[Solar-general] Fwd: IPI Report: NN Makes Economic Sense

[Diego Saravia]

---------- Forwarded message ----------
From: Seth Johnson <seth.johnson en realmeasures.dyndns.org>
Cost-Benefit Analysis: Net Neutrality Makes Economic Sense (text
below)
> http://arstechnica.com/tech-policy/news/2010/01/new-study-no-net-neutrality-means-weaker-internet-economy.ars

Brief Version:
http://www.policyintegrity.org/documents/1.7.10NetNeutralityMediaResourceKit.pdf

Free to Invest:
http://policyintegrity.org/documents/Free_to_Invest.pdf

Snippet:

"Price discrimination 'would reduce the return on investment for
Internet content... See More—meaning website owners, bloggers,
newspapers, and businesses would have less incentive to expand their
sites and applications,' IPI argues. 'Smaller websites might not be
able to afford the fees leading them to close up shop. Start-ups might
not actually start up because it costs too much or the profits aren’t
worth the investment. If too many sites decide it’s just not worth the
price of entry, the Internet loses value to the people who use it.'"


Seth

---

> http://arstechnica.com/tech-policy/news/2010/01/new-study-no-net-neutrality-means-weaker-internet-economy.ars


Cost-Benefit Analysis: Net Neutrality Makes Economic Sense


A new study warns that abandoning network neutrality could transfer
billions of dollars from the most competitive sector of the Internet
(online content) to the least (Internet service providers).


By Matthew Lasar

Last updated January 11, 2010 9:30 PM


Most arguments in favor of net neutrality regulation focus on fairness
to the public. Definitions of "net neutrality" often characterize it
as a principle that fosters free speech on the Internet. But a new
study contends that barring ISPs from favoring certain content
providers is more than a good concept—it's also sound economic policy.

"Without net neutrality rules, new technologies could lead to pricing
practices that transfer wealth from content providers to ISPs," warns
the Institute for Policy Integrity, "a form of price discrimination
that would reduce the return on investment for Internet
content—meaning website owners, bloggers, newspapers, and businesses
would have less incentive to expand their sites and applications."

Such a reallocation of resources would hobble investment in the 'Net
overall, concludes Free to Invest: The Economic Benefits of Preserving
Net Neutrality (cheat sheet version here).

IPI is a New York University-based think tank that looks closely at
environmental issues. But as the group's executive director Michael
Livermore told us, the outfit also focuses on what it sees as a
missing element in much pro-environmental regulation policy, the use
of cost-benefit analysis. Generally, this kind of thinking is used to
oppose government intervention on the grounds that some specific
regulation actually has more costs than it produces in benefits.

But it doesn't have to be that way. "Americans are willing to support
regulation that solves significant failures of the marketplace, and
cost-benefit analysis can show where new or strengthened regulations
are justified on economic terms," Livermore writes.

So when Consumers Union encouraged IPI to take a look at
broadband-related issues, the institute adjusted its work from climate
change to the 'Net. Here's what it saw.
Market failure in cyberspace

Free to Invest begins by outlining the 'Net's simultaneous strength
and weakness. The big strength, as any Web user knows, is vast amounts
of cheap or free content—news, blogs, music, video, games, social
networks. It's all out there for "free," in the sense that once you've
paid for a device and an ISP subscription, the rest of the ride is
gratis.

But, while all these goodies provide billions of dollars in "free
value" for the public, "websites are not compensated when their
content is repurposed or passed on," the study notes, which means
"fewer subscriptions to paid services, fewer direct page views, and a
loss of advertising dollars."

As a consequence, "the Internet is more useful to everyone on it, but
Internet Service
Providers (ISPs) and content providers are at a disadvantage since
they are not compensated for all the information they disseminate,"
according to the report. "This leads to systematic underinvestment in
the Internet: if that income could be accessed, it would encourage
investment in infrastructure and content."
Source: Institute for Policy Integrity

There is a way that the big ISPs could generate additional income.
They could do more than just charge content providers to upload their
data to the Web. They could tithe them in various ways for priority
subscriber access, which is what both AT&T and the cable companies say
they want. The telcos and cable call this "value added" or "enhanced
delivery" service—but basically it would involve content makers paying
the ISPs more money for faster subscriber access.

Free to Invest warns that this kind of marketing would cost the
Internet economy overall. Price discrimination "would reduce the
return on investment for Internet content—meaning website owners,
bloggers, newspapers, and businesses would have less incentive to
expand their sites and applications," IPI argues. "Smaller websites
might not be able to afford the fees leading them to close up shop.
Start-ups might not actually start up because it costs too much or the
profits aren’t worth the investment. If too many sites decide it’s
just not worth the price of entry, the Internet loses value to the
people who use it."

Critics decry the Federal Communications Commission's proposals to bar
priority access deals. They call net neutrality "a solution in search
of a problem." But, as IPI notes, that's because the Internet in the
United States is currently running under de facto net neutrality rules
already. The ISPs have voluntarily, albeit reluctantly, refrained from
cutting priority access deals with content providers. The FCC's net
neutrality proposals would codify many of these voluntary practices
into law.
Zero sum transfer

Were the big ISPs allowed to offer priority access tiers, it would
represent a siphoning of money from the Internet's content sector to
its infrastructure sector. Free to Invest's cost-benefit analysis
calls this transfer bad economics. Competition in the Internet content
market is much stronger than it is in the market for broadband
service, the report contends. In content-land, the situation is
constantly changing, "with new product and players emerging at a
furious pace—content providers must adapt (and invest in changing and
adapting) to keep up with other content providers."

On the other hand, in ISP-land, most consumers have access to two
viable high speed providers, at most. "Thus, ISPs do not need to be as
vigilant about competition or use their investments to compete with
potential new entrants into the market," the paper argues. "Instead,
they are free to use their additional revenue to generate proprietary
content, invest in other parts of their business, pay dividends to
shareholders, or reward managers with bonuses."

And so abandoning net neutrality would transfer money from the most
competitive parts of the Internet and actively reinvest it in the
least competitive, IPI warns. But the study acknowledges that more
needs to be done to boost investment in the 'Net overall, especially
to make broadband available to more of the country.

That's why the group favors direct government support. It's hard for
the government to subsidize content, which requires making subjective
decisions about which kinds of content to help financially. But it's
easier to underwrite infrastructure—something the US has been doing
for over a century via support to railroads, rural electricity,
federal highways, and (most recently) the White House's $7.2 billion
broadband stimulus program.

"A policy that encourages content investment through a favorable
pricing structure [net neutrality], while directly supporting
infrastructure, then, is likely to be the best available option to
achieve more efficient levels of investment," the paper concludes.

Of course, while government broadband investment might be easier on a
policy level, it's not so easy on a political level. Most observers
agree that the amount of federal infrastructure money allocated so far
won't get the job done, with one outfit predicting a broadband gap of
40 million households through 2014, even at present levels of public
and private investment. And it's unclear whether the Obama
administration has any plans for a second big stimulus package. But in
our conversation with IPI director Livermore, he seemed guardedly
optimistic about future prospects. "The 'Net as we currently know it
is only about 15 years old," he  pointed out.

Speaking of money, we did ask where IPI gets theirs. The think tank
has received project grants from the Hewlett Foundation and the
Rockefeller fund, we were told. It's also backed by NYU. As for this
net neutrality report, the Institute produced it on its own dime.




-- 
Diego Saravia
Diego.Saravia en gmail.com
NO FUNCIONA->dsa en unsa.edu.ar