Author: Timothy B. Lee

1

Competition Can Protect the Open Internet

Thanks to our hosts for inviting me to contribute to this symposium. Like Adam, I found Infrastructure to be a thorough, in-depth examination of the economics of infrastructure. There’s a lot in the book I agreed with, but discussions are more interesting with some healthy disagreement. So I want to focus on an area of disagreement: chapter 13, which focuses on network neutrality. Brett Frischmann makes the strong claim, likely to be controversial even among supporters of network neutrality regulation, that regulations would be needed even in a competitive market for Internet service. I disagree.

The core of Frischmann’s argument is that neither Internet users or their ISPs can fully know or capture the social value created by public participation on the Internet. He’s clearly right about this. For example, if I contribute to a Wikipedia article, I thereby increase the welfare of everyone who subsequently reads that article. Yet there’s no way for my ISP to capture a share of this “spillover” benefit of my Internet use to other Internet users. So theoretically, there’s a risk that my ISP’s zeal to maximize its private profits could cause it to manage its network in ways that discourage me from engaging in activities, such as contributing to Wikipedia, whose total social benefits exceed its total social costs.

This is a theoretical possibility, but in most cases it’s not a realistic one. Certainly, it’s not a realistic danger in my Wikipedia example. For example, it would be difficult for my ISP to configure its network so that I could read Wikipedia (allowing me to reap the benefits of others’ contributions and thereby increasing my willingness to pay) but not contribute to it. The network traffic that constitutes me reading Wikipedia doesn’t look very different, from an ISP’s perspective, than network traffic that constitutes contributing to Wikipedia. And Wikipedia has every incentive to discourage such discrimination by, for example, encrypting its website.

This is deliberately fanciful example; it’s hard to see why an ISP would try to discourage contributions to Wikipedia. But the point is a general one. Frischmann treats the private and social values of the Internet are separate entities and assumes that ISPs have wide latitude to pick and choose between them. But in the real world, private benefits and public spillovers are deeply connected, and the network management tools ISPs have available are far too crude to effectively capture one without the other.

Frischmann seems to assume that consumers will only be willing to pay for an open network if they understand its benefits in explicit terms. Since few are likely to have that understanding, he assumes users will under-pay for Internet openness. But even users who have no explicitly conceptual understanding of network neutrality can still value it at an implicit, practical level. Users can notice that the open Internet has a lot more cool stuff—Wikipedia pages, YouTube videos, niche news sites, exotic pornography—than the various walled garden on offer. A big part of the reason users like the Internet so much is that Internet users enjoy all those positive spillovers being generated by other Internet users. Given the crudeness of network filtering technologies, restricting Internet freedom inevitably means depriving users of access to compelling content and applications; and that, in turn, will reduce consumers’ willingness to pay for access in the first place.

And it’s important to remember that this isn’t just a theoretical discussion. We’ve run this experiment before. In the 1990s, consumers enjoyed robust competition between proprietary networks like AOL and Compuserve and open alternatives like the Internet. Initially, the proprietary services had all the advantages—stronger brands, larger user bases, familiar features like telephone support, capital to invest in content and applications. Yet users gradually discovered that the open Internet was way better than the proprietary alternatives. Users didn’t switch to the open Internet because they read Larry Lessig or Brett Frischmann, they switched because the Internet had more cool stuff on it. But that was, implicitly, a vote for network neutrality.

If it was difficult for a closed network to compete with the Internet in the 1990s, it would be far more difficult for it to do so today. So the only question is whether there will be enough competition that users will have the opportunity to choose. I’ve become more concerned about the dangers industry consolidation threatens to the open Internet. But we should address that danger head-on, by pursuing policies that preserve and enhance competition. Direct regulation of network management practices should be undertaken only as a last resort—and we’re still a long way from that point.