Network Neutrality and the False Promise of Zero-Price Regulation

Networks, the Internet, and Cloud Computing, Networks and Infrastructure and Net Neutrality

Article Snapshot

Author(s)

C. Scott Hemphill

Source

Yale Journal on Regulation, Vol. 25, pg. 135, 2008

Summary

This article asks if proposed “zero-price” net neutrality rules should be imposed on broadband carriers.

Policy Relevance

“Zero-price” rules, a type of net neutrality regulation, will not generally be necessary to protect broadband consumers and could hinder infrastructure growth. There might be a case for regulating large broadband consumers, such as Google.

Main Points

  • “Zero-Price” regulation, a proposal to foster network neutrality, would prevent access providers from charging content providers for sending information to consumers.
     
  • There are two main methods, exclusion and extraction, employed by access providers that are thought to justify “zero-price” regulation. However, the author argues that neither of the methods raises enough concern to warrant the “zero-price” regulation that some commentators advocate for.
     
  • Exclusion, where the access provider takes action that inhibits one application’s success in comparison to another, is one of the methods used that causes a call for “zero-price” regulation. However, these concerns are not valid, especially because antitrust law already protects many of the exclusion fears.
     
  • Extraction, where the access provider uses the threat of exclusion against all applications to extract greater profits from them, is the other method that causes a call for “zero-price” regulation. It also fails as a valid cause for concern because extraction costs can be shifted to consumers and because Internet content is often created for non-financial reasons.
     
  • Generally there is no justification for a “zero-price” regulation due to fears of exclusion or extraction; however, a stronger argument can be made for regulation when socially produced content, such as Wikipedia, is involved.
     
  • Socially produced content, which is more efficient because of fewer transaction costs, is vulnerable when competing with market-produced content because it cannot afford access fees like market-produced content can. However, this is a narrow exception and only applicable to the limited amount of socially produced content that warrants protection.
     
  • There is generally no economic justification for “Zero-Price” regulation, and attention ought to shift toward large content providers, such as Google, who may be more apt to exclude or extract due to bargaining power and position.

     

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