The Downside of Net Neutrality Law

As the old adage goes, "Be careful what you wish for -- you might get it, and wish you hadn't." Proponents of net neutrality might want to keep that in mind now that net neutrality regulations from either the FCC, Congress or both are a virtual certainty.

As with most wishes the impulse behind this one is laudable. As FCC Chairman Julius Genachowski puts it, the goal is "to ensure the Internet remains a free and open platform that promotes innovation, investment, competition, and users' interests." Amen!

More specifically, the idea is to ensure that penniless entrepreneurs have the same ability to reach audiences as do multibillion-dollar companies, and that providers can't censor content (whether by competitors or users expressing First Amendment-protected views).

Interestingly, both conditions largely prevail in the Internet today. Yes, there are a few well-publicized cases of content censorship -- but the vast majority of the time, the Internet actually is net neutral.

Unfortunately, by imposing legislation designed to keep things that way, net neutrality proponents run a real risk of destroying the very Internet they want to protect.

Here's why: Internet usage continues to grow dramatically -- between 50% and 100% year over year. That's not a problem in the core, which has more capacity than it needs for the foreseeable future. But access circuits (both wired and wireless) are bandwidth-constrained -- and excruciatingly expensive to upgrade (ask Verizon how much it has spent on FiOS). Net neutrality prohibits carriers from recouping those costs by charging differentially based on type of content or quality of service.

That means as user demand increases, carriers have just one option for recouping their costs: Charge by the bit. And that, in turn, will have a domino effect on peering arrangements. Tier-one providers now peer for free with each other. Once they have no choice but to charge for bandwidth, free peering will go away. And one of two things will happen then -- both unpleasant. Either user costs go up (to cover the costs of peering), or more likely, carriers won't bother to peer in the first place (because they can't charge users enough to recoup the costs of peering).

Guess what? When peering goes away, so does the Internet -- because you're no longer able to connect to anywhere from anywhere. A site on one network won't be visible to users on other networks, unless the site owner is rich enough to buy connections to multiple networks.

So your hypothetical penniless entrepreneur will need to decide whether to spend those precious funds to reach Verizon's users, or those from AT&T -- because he won't be able to afford both. Reaching all users, everywhere, will only be financially viable to behemoths such as Amazon or Google, which already pay for connections to all major networks (now you see why these guys love net neutrality).

In fact, the best adage to keep in mind about all this probably has nothing to do with answered wishes. It's "Don't fix it if it ain't broken."

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