Netflix has once again received national attention for its lobbying efforts to expand government regulation of internet service providers under the guise of consumer protection. Last week, the streaming service submitted a filing to the Federal Communications Commission urging the agency to curtail what Netflix refers to as “data caps” imposed on customers of major ISPs.
In recent years Comcast, AT&T, and other companies introduced “caps” that function similar to most cellular data plans: once the customer exceeds the data usage limit, they must pay more (or purchase a more expensive plan for truly unlimited data).
Coolcaesar. Headquarters of Netflix in Los Gatos. Wikimedia Commons.
Unsurprisingly, a public that is increasingly dependent on internet connectivity is very critical of these pricing models, calling them a “money grab” due to the abundance of bandwidth, and thus no need to relieve congestion. Comcast, on the other hand, maintains that this model follows the principle of fairness: those who use more, pay more. It should be noted that Netflix itself offers different plans based on consumption, even though there is no real scarcity of streamable content.
Netflix, whose customers make up a third of peak internet traffic, is concerned that their customers will be discouraged from consuming their content, which requires lots of additional data. In their filing to the FCC, Netflix made a direct correlation, stating “Consumers watched more video when T-Mobile eliminated the impact of data caps on video viewing.”
Netflix is flashier and more popular than most ISPs and uses its growing influence to push for increased government control of the ISP industry (as they did successfully in the net neutrality debate last year). This is corporatism and, regardless of one’s opinion on data caps, it sets a worrying precedent. Banning data caps may benefit Netflix and its customers in the short run, however, there are unintended consequences to catering to interest groups. For instance, less flexibility in pricing models means less competitive pricing among ISPs, and ultimately a more expensive product than otherwise.
Hyper-regulation in any industry often begins with something politically palatable. Today it’s protecting net neutrality or banning data caps, but the future government’s chokehold on the ISP industry would only hurt new entrants to the market who cannot afford to comply with more regulations. In fact, “data caps” may be an especially useful pricing model for up-and-comers in the ISP industry who are competing with the Comcasts and Verizons by offering better customer service, or more flexible data offerings. Comcast will be relatively unaffected if these are banned, but to the ISP startup making a unique value proposition, such regulations could be crushing.
Netflix CEO Reed Hastings sounds almost philanthropic in his advocacy for a “free and open internet.” Netflix is really just usurping the power of consumers to pressure ISPs themselves if they disagree with a particular business model. Consumer choice is limited to a regulatory framework designed by particular corporate interests and enforced by government. Consumers are also robbed of the dynamism and innovation of free market competition that has historically taken dial-up modems from 2.4 to 56 kilobits per second, and dial-up modems to broadband cable since the private ISP market emerged in the 1990s. Regulating ISPs and disregarding consumer choice cannot possibly be conducive to a “free and open” internet.
Data thresholds for ISP customers may seem predatory, but they are a valid and effective means of securing more capital to maintain and improve existing lines, expand networks, and innovate in the future. Maximizing revenue encourages growth and progress. If Netflix were a non-profit streaming service, there’d be little creativity and expansion. We don’t see Pirate Bay putting out award-winning original content every year. It’s curious that Netflix endeavors to protect consumers from “data caps,” but ultimately those bearing the cost of Netflix’s binge-watching customer base would be those who don’t consume as many data, not ISPs. If price discrimination is banned, ISPs are incentivized to simply raise prices across the board. How is this fair to consumers?
Public disdain towards major ISPs (themselves corporatists) is quite understandable, however, the underlying problem of inadequate competition in the ISP industry is a result of government action, not inaction. It is hard enough securing investment in a new ISP, but government regulation creates suffocating barriers to entry and an unhealthy market for internet services. Startup costs are high due to local governments charging excessively for access to rights of way, permits, and an application process that often takes several years and requires very patient investors. “Big Cable” can withstand government regulation and still profitably lay cable while their would-be competitors can barely get started.
Netflix’s government solution to a government problem will only make things worse. It’s time to stop fearing Big Cable and start fearing big government: only the latter enjoys a true monopoly of power. There are plenty of reasons to be concerned about Big Cable, but if you want to free the internet, free the market.
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