Engine's Response to Today's FCC Hearing on Net Neutrality Economics


We at Engine watched with interest as the FCC held a hearing today on economic questions related to its proposed net neutrality rules, focusing on “incentives to provide high quality open Internet access service and the relevance of market power.” Distressingly, though the hearing tackled many important questions about the economic incentives new rules would affect, relatively little time was spent addressing the immense negative impact on investment in startups that would follow from an abandonment of strong net neutrality rules. Too many witnesses—with Professor Nicholas Economides of NYU and Professor Jonathan Baker of American University as notable exceptions—failed to grasp the chilling effect on innovation that the paid prioritization model would cause.

Contrary to Hal Singer from the Progressive Policy Institute’s stunning claim at the hearing that allowing paid prioritization schemes would have no negative impact on companies that could not afford to pay for priority access unless ISPs actively degraded all non-prioritized traffic in absolute terms, paid prioritization unquestionably harms startups. Even with a so-called “baseline” service requirement, startups will be disadvantaged if their Internet speeds drop relative to established companies. Myriad studies show that consumers respond to even the most minute changes in website speeds. Millisecond differences in loading times can be a huge detriment to a startup’s growing business.

Simply put, allowing paid prioritization would greatly increase the cost of application development. In turn, higher costs would discourage entrepreneurs from starting risky companies and dissuade investors from putting money into startups that operate in such an imbalanced marketplace where wealthier incumbents pay for priority access.

The threat to innovation isn’t hypothetical. More than 100 of the world’s most prominent venture capitalists explicitly said in a letter to the FCC that they would be less likely to invest in startups that compete in established markets if the FCC permitted paid prioritization. If the FCC fails to understand that allowing ISPs to create and profit from Internet slow lanes will necessarily disincentivize investment in the next wave of startups, it will be putting the future of these companies and the Internet economy in grave danger.