It wasn’t that long ago that the Internet was abuzz regarding ‘net neutrality’ and seemingly everyone had some sort of position on the matter… or, more accurately, seemingly took a position by ‘sharing’ stories or photos that appealed to some sort of principle of freedom or inequality underlying the prospect that some data traffic may be given priority over others.  Now the FCC is set to allow Internet providers to give certain traffic priority over the masses of people posting photos of their lunch or videos on Youtube.  If you’ve the money to pay, then the equivalent of a carpool lane will be available for firms interested in ensuring the speed and priority of their data flow.  However, the question remains whether this will actually stratify the Internet experience even further than the ever widening divide that is termed, as Thomas Piketty, Robert Reich, and Paul Krugman term it, theNew Gilded Ageencompassing nearly every other aspect of the United States?

The basis for enabling Internet providers to charge for privileged speeds of content flow is based upon a court decision that struck down ‘open Internet’ rules with the justification that, “the court said that because the Internet is not considered a utility under federal law, it was not subject to that sort of regulation.”  

If the Internet is not yet sufficiently mass market to constitute a utility, then Nicholas Carr’s famed thesis, “IT Doesn’t Matter,” is yet a distant ideal that now runs up against a legal bulwark.  Carr’s argument was that information technology should not be viewed as a durable competitive advantage to firms, due to the fact that proliferation and falling prices erode the disparities of IT capabilities that stemmed from heavy investment.  Thus a firm that invested heavily in technological equipment and software could have a temporary advantage over competitors, but the trend in the marketplace was for the erosion of this advantage.  Ultimately, Carr argued that it was the fact that IT would be reduced to a business model akin to a public utility, and business would have to look elsewhere for strategic advantage.

Consumers of all political persuasions should find that this development is a serious assault on the functioning of markets.  Consumption of information, be it news or video, was delivered by a combination of the capacity limits of the slowest link in a chain from source to end user, also known as bottlenecks, but also by the amount the user was willing to pay.  A casual user that only used the Internet for checking email and accessing news sites might pay for slower access speeds than another that wishes to stream video.  This paradigm of network capacity that then enabled stratification of user access based upon their individual desires is now complicated by which content providers are willing or able to pay.  The consumer once paid to pull content, but now the dynamic is quickly going to favor the most well capitalized firms that are capable of paying to push their content.

How the courts can justify this significant disruption of a free market model, particularly the power relationships between supplier and buyer, seems to rest upon the fact that the political arena has not weighed in to outright classify the Internet as a public utility.  However, the court’s justification is tenuous considering 57 cities offer free Internet access in various municipalities.

One might object that some firms might wish to prioritize the communication between their operations that span great distances and time zones, or that paying for priority is about the internal operations of organizations and not about affecting the competitive consumer marketplace.  While there is some basis for this objection, it rests upon an assumption that the slowest point in the chain of equipment and data flow is outside the firm’s control.  

However, the argument fails once a bottleneck is identified within an organization… thus if the firm is using wireless over a direct wired connection, then the objection fails from the outset due to the fact that the need for faster flow cannot be fully attributable to factors outside the control of the firm (a direct wired connection is consistent faster and more reliable than wireless).  Furthermore, firms are free to build and install their own Intranets, networks built only for the use of those within the group, thus any argument resting upon an assumption that the Internet is the only means to ensuring efficient communication and operations within a firm is being disingenuous or doesn’t understand what it is that they are arguing. 

Concerns that allowing Internet providers to charge for faster flow, or pushing their content, will harm innovation are only partially persuasive.  The charge that startups and innovative firms may lack the resources to pay to push their content rests upon two significant  assumptions: 1) Bottlenecks at the enduser will not factor in to level the field 2) Differentials in the flow will be substantial enough to make a competitive difference. 

Both assumptions are substantial in the present that undermine the position for ‘net neutrality.’  However, the ethical argument is far more persuasive.  The advocate for net neutrality may find their case more persuasive arguing that, even hardcore believers in the free market should find unpalatable, it is unacceptable to permit suppliers to exert price control over the market.  The free market argument is persuasive precisely because suppliers are in competition on the basis of an end product or service.  The fact that content can be prioritized, and it is not simply prioritization but also a fee for priority, is the basis to argue that a gross violation of the free market model follows.  Furthermore, Internet providers that charge for priority of content flow must then reconcile how the consumer that pays for premium service speeds is not being harmed if they are then not getting what they pay for.

If Internet providers are going to pay to push content, then it should follow that all consumers should pay the same price for access.  After all, if the cost of a product or service should correspond with the price of the inputs… then it follows that prices will be going up for push content.  Thus an increase to my Netflix bill should be no surprise if it must pay to ensure its content flows sufficiently fast to maintain its business model, but I will have suffered a diffuse injustice if I was paying for faster speeds in the first place (which I am).

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