Not A Blog™

This is not so much a personal-opinion tirade on net neutrality as much as it is a look at what would happen if it were lost. Besides, my personal opinions on the matter are probably clear already, perhaps as evidenced by the bias contained in the following paragraphs. As it stands, I don’t like to write (exclusively) on current events, so the least I can do is make rationalized predictions.

For those who don’t know, net neutrality is the act of treating every packet sent across the internet as having the same importance, giving each the same priority, allowing them all to use the same tubes, and otherwise not discriminate against them. As it stands, the bells are considering charging more to the largest users of their networks to ensure that their traffic gets through faster. The income generated for this will, in turn, be used to convert the infrastructure to fiber, benefiting everybody, even if the multilayered importance never goes away.

Proponents of net neutrality believe that every packet has the same importance and that by allowing large companies to pay extra for faster service will create a caste-like system of internets where smaller companies will experience degraded service and the end user will see a clear difference between accelerated and non-accelerated service.

One thing I’ve yet to hear discussed in the net neutrality debate is the economic impact. Everyone just assumes the big companies will pay the extra, and the bells will make extra and that, naturally, they’ll keep their word and upgrade the system and everybody benefits. This ignores fundemental business practices.

First of all, the Googles and Amazons of the internet would have to make enough in additional ad revenue or sales to offset the price of the garunteed faster service. But, they will only be ensuring speed they already have now. They won’t be getting any benefit from paying more. You can be sure the accelerated service won’t be cheap, but they will need to purchase it in order to remain competative in the marketplace and meet consumers expectations of what an online business should be. Hence, there is additional cost to the business with no additional benefit to the consumer. Online retailers lose.

Secondly, the consumer will notice a difference among individuals’ sites. ISPs—online businesses, as well—will also be required to pay a fee in order to ensure that their traffic is accelerated. (Also note that this practice charges twice for the same packet of data.) As with retailers, this will become a selling point to the end consumer. “Access the first tier” and soforth. Initially there may be an increase in speed, but essentially it works the same way: the ISP will be paying more for what they already receive.

Anybody who does not think online retailers and ISPs will not pass these additional costs onto the consumer does not understand basic business. In both cases, the online business will be paying more for the same thing. It will not take long for the consumer, also, to be paying more for the same thing. What happens when consumers pay more for the same thing? Convieniently, we have an example.

We’ve already seen this happen in the past three years. Gas prices have gone up with no increase in benefit to the consumer. Your car still goes the same distance regardless of how much you paid for the gas that goes in it. In turn, tourism goes down, non-essential trips to the store go down; people just don’t travel as much. The entire economy becomes depressed simply because it costs more to go to the same places.

This is what we will see on the internet. It will cost more to go to the same places. Now of course people will still be paying for internet access, even if the ISPs raise their prices. But as it stands now, online retailers only just so maintain an advantage over brick and mortar—and that advantage is two things only: price and selection. They are at a disadvantage as far as time until enjoyment of product (having the product shipped versus walking out of the store holding it), customer service (over the phone versus talking to a real person), method of payment (online retailers cannot accept cash or check), and so on. Paying extra for garunteed, faster internet could be just enough to tip the balance where it no longer makes sense for many people to buy things online.

Online retailers will always have an advantage on selection because it costs less to keep things packed into a central warehouse than displaying it in a myriad of stores—and for this reason, purchases online will never disappear. But for business which rely solely on online revenue, even a small additional cost will have an enormous impact on profits. And with the bells, one can be assured the cost will not be small.

At this point you may be thinking that this will affect online purchases only, but the impact will be negligable in the real world. Or, if people are not spending the dollars online, they’ll spend them in the real world instead. Indeed, there will be a certain amount of this going on, but it will not be a one-for-one movement of dollars off the internet into brick and mortar. Gas prices ensure that, among other things.

Rather, online retailers will see a decrease in profit causing their stock to depress. While I don’t think that we currently have a technology bubble in the market, a loss of confidence in the tech sector will have reprocussions throughout the entire economy. We’re entirely too wired for this not to happen.

All due to a rise in telecom costs. This cannot even be considered a worst case senario; it only takes into account standard market cause and effect. I’m sure there are many other things which could potentially happen, this is only the most apparent. If net neutrality is lost, the least we will see is a repression.

This does not mean I believe the government should step in with regulation to ensure the net stays neutral. This is not the optimal solution for a number of reasons which are outside the scope of this essay. The state of the net will work itself out in the free market.

Regardless, even if net neutrality holds for now, the issue will eventually return—as soon as someone figures out how to attach a dollar figure to packets of data.

-Ted