Recently, a colleague in the Bellisario College of Communications, asked me who gets a freedom boost from the FCC’s upcoming dismantling of network neutrality safeguards.  He noted that Chairman Pai made sure that the title of the FCC’s Notice of Proposed Rulemaking is: Restoring Internet Freedom.  See https://www.fcc.gov/restoring-internet-freedom. My colleague wanted to know whose freedom the FCC previously subverted and how removing consumer safeguards promotes freedom.

            With an evaluative template emphasizing employment, innovation and investment, one can see that deregulation benefits enterprises that employ, innovate and invest in the Internet ecosystem.  However, the Pai emphasis lies in ventures operating the bit distribution plant reaching broadband subscribers.  The Chairman provides anecdotal evidence that some rural wireless Internet Service Providers have curtailed infrastructure investment because of regulatory uncertainty, or the incentive-reducing impact of network neutrality.  If the FCC removes the rules, then rural ISPs and more market impactful players like Verizon and Comcast will unleash a torrent of investment, innovation and job creation.

            O.K. let us consider that a real possibility.  Let’s ignore the fact that wireless carriers have expedited investment in next generation networks during the disincentive tenure of network neutrality requirements.

            To answer my colleague’s question, I believe one has to consider ISPs as platform intermediaries who have an impact both downstream on end users and upstream on other carriers, content distributors and content creators. My research agenda has pivoted to the law, economics and social impact of platforms; see https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2935292.

            Using the employment, innovation and investment criteria, the FCC also should have considered the current and prospective freedom quotient for upstream players.  Does nearly unfettered price and quality of service discrimination options for ISPs impact upstream ventures’ ability to employ, innovate and invest more?

            Assume for the sake of discussion that ISPs can block, throttle, drop and prioritize packets.  A plausible, worst case scenario has an innovative market entrant with a new content-based business plan less able to achieve the Commission’s freedom goals.  Regardless whether you call it artificial congestion, the potential exists for an ISP to prevent traffic of the content market entrant from seamless transit.  The ISP could create congestion with an eye toward demanding a surcharge payment, even though the market entrant’s traffic had no possibility of itself creating congestion.  The ISP also might throttle traffic of the innovative newcomer if its market entry might adversely impact the content market share and profitability of the ISP, its affiliates and its upstream content providers that previously agreed to pay a surcharge.

            Of course network neutrality opponents would object to this scenario based on the summary conclusion that an ISP would never degrade network performance, or reduce the value proposition of its service.  The airlines do this and so would an ISP if it thought it could extract more revenues given the lack of competition and the inability of consumers on both sides of its platform to shift carriers.

            ISPs do not operate as charities.  The FCC soon will enhance their freedom which translates into higher revenues and possibly more customized service options for consumers willing to pay more. 

            Before the FCC closes shop and hands off any future dispute resolution to the generalist FTC consider this scenario.  Subscribers of Netflix, or the small content market entrant discussed above, suddenly see their video stream turn into slide shows.  The FTC lacking savvy as to the manifold ways ISPs can mask artificial congestion and network management chicanery orders an investigation with a “tight” six month deadline for reported findings. 

            Just how long after the onset of degraded service will video consumers get angry and cast about for a villain?  Might the list of candidates include Congress, the FTC and FCC?