Why the FCC’s Vote to Regulate the Internet Is a Mistake

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On Thursday, the Federal Communications Commission (FCC) voted to regulate Internet providers as public utilities under a 1934 law. President Obama celebrated this ruling, which the FCC based on his plan to enforce net neutrality – the idea that Internet providers shouldn’t be allowed to prioritize, throttle, degrade, or block lawful content. But the FCC’s sweeping rules will have unintended consequences for the Internet’s future, potentially hurting the very users net neutrality is supposed to protect.

To understand why regulating Internet providers as public utilities is unwise, consider other markets where bureaucrats have the final say over prices and services. Taxicabs, for instance, are strictly governed by local boards or commissions that dictate rates and policies.

In theory, these rules are supposed to guarantee good service and affordable prices. In reality, riders routinely endure cabs that are expensive, unreliable, or both. Recently, some entrepreneurs have upended this status quo through ridesharing services like Uber and Lyft that most consumers find vastly superior to taxis.

Ridesharing faces far fewer rules than taxis, even in states with laws specifically addressing Uber and similar services. And that’s as it should be. Competition works best for consumers when rival firms can experiment with business models without worrying about what prices and levels of service government regulators will deem “just and reasonable.” Yet that uncertainty is precisely what the FCC’s decision will impose on Internet providers going forward. That will breed complacency and make providers think twice before rocking the boat with something new and disruptive.

To be sure, we’ve all had a bad experience – or several – with the cable or phone company, along with airlines, insurance companies, and banks. But compare your Internet bill from 10 years ago to this month’s. Odds are your connection speeds have grown significantly, even as your bill has probably changed little in real dollars (excluding television, which is driven by content costs). If broadband were a monopoly, or even a cozy duopoly, big providers wouldn’t invest billions annually to one-up each other. Yet this is precisely what they’re doing.

All sides agree that broadband competition can only benefit consumers. But how can government best foster entry into the Internet market? Reducing burdens on Internet providers is the better approach. Making it cheaper and easier for companies to wire neighborhoods with fiber-optic lines – or build new wireless towers – should be a no-brainer for Congress and the FCC. Conversely, more regulation means more barriers to entry, as evinced by Google’s decision not to offer voice to Google Fiber subscribers because of “special rules” that would apply to the service.

What about fears of providers blocking or throttling lawful traffic? Again, FCC intervention is unnecessary – this time thanks to another federal agency, the Federal Trade Commission (FTC). Tasked with pursuing companies that employ “unfair or deceptive” business practices, the FTC has gone after Internet providers before. Unlike the FCC – which is best known for censoring the airwaves and safeguarding the Ma Bell telephone monopoly – the FTC specializes in policing competitive markets, like broadband. If a provider touts its service as access to the full Internet but then blocks access to legal sites, it’s arguably in violation of federal law.

Net neutrality supporters tout it as a solution to the alleged problem of “paid prioritization” – shorthand for an Internet provider giving preferential treatment to certain traffic in exchange for money. But paid prioritization is a feature, not a bug. What exactly is the problem with an online gaming or telemedicine service that wants to pay Comcast for faster access to its subscribers?

Not every startup will have an equal chance to make these deals, according to critics of so-called “fast lanes,” but since when do we ban something because only some companies can afford it? If firms believe they can offer better service through paid prioritization, users shouldn’t be denied this potential benefit. Besides, Silicon Valley giants have come and gone even though they’ve long enjoyed better equipment and more engineers than their smaller rivals.

Regulating Internet providers as utilities might stop a few instances of genuinely harmful conduct, but public outcry over such practices will likely also curb abuses. Regulation, however, will deter providers from devising better ways to serve consumers through trial and error—a process epitomized by Uber’s ongoing efforts to perfect its surge pricing model. If courts uphold the FCC’s decision, Congress should step in and reverse it. Consumers will be better off if they do.

Originally published at MSNBC.com on February 28, 2015.