Forget net neutrality

(AP Photo/Matt Rourke, file)

(Bloomberg Business) — Is the entire concept of net neutrality about to become irrelevant?

Any day now, the Federal Communications Commission will officially publish its final order mandating net neutrality—rules that prohibit the cable and telephone giants that control broadband access to the Internet from blocking or throttling traffic, from setting up paid fast lanes for certain content providers, and from otherwise discriminating against services they don’t own (like Netflix) to advantage those they do (like Comcast’s Xfinity On Demand).

The FCC’s action is popular: More than 4 million people wrote to the FCC demanding net neutrality, and polling suggests that more than 80 percent of Americans support rules against blocking, discriminating against, slowing down, or charging for Internet traffic.

But lost in the fight over net neutrality is one key issue for consumers: The market for broadband access just isn’t competitive. And unless the FCC quickly pivots away from net neutrality, the policy could become a stumbling block in the way of true reform.

From a consumer perspective, broadband Internet access in the United States has pretty much always been a monopoly, and the absence of competition is what makes U.S. broadband service both slow and expensive. High-speed access in the U.S. costs, on average, almost three times as much as in the U.K. and France, and more than five times as much as in South Korea.

Most Americans get broadband Internet access from their local cable company. The competition from DSL—digital subscriber line service, provided by telephone companies over copper wires—is fading. And satellite Internet, which suffers from crippling speed issues and usage caps, is relevant only in rural areas with no cable service. The lack of competition has allowed providers like Comcast and Verizon to rake in billions of dollars more from consumers vs. what they could charge in a competitive market.

Net neutrality won’t fix that. The high prices and the service horror stories—the most recent of which is Comcast’s refusal to cancel service for a man whose house burned down—will continue because net neutrality is not ambitious enough.

In fact, net neutrality is a policy built on the presumption that broadband service will be a monopoly for a long time to come. In that case, the best we could do would be to stop Internet access giants discriminating to extend their monopoly power to new services, which is what net neutrality is about at its core. But events are moving in a direction that could, if the FCC gets its next moves right, lead to real competition in the market for broadband.

Over the past few months, HBO, CBS, and even Disney, which owns ABC and ESPN, have announced plans to offer their channels over the Internet, eliminating the need to purchase a cable TV package. What will this unbundling do for broadband competition? The likely response from cable providers will be to jack up the cost of Internet access—a service they still control. Public furor over broadband price hikes may give the FCC a chance to shift its focus from net neutrality to a truly game-changing move: net competition.

The one crucial step the FCC could take to get us there would be to mandate local loop unbundling. That is a policy that would force the cable companies to lease access, for a price determined by the FCC, to what’s known as the last-mile connection: the copper and fiber-optic cable, switches, and local offices that connect the main arteries of the Internet to individual homes and buildings.

We’d get competition in one stroke, as new entrants would vie to provide broadband access. That competition would lower prices, improve service, and also ease the concerns about discrimination that provoked the FCC’s net neutrality mandate in the first place. In a competitive market, if Comcast throttles Netflix, then people who love Netflix can pick up the phone and arrange service with one of Comcast’s competitors. Competition would discipline Comcast’s behavior more reliably than any net neutrality regulation.

There are risks. Set the interconnection price too low, and you choke off the current providers’ incentive to improve their networks. Set the interconnection price too high, and you hobble prospective entrants.

These aren’t reasons to reject local loop unbundling. The policy has brought competition, lower prices, and more innovation in Europe. And there aren’t many other options. We’re not likely to see anyone build a separate network. The expense involved in replicating the last-mile connection—tearing up streets to lay cable—would be colossal and uneconomic except in the densest urban areas. (Verizon has halted the expansion of its FiOS fiber network.)

The best reason for the FCC to mandate local loop unbundling is that it has the power to do it. After the courts scrapped the FCC’s first attempt to mandate net neutrality back in the beginning of 2014, the agency bolstered its second set of net neutrality rules by voting to reclassify Internet access as a telecommunications service. This legal move gives the agency broader power to regulate. It’s the same authority that starting in the late 1990s the FCC used to end the Baby Bells’ dominance of the market for local telephone service by unbundling the last-mile telephone infrastructure.

What worked for the telephone network can work for the Internet. The FCC has sworn repeatedly that it has no plans to use its expanded authority to order local loop unbundling. It should now forcefully take those promises back and begin the process of hearings and public comments that will lead to real net competition.

Copyright 2018 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.