Do you have a right to high-speed Internet or can Internet Service Providers (ISPs) create different tiers for different customers?
In Florida and in Pennsylvania, there are toll roads. People pay the fee and get to a destination along the toll road quicker. Yet when it comes to pricing Internet connections, there is belief that everyone should have the same high-speed video streaming, regardless of what they pay. Can customers get something for nothing?
Probably not. More cars on a highway that can all go 160 MPH won't get people from place to place faster. A recent economic model by Ben Hermalin, of the UC Berkeley Haas Economics Analysis and Policy Group, and Nicholas Economides, of NYU'S Stern School of Business, finds there is little reason to think broadband traffic congestion will improve if the Federal Communications Commission abandons net neutrality.
Hermalin and Economides created economic simulations to explore the economics of the current pricing regime known as "net neutrality," in which residential ISPs, such as AT&T and Comcast, treat all content providers equally and don't directly charge them for the content they deliver to end users. They simulated linear pricing versus tiered and compared the rate of congestion through the information pipeline between broadband providers and households under these different pricing strategies.
Hermalin says that many existing economic models examining pricing tiers haven't taken the fixed capacity component seriously. Once the fixed capacity component is understood, "relaxing net neutrality becomes a bad thing," he says, "Except for the ISPs."
Linear pricing sets a fixed price for any content while tiered pricing offers different price points in order to maximize consumer demand or preference.
They liken the Internet to breakfast cereral, noting that it may come in two sizes: a small box for individuals and a large box for families. Even though the larger box of cereal may contain twice as much cereal, the price is not double the cost of the small box. Indeed, the box cost is a big factor, yet their economic model denies that infrastructure counts. In their model, one person who uses their Internet for email should have to pay about the same as four people using 100 GB of bandwidth per month to watch Netflix.
The government supports existing "net neutrality" but some ISPs are lobbying the FCC to authorize "paid prioritization", the creation of Internet "fast lanes" for customers willing to pay more. Some people want to buy faster cars and drive on a toll road but critics believe instead that someone who takes the subway should have to subsidize toll lanes.
Yet today, we have car pool lanes on highways during "rush hour" that can sometimes be six hours or even 24 - 25 or 33 percent of the lanes are blocked off for seven percent of the traffic. Do critics advocate of toll lanes for the Internet also advocate getting rid of car pool lanes?
Prof. Hermalin's hypothetical example of traffic on a real highway doesn't use car pool lanes, the obvious analogy, it is instead engages in some class warfare, saying that if two of three lanes were reserved just for Mercedes Benz vehicles, drivers of Mercedes cars would enjoy a faster commute to and everyone else in the single remaining lane would be forced to slow down due to the added congestion. The model claims that by making some lanes Mercedes only, so many more people would start buying Mercedes in order to take advantage of two lanes that the two lanes that were previously less congested would re-congest.
Yet car pool traffic remains stuck at seven percent. The real world defies paramater-based economic models yet again.
In the net neutrality debate, ISPs claim that in order to invest in more bandwidth, they need to charge content providers (Netflix, Amazon, etc.) either for streaming certain content or for facilitating content at premium speed. For years, the FCC has debated whether to alter the current system of a neutral network. Both companies have made millions exploiting the infrastructure. On highways, giant truck companies have to pay a high fee to be able to drive because of the damage they do.
Users of the existing system don't want tiered pricing because so many people would opt to pay less. Like with health care, it requires a lot of people who don't need a service to overpay in order that the biggest beneficiaries don't get charged more. Yet unlike health care, Amazon Prime streaming for all is not a societal concern.
The FCC's authority to regulate Internet traffic is currently under appeal as broadband providers challenge whether providing Internet service is a utility subject to FCC regulation.