Monday, April 02, 2018

Paid Prioritization: The "Third Rail" of the Net Neutrality Controversy


At the Free State Foundation’s Tenth Annual Telecom Policy Conference last week, the speakers discussed a wide range of topics, including net neutrality, 5G and advanced fiber deployments, spectrum policy, universal service and Lifeline, and more. We’re grateful that C-SPAN-2 covered the conference from start to finish, and you can find the entire C-SPAN broadcast here.
Over the next few weeks we will be recounting some of what we learned at the conference. Here I want to highlight some of the discussion relating to so-called paid prioritization, what Comcast Senior Executive Vice President David Cohen called the “third rail” of the net neutrality controversy. Mr. Cohen said that he is amenable to considering a ban on paid prioritization if there is a limited exception for provision of specialized services. Harkening back to the FCC’s 2010 Open Internet Order, he suggested that “something might come along that is not anti-competitive, that is pro-consumer, and that is a specialized service that is not available to every user of the Internet that would be in the public interest.”
My longstanding position has been that there should not be an absolute ban on paid prioritization arrangements, but rather a presumption that such arrangements between Internet service providers and Internet users should be deemed lawful absent convincing evidence that a particular arrangement causes either consumer harm or is anti-competitive. This position acknowledges the possibility that a particular arrangement may be anti-competitive or harmful to consumers, but it places the burden on those challenging the arrangement to demonstrate this. In my view, if the burden is placed otherwise – or certainly if an absolute ban exists – there is a substantial risk that experimentation by Internet service providers with beneficial new services will be chilled and that investments that otherwise would be made in modernizing broadband networks will be foregone. Neither result benefits consumers.
Regardless of my own views, because paid prioritization is such a key part of the net neutrality controversy, it is worth considering the comments of a few of the other conference speakers.
Here’s Jeff Campbell, Cisco’s Vice President, The Americas of Global Affairs:
“Paid prioritization, or prioritization in general, is one of the most misunderstood issues out there. I wish the press would stop writing fast lanes, slow lanes. The Internet has no lanes. They do not exist! Traffic either goes or it does not go. It moves at the speed of electrons, or the speed of light. When there’s congestion, you either drop packets randomly or you drop them intelligently by using some sort of prioritization scheme. Now I would posit that there are a lot of benefits to intelligently deciding what traffic has better quality of service than other things. I am going to give you two examples - one which is crucial and one which is mundane but very important too. The first is – I guarantee you that all the people who are against paid prioritization are hugely in favor of paid prioritization the minute we start having remote surgery occurring across electronic networks. You want those packets to be prioritized. You want them to get through and you want everything to work right. There’s a benefit to doing that. It’s not an inherently bad thing. It’s good technology.”
“Rather than banning the technology, because that’s what a ban on paid prioritization is - you’re essentially banning the use of this technology, we should talk about whether the technology is being used for good or for bad. If it’s being used anti-competitively, we can write rules or use the existing law or both to address those situations. But there are a lot of benefits that can come from the use of prioritization and quality of service technology and I think that it would be a real mistake for our country to walk away from that because the rest of the world isn’t walking away from it.”
Michelle Connolly, Duke University Professor of Economics and a Member of FSF’s Board of Academic Advisors said this:
“And I don’t want [paid prioritization] to be swept under the rug because simply people are so happy to be getting rid of Title II regulation that they forget that paid prioritization is a very important thing about keeping this market free and allowing people to have services - that they may want to have certain quality of services and they are willing to pay for it. They should have that right to do that. As an economist, this is about a market and this is about intervention in a market and that should not be forgotten.”    
And then Professor Connolly, as she had at last year’s conference, related what she calls the “waterbed effect” to a ban on paid prioritization:
“Essentially this amounts to a subsidy that is paid to certain types of content providers who want the quality of service but don’t want to pay for paid prioritization. And so if we think about a waterbed, if any of you in the 70s went on a waterbed, if you push down on one side – and you say that the price is going to be lower here for something, it’s going to go up somewhere else. So the idea was that in terms of the digital divide, the Open Internet Order of 2015, by creating this inability to charge for something, was inherently pushing up the price of the average service to the average consumer. And to the extent that we think that their income is large component of when people are not adopting, you are going to be exacerbating the digital divide when you have the no paid prioritization.”
Immediately following this statement by Professor Connolly, Christopher Yoo, also a Member of FSF’s Board of Academic Advisors and Professor of Law at the University of Pennsylvania suggested this regarding a paid prioritization ban: “By reducing the ability to raise revenue, you’ve raised the breakeven number of consumers, you’ve made it harder for them to be viable and you’ll see fewer areas built out. It’s quite simple.”
Finally, when asked about paid prioritization, Commissioner Michael O’Rielly answered: “I don’t think there should be a ban on paid prioritization. I disagreed with that point. I’ve testified to that fact that I don’t think that it should be part of a legislative package that goes forward. We’ll just see what the Congress does with that suggestion.”
As the ongoing net neutrality controversy continues, with paid prioritization at or near the forefront, I hope this recounting of some of the conference discussion is helpful. And over the years, we’ve spilled an awful lot of ink – and worn out a lot of keyboards – addressing paid prioritization. If you wish to explore the issue in more depth, here are just two Perspectives from FSF Scholars that are worth reading:
·         Daniel Lyons, Title II Reclassification Is Rate Regulation, February 2015.
Don’t forget the C-SPAN video is here.