Economists Debate Worries About Paid Prioritization, at FCC Workshop
An experiment like AT&T’s IP transition trials to settle the competing economic claims in the net neutrality debate would be difficult, but the growth of broadband and innovation during a period of “light touch” regulation could be a guide for how the FCC should proceed, said John Mayo, a Georgetown University economics professor, Thursday at the agency’s latest open Internet workshop.
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But Jonathan Baker, a professor at American University’s Washington College of Law, said the increased technological ability and incentive of broadband providers to discriminate through paid prioritization means what’s happened in the past “isn’t a great guide.” Had broadband providers been able to charge for prioritized access, companies like Google “wouldn’t have made it,” said Nicholas Economides, an economics professor at New York University’s Stern School of Business.
The discussion focused on an aspect of the net neutrality debate, the impact on broadband providers and content providers, with Chairman Tom Wheeler noting at the session that “we are an economic-driven society.” The question, though, involves a “complex intersection” of law, engineering, and consumer preferences that has left it hard for him to be “stridently confident” about any particular view, said FCC Chief Economist Tim Brennan. He noted the polarized nature of the debate, saying some have predicted the “apocalyptic demise of the Internet” without regulation. Others have taken the position, exemplified by a joke: “How many economists does it take to change a light bulb?” Brennan said. “None, the market will take care of it."
Much of the early part of the discussion centered on the pros and cons of prioritization. Some prioritization should occur, said Hal Singer, principal at Economists Inc., and senior fellow at the Progressive Policy Institute, arguing some content like a telehealth session is more important than a “video of a cat unbundling a ball of yarn.” The key is to ensure that those not paying extra for special priority do not have degraded service, he said.
But to create extra value for those paying extra, broadband providers would have incentive to degrade service for others, Economides said. Providers could also allow nonprioritized service to degrade by not investing in it, AU’s Baker said.
Judging transactions between providers and content providers on purely economic terms is difficult, said Christiaan Hogendorn, an associate economics professor at Wesleyan University, because it doesn’t factor in such things as the benefit of a consumer’s being able to “watch a video about managing their diabetes,” he said. “Something like the consumer’s better health, that’s not going to be included” in an economic analysis, he said. “How about the benefit to the employer of not having a worker who is not absent as much?"
The economists also disagreed on the need for FCC regulations. Antitrust rules would not be sufficient because there’s no practical remedy for concerns about the ability of those with a terminating monopoly to harm innovation by creating uncertainty for edge providers, Baker said. The open Internet has developed under current regulations, so there should be a presumption the market is working efficiently, with deals between providers and edge companies being determined on a case-by-case basis, said Thomas Hazlett, a Clemson University economics professor. “You don’t want to ban all prioritization,” Singer said, but harmful deals should be dealt with on a case-by-case basis.