Author(s)
Source
George Mason Law & Economics Research Paper No. 17-35, August 2017
Summary
In 2015, the Federal Communications Commission (FCC) imposed network neutrality rules on Internet Service Providers (ISPs). The rules depressed investment and harmed consumers. In 2017, the FCC started a proceeding to end net neutrality regulation.
Policy Relevance
Antitrust law can address harm to innovation arising from anticompetitive acts by ISPs. Antitrust requires proof that consumers were harmed, reducing the cost of regulation.
Main Points
- For twenty years, the FCC classified the ISPs as lightly regulated information services, rather than as heavily regulated telecommunications services; however, in 2015, the FCC reclassified ISPs as common carriers and imposed “net neutrality” rules.
- Between 2014, the year before the 2015 Net Neutrality Order, and 2016, the year after, broadband ISPs decreased investment in broadband networks by $3.6 billion, about 5.6 percent; in 2017, the FCC started a proceeding to end net neutrality rules.
- Agreements between an ISP and an Internet content provider are a type of “vertical agreement;” the FCC’s net neutrality rules banned vertical agreements ex ante, assuming they would harm consumers.
- Under antitrust law, vertical agreements are tested on a case-by-case basis under the “rule of reason;” some are prohibited ex post, but only if the agreements harm consumers.
- Economic studies show that most vertical agreements benefit consumers, often by reducing costs and lowering prices, but the FCC’s net neutrality rules made no attempt to distinguish between beneficial and harmful agreements.
- Some critics are concerned that antitrust law does not address harms that net neutrality rules were designed to prevent, such as harm to innovation, but the Federal Trade Commission (FTC) and the Department of Justice (DOJ) have considered harm to innovation in many antitrust cases.
- Antitrust principles are the best way to address concerns that ISPs might act anti-competitively; repealing net neutrality rules will restore ISPs incentives to invest in broadband infrastructure.