Institute Slams Net Neutrality Legislation

WASHINGTON—Saying that proposed changes to the telecom bill currently working its way through the U.S. Senate will hurt consumers, the American Consumer Institute has announced that its pressing senators to leave any regulatory provisions out of their legislation.

The public policy group, which studies a wide range of consumer issues, presented an economic study by Dr. Larry Darby, a former chief economist for the FCC, that said that current proposals for regulating payment for the Internet would make consumers pay the whole cost of upgrading and operating the Internet, while the companies that benefit the most, such as Google and Microsoft, would be given what is essentially a free ride.

Darby presented his study by pointing out that net neutrality has lost any meaning because the term has been hijacked by a number of competing interests, some of which have opposite points of view.

As a result, he said, he couldnt back net neutrality in any of its forms.

He did say, however, that proposed changes to the rate structure of the Internet would put consumers in an unfavorable situation.

The reason, according to Darby, is that broadband services, as well as content provisioning services, are what Darby calls a multi-sided market.

This is an economic state in which all parties to a transaction gain something, and no one side is responsible for the full cost.

In an interview today with eWEEK, Darby compared multi-side markets with how the broadcasting or newspaper businesses work.

He said they provide information that benefits consumers, and also advertising that benefits the publisher and the ad-buyers.

/zimages/7/28571.gifRead morehereabout proposed alternatives to net neutrality.

As a result, no one side pays the full cost, and in many instances the consumers receive the product of service for free.

“An Internet service provider that provides the infrastructure is in a multi-sided market,” Darby said.

“It is providing access to me, but it is also providing a valuable service because it provides access to content providers and various enablers.”

Darby said that because the content providers get to sell advertising and other services, both sides benefit.

But he said that the net neutrality arguments are different since most of the proposals for changing the net neutrality portion of the telecom bill would include price regulation.

“For a set of beneficiaries in a multisided market to say that only consumers should pay for it flies in the face of reality of the rest of how the economy actually price services,” Darby said.

Darby said he thinks that the net neutrality changes are gaining traction because theres a lack of trust for telephone and cable companies by consumers who have been abused by those companies over the years.

“There is a tradition of government involvement in companies like phone companies,” Darby said.

Darby also said that he thinks the current provisions in the Senate bill—the ones that many of the major players are trying to change—actually work nicely to protect consumers.

“I think theres enough rivalry between the parties, including the Internet providers, Google, Microsoft, Yahoo, etc., that youre going to have a classic case of offsetting market power,” Darby said, explaining that it will work in the same manner as credit card companies—in another multi-sided market—deal with major vendors such as car companies and other large organizations—all without a regulatory agency.

The American Consumer Institute made its announcement yesterday.

“Net neutrality is a bad deal for consumers, and regulating the Internet is a bad deal for investors, innovation and market efficiency,” said ACI president Stephen Pociask, summing up the organizations position.

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