Antecedents to Net Neutrality: After the Long Fight to End the "Common Carrier," Why Are We Trying to Resurrect It?

By Owen, Bruce M. | Regulation, Fall 2007 | Go to article overview

Antecedents to Net Neutrality: After the Long Fight to End the "Common Carrier," Why Are We Trying to Resurrect It?


Owen, Bruce M., Regulation


Apparent ignorance of more than a century of economic and regulatory history now threatens the competitive constitution of the Internet under the guise of "net neutrality." Net neutrality is a slogan that stands for the proposition that the Internet and physical means of access to it should be available to all on uniform, nondiscriminatory terms. Some net neutrality proponents go further and argue that firms providing physical components of the Internet should not be permitted to offer different qualities of service, even if prices differ accordingly, and even if any customer can opt for any quality of service.

Proponents of net neutrality fear, first, that access to bottlenecks, such as the "last mile" to the home, will be monopolized and, second, that the successful monopolist will seek to favor its own vertical services by excluding or disfavoring others. Net neutrality is their answer to those threats.

But the architects of the concept of net neutrality have invented nothing new. They have simply resurrected the traditional but uncommonly naive "common carrier" solution to the threats they fear. By choosing new words to describe a solution already well understood by another name, the economic interests supporting net neutrality may mislead themselves and others into repeating a policy error much more likely to harm consumers than to promote competition and innovation.

Net neutrality policies could only be implemented through detailed price regulation, an approach that has generally failed, in the past, to improve consumer welfare relative to what might have been expected under an unregulated monopoly. Worse, regulatory agencies often settle into a well-established pattern of subservience to politically influential economic interests. Consumers, would-be entrants, and innovators are not likely to be among those influential groups. History thus counsels against adoption of most versions of net neutrality, at least in the absence of refractory monopoly power and strong evidence of anticompetitive behavior--extreme cases justifying dangerous, long-shot remedies. My goal in this article is to add an historical perspective to the framing of the net neutrality debate.

[ILLUSTRATION OMITTED]

LESSONS OF HISTORY

History, of course, can be a useful adjunct to analysis of policy alternatives. Proponents of net neutrality may recognize their own fears and goals, for example, in the following 120-year-old statement:

   [T]he paramount evil chargeable against the operation of the
   transportation system of the United States as now conducted is
   unjust discrimination between persons, places, commodities, or
   particular descriptions of traffic. The underlying purpose and aim
   of the [proposed legislation] is the prevention of these
   discriminations....

This is from the legislative history of the first modern attempt by the federal government to regulate directly the behavior of large firms, in this case railroads. The result was the 1887 Act to Regulate Commerce, which contained this key provision:

   [I]t shall be unlawful for any common carrier [railroad] subject to
   the provisions of this act to make or give any undue or
   unreasonable preference or advantage to any particular person,
   company, firm, corporation, or locality, or any particular
   description of traffic, in any respect whatsoever, or to subject
   any particular person, company, firm, corporation, or locality, or
   any particular description of traffic, to any undue or unreasonable
   prejudice or disadvantage in any respect whatsoever.

[ILLUSTRATION OMITTED]

This and subsequent legislation gave the now-defunct Interstate Commerce Commission (ICC) the power to prevent discrimination of the kind feared by proponents of net neutrality. The policy did not work, however. Railroads continued to discriminate, charging different prices for hauling different commodities. …

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