and Relevance appeared first on American Enterprise Institute – AEI.