Net Neutrality is a Distraction, not the Real Problem

The so-called Civil Landmark for the Internet, approved by Brazil’s Chamber of Deputies on March 25, now proceeds to the Senate. One of the main selling points of the bill is “net neutrality,” a legal device to prevent Internet Service Providers (ISPs) from offering various Internet access plans — for instance, a cheaper price for just a few web sites over cell phone and a more expensive plan for unlimited access.

Net neutrality is alluring. After all, if we allow companies to offer whatever plans they seem fit, it seems that people will have to pay more for unlimited access or that companies would block content they deem as competition. Thus, the reasoning goes, it should be necessary to treat all Internet content equalliy.

However, this defense of net neutrality is just a distraction from the real problem.

In a free market, neutrality is obtained by the very competition process, not by dismissing the demand for “non-neutrality,” where, for example, people could opt for a plan that only granted access to email, social media and some specific websites paying a lower price, whereas large companies that use a lot of data and hog the infrastructure could pay more. That way, customers of lower tier plans wouldn’t be forced to subsidize heavy data use.

In the market, “neutrality” is achieved by freedom of choice: If a provider does not offer neutral access for a reasonable price, it is possible to migrate to another. This creates incentives for competitors to jump in and innovate, resulting in a more attractive menu of Internet plans and options, as well as providing solutions for problems with data congestion and so on.

The draft bill even recognizes that net neutrality can’t be maintained at any cost. Guess who will have the power to determine when neutrality is not worth its price?

§ 1st The discrimination or degradation of Internet traffic will be regulated according to private attributions of the President of the Republic . . . counseled by the Internet Management Committee and the National Telecommunications Agency, and should be done according to:

I – technical requirements essential for adequate providing of services and applications; and

II – priorities to emergency services.

So, it is none other than the state (specifically the president) who will have the power to determine when neutrality should not be followed. Public choice teaches us that the state itself is not neutral and that representative democracy works not for the good of the majority, but rather for well-organized minorities, including large and politically connected corporations, which can throw money at the bureaucrats to adjust the neutrality and non-neutrality proportions they’re interested in.

Hence, the Civil Landmark of the Internet did not debate the real issue: Obstacles to the free entry in the industry and lack of incentives to experimentation and innovations, due to legislation or red tape.

These obstacles hinder market’s ability to determine the ideal proportion of neutrality and non-neutrality that best satisfies the demand for Internet services at a given time through the free interactions with users, who are the ones who actually know what is best for themselves. This free haggling in the market also has the upside of not imposing costs on society at large — the same cannot be said about the new legislation.

The Civil Landmark will only deepen the problems of the market that already exists in Brazil, because it will give the government the power to determine what neutrality actually means. If corporations control Brasília, giving more power to the government is the same as handing the reins over to the corporations.