Net neutrality can be defined as the principle that an internet service provider (ISP) such as AT&T or Verizon treat all the legal data online equally regardless of its sender and receiver. Thus, under net neutrality, ISPs are not able to slow down, block or charge an extra fee to consumers for certain content. It is the way Internet has always worked so far.
There has been a strong debate on net neutrality for a while, and the different parties involved both have strong arguments on whether it should or should not be abolished.
On the one hand, we have ISPs claiming that without net neutrality they would be able to manage congestion more efficiently. Moreover, abolishing net neutrality would provide them more incentives to invest in capacity, thus leading to faster overall service.
On the other hand, we have content providers (CPs) such as Google and Netflix arguing that the net neutrality regime has been one of the main drivers of growth and innovation on the internet. Without net neutrality, it would be very difficult for new companies to thrive, thus limiting innovation on the web.
In December 2017, the FCC voted against net neutrality, and the annulment took effect in June 2018.
David Choffness, an Assistant Professor in Computer Science at Northwestern University, developed the mobile application “Wehe”, which allows you to observe whether your data is being throttled by your ISP. Throttling can be defined as web content working poorly, such as a streaming service having low quality instead of HD. The Wehe app has been downloaded by more than 100 000 consumers all over the globe. Results published in the News@Northwestern, a platform with the latest news, updates, and announcements from Northwestern University, show that almost every ISP in the USA is throttling data.
The most concerning observation is that it seems that ISPs did not even wait for the bill to go into effect because throttling started as early as January 2018. Also, from January to May, the app detected differentiation on throttling. Differentiation can be defined as when a certain type of network is more throttled than another. Indeed, CPs such as Netflix, YouTube, and Amazon (video) have reported that their network has been performing poorly.
Early economic research on net neutrality, prior to the bill, did not reach a consensus on a correct way to implement policies regarding its end. However, a few studies such as Peitz et al (2015) and Choi et al (2014, 2015) suggest that there exist some gains from rationing data i.e. ending net neutrality. For example, throttling certain sites might lead to a better performance in other time-sensitive sites such as Skype. Delaying other less time-sensitive sites will have little impact in social-cost as the real cost is just an inconvenience because content will still be delivered.
Whether users are better off under this setup i.e. without net neutrality, will depend on whether the gains outweigh the distortions created by throttling. Indeed, an important point is determining who will end up paying for the “prioritise delivery”: users or CPs. Consequently, it is important to define how the ISPs will adjust their fees. It is particularly difficult to do so since we are dealing with a two-sided market.
A major concern according to Choi (2010) is the fact that ISPs could manage congestion such as to extract rents. For example, in peak hours they could offer a slow delivery service for “free” and a paid premium fast delivery, therefore engaging in price discrimination. Moreover, according to Musso and Rossen (1978), the ISPs could degrade the free service on purpose to force users or CPs to subscribe to the premium service. If everyone subscribes to the premium service, then, unless ISPs invest in capacity, the premium service would not be any faster than the regular one.
However, Choffes’ results show that ISPs are currently throttling 24/7. For the moment, it does not seem that they will engage in on-peak/off-peak pricing. Nevertheless, there is clearly differentiation and streaming sites seem to be targeted more than others. Concerning fees, there have not been any modifications since early 2017, when ISPs increased their fees.
In conclusion, for the moment the end of net-neutrality does not seem to have a positive impact on consumers nor CPs. ISPs have started to distort their service; yet, we do not have enough evidence to determine their next steps. The only certain fact is that more changes are coming in the future.
by Saí Bravo