The Internet is a resourcethat is utilized daily by millions across the globe. This resource is regulatedand controlled like most other products with a few exceptions. The biggest isnet neutrality.
Net neutrality is defined as: “the idea, principle, or requirement that Internet service providers should ormust treat all Internet data as the same regardless of its kind, source, ordestination.”(Merriam-Webster,2017). A recent FCC vote on December 14overturned net neutrality and now all consumers must wait and see how the newpolicies affect internet services barring intervention on a congressionallevel. While net neutrality repeal is nothing new since laws were not put intoplace till 2015 a sudden change in operation and investment could have dramaticresults.
Using information learned in the course, Iintend to show how microeconomic concepts relate to current policy changes thatare being suggested for net neutrality, and how these changes ultimately createa different economic climate for the internet.The demand curve forinternet service must be established so that we can further investigate how netneutrality changes will affect it. Internet in today’s age is a necessity foranyone trying to accomplish anything.
Prices have varied extremely over the lasttwo decades with entry-level dial-up service in the late nineties startingaround ten dollars and current prices for broadband ranging from thirty tohundreds of dollars depending on speed choice. Based on my research it’s safe to say that thecurve is inelastic, which as we know means the price has a relatively small effect on the quantity of the good demanded. There aretwo factors that impact a demand’s price elasticity and consider them for theInternet. The lack of an available substitute might be themost important factor influencing elasticity. While everyone does not requirean internet connection to survive, with growing technological advances nothaving a connection almost sets you behind.
A 2011 survey found that 78% ofAmericans have internet access and that for “anInternet connection of 25 megabits per second, New Yorkers pay about $55:nearly double that of what residents in London, Seoul, and Bucharest, Romania,pay.”(Yi,2015) This means that internet service providers, or ISPs, can price leveragetheir cost for investment by slightly adjusting the price since the internet isa highly demanded service that is price inelastic. InternetService has had an identity crisis since conception. Prior to 2015 Internetservice was viewed as a luxury and not the necessity, that the establishment ofnet neutrality in 2015 labeled it as. Without net neutrality restrictions, the ISPs could resort to delivering certaincontent at reduced speeds, for example, making the streams on Hulu or YouTubebuffer or shut off. This speed throttlingis illegal based on the title II classification internet service has beenprovided.
That classification labels internet service providers as commoncarriers.” Common carriers have to serve everyone who wants to use the service.The post office can’t deny service to people sending letters it disagrees with,and the phone company can’t refuse service to people based on their religiousviews. Everyone has the same right to pay to use the service. Common carriershave to charge everyone the same price for the same service–although, forexample, a railroad could charge more to transport volatile chemicals that needspecial handling” (Cherry& Weinberg,2017)This strict classification allows all consumers to enjoy a steady price andeasy entry into service since it is labeled as a utility. With net neutralitylaws in place, demand theory does not necessarily apply as providers cannotupcharge a consumer since more consumers are using a product.
However, if alarger than normal speed is requested then providers are free to charge moreexpensive prices for a specialty service. Since net neutrality has now beenrevoked internet service will now revert back to a Title One classificationwhich in simple terms is light involvement regulation, which requires lessreporting from firms functioning in the sector. Technically, this categorymeans package providers wouldn’t have to reveal how they are handling theirnetworks. Initially, this seems like a bad idea but with restrictions, removed investmentscan be made to improve hardware, but the true benefits or degradations won’t beseen until an effective marginal analysis can be done on post net neutralityservice. This small change to such a complex system could hold several outcomesfrom lowering entry price points for consumers to rampant overcharging of anecessity by providers.
The fundamental problem with Internet service providers is that all accesspoints to the world wide web are controlled by a hand full of companies. Theselargest two companies are Comcast and Charter Communications, which connectsfifty million plus people in the United States to the web. That’s twentymillion more subscribers than the next for major service providers combined.This oligopoly exists and net neutrality laws have unique effects on itsstructure. With net neutrality in place, internet providers cannot do the throttlingof service as they are required to be transparent by the FCC. This large amountof governmental interference prevents any sort of free market scenario butinstead allows these large providers to form a perfect example of imperfectcompetition. To generate change, we need to take the steps to allow smallerISPs to enter the market.
This is hard to do accomplish for a few reasons andthat is that this digitized Oligopoly has physical barriers to entry. Tocompete you need to lay your own fiber optic cable at great expense orpiggyback off the current existing cable. If the current market leaders controlhalf the market why would they be willing to allow smaller companies to drive down,there prices using their own resources? “What we needis a new competition policy that puts the interests of consumers first, seeksto replicate what other countries have done, and treats with extreme skepticismthe arguments of monopoly incumbents such as Comcast and Time Warner Cable.”(Cassidy,2017) This type of competition legislation would present a market similar tothat of the United Kingdom’s telecommunication structure, where smallerbusiness could enter the market by paying a rental fee to use the existingground lines. This process knocks down the barriers preventing startups andallows lower pricing as the price curve decreases due to increased competition.In conclusion, the argument of net neutrality seems to bea tangled web of mysteries and scare tactics from both sides. Even taking aneconomic approach from my limited scope doesn’t provide any real clarity. Yes, I want to use my internet as I pleasewith no stoppage or outages based on content I view, but I am not against alittle friendly competition arising from the repeal of net neutrality if itlowers my cost of service.
Taking governmental control and oversight out of thepicture also seems a little scary since market oversight has ensured thatpricing has stayed reasonable, even though the market is controlled by theoligopoly of corporations. As stated previously internet service is priceinelastic and the opportunity cost of internet access is high. The modern worlddemands it and without it, you are likely to struggle with studying,communication, business, anything you name it, but the way it supplied maychange. An oligopoly giant may fall, and barriers to entry may be lowered butin the end, the future of the internet is still up to governmental control asthey must vote to uphold the FCCs ruling.