Net Neutrality Structurally Flawed, Entropy Economics Says

Network neutrality has deep structural flaws, says Bret Swanson, Entropy Economics president.

Though aiming to ensure equal treatment of applications on the best-effort Internet, network neutrality would ban packet prioritization that might actually benefit consumers, denying them the ability to voluntarily buy services that ensure best performance for voice and video, or any other applications they may deem equally important.

Network neutrality as envisioned by the Federal Communications Commission also would prohibit creation and offering of new differentiated services, he argues.

The FCC seems to argue that although the Internet and the Web have been wild successes, the market cannot be counted on to take the Internet to the next level, Swanson argues.

"The events of the last half-decade prove otherwise," he says. Since 2004, bandwidth per capita in the U.S. grew to three megabits per second from just 262 kilobits per second, and monthly Internet traffic increased to two billion gigabytes from 170 million gigabytes—both tenfold leaps.

The FCC's desire to extend wireline rules to wireless likewise is dangerous, he argues. No sector has boomed more than wireless, yet the FCC wants to extend new regulations to the technically complicated and bandwidth-constrained realm of wireless, he argues.

Wireless carriers invested $100 billion in just the past three years, and the United States vaulted past Europe in fast 3G mobile networks while Americans enjoy mobile voice prices 60 percent cheaper than foreign peers, he argues.

The danger is that heavy-handed new rules will stifle needed investment in new networks.

"My research suggests that U.S. Internet traffic will continue to rise 50 percent annually through 2015, and hundreds of billions of dollars in fiber optics, data centers, and fourth-generation mobile networks will be needed," Swanson says. "But if network service providers can't design their own networks, offer creative services, or make fair business transactions with vendors, will they invest these massive sums to meet, and drive, demand?"

"If you don't build it, they can't come," he says. And that is the danger.