Future

Folks, We Will Be Just Fine Without Net Neutrality

The evidence so far is that corporations won't be much affected and consumers could even benefit.

Surf's up
Tyler Cowen

-OpEd-

NEW YORK — Eliminating net neutrality is, in the best and worst case scenarios, either necessary to keep the internet up and running, or will lead to a dystopian future where a few major corporations control our thoughts. The more prosaic reality, however, is that a world without net neutrality will work just fine. I am therefore not incensed (or very excited) about the Federal Communications Commission proposal released Tuesday that will move away from net neutrality.

Let's put aside the heated rhetoric, and look at two recent studies.

In the past, the FCC went through a process to extend public-utility-style regulation (Title II) to internet service providers starting in early 2015, in response to a court order invalidating its earlier net neutrality policy. In essence, the agency moved to reinstate net neutrality under a slightly different and more legally defensible guise. Most relevant corporate share prices didn't much react to these events, which suggests that the net neutrality decisions weren't so important for the sector. This study, conducted by telecommunications expert Robert W. Crandall at the Brookings Institution, looked at AT&T Inc., Verizon Communications Inc., Comcast Corp., Time Warner Cable LLC, Cablevision Systems Corp., Charter Communications Inc., the Walt Disney Co., Time Warner Inc., Viacom Inc., CBS Corp., 21st Century Fox Inc., Starz Inc., Facebook Inc., Twitter Inc., AOL Inc., Yahoo Inc., and finally Netflix Inc.

Net neutrality is just one factor of many shaping the future of media.

Many of these media companies did better than the S&P 500 across the critical part of 2015 when the new regulations were unveiled. That shows changing net neutrality is unlikely to cripple the U.S. media landscape. But is net neutrality such a big deal for keeping an open internet? After a statement by President Barack Obama in November 2014 in favor of new regulations, the shares of traditional media companies (owners of movie and TV content) did better than the shares of new media companies (Netflix, Facebook). That's at direct disagreement with the story that net neutrality rules are necessary to prevent cable companies from levying extortionate access rates on bandwidth-intensive new media companies.

You might think these share price changes aren't significant in assessing policy, because there are so many disparate factors impinging on the profitability of these companies. And that's probably the correct intuition, but it also means net neutrality is just one factor of many shaping the future of media, rather than the decisive force.

Pro net neutrality protesters — Photo: Tim Pierce

Look at Netflix, a major bandwidth user, which had a volatile share price over this period. Most of that volatility seems to have come from general business conditions for the company. When the court first struck down net neutrality, Netflix shares rose in value. When Obama made it clear he would try to re-institute net neutrality, Netflix shares fell in value. Again, those patterns reflect the opposite of the usual critical story that Netflix or its customers will be charged a fortune for bandwidth use if net neutrality is removed. Netflix shares have done fine over the last year, even in light of this expected revision to net neutrality policies.

To put these share price movements in context, stocks for businesses that would clearly benefit from tax reform rose in value immediately after President Donald Trump's election. When clear costs and benefits are on the line, share prices seem to reflect this.

We've been living with various forms of nonneutrality for some while.

A second recent study is by José Francisco Tudón Maldonado, a doctoral candidate in economics at the University of Chicago. Tudón Maldonado looked at Amazon.com Inc."s Twitch.tv, a popular platform for video games, eSports and musical performances, among other services. Twitch itself advocates net neutrality, but applies its own service prioritization rules within the system. Tudón Maldonado found that Twitch users benefit from this prioritization, receiving higher quality programs and suffering less from bandwidth congestion.

That's only one example, and it hardly proves that service prioritization will benefit the internet as a whole. Still, we've been living with various forms of nonneutrality for some while, and when they're not framed as such we typically don't find them so outrageous.

Have you ever used your Kindle to connect to wireless to download new books from your Amazon account? That too is a kind of nonneutrality. You can download the books, but you can't use that same wireless connection for more general purposes.

Proponents of net neutrality are typically worried about the monopoly and pricing power held by cable companies and other internet service providers. Options for access, however, are improving. Cellphone service is falling in price, smartphones are growing in size and quality, and Wi-Fi connections are all over the place. That said, a lot of monopoly power remains. But look at it this way: Those monopolists don't want to distort the consumer experience too much, so they can keep charging high prices.

I used to favor net neutrality, but I now think we're at the point where we'll do just fine without it.

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Economy

European Debt? The First Question For Merkel's Successor

Across southern Europe, all eyes are on the German elections, as they hope a change of government might bring about reforms to the EU Stability Pact.

Angela Merkel at a campaign event of CDU party, Stralsund, Sep 2021

Tobias Kaiser, Virginia Kirst, Martina Meister


-Analysis-

BERLIN — Finance Minister Olaf Scholz (SPD) is the front-runner, according to recent polls, to become Germany's next chancellor. Little wonder then that he's attracting attention not just within the country, but from neighbors across Europe who are watching and listening to his every word.

That was certainly the case this past weekend in Brdo, Slovenia, where the minister met with his European counterparts. And of particular interest for those in attendance is where Scholz stands on the issue of debt-rule reform for the eurozone, a subject that is expected to be hotly debated among EU members in the coming months.

France, which holds its own elections early next year, has already made its position clear. "When it comes to the Stability and Growth Pact, we need new rules," said Bruno Le Maire, France's minister of the economy and finance, at the meeting in Slovenia. "We need simpler rules that take the economic reality into account. That is what France will be arguing for in the coming weeks."

The economic reality for eurozone countries is an average national debt of 100% of GDP. Only Luxemburg is currently meeting the two central requirements of the Maastricht Treaty: That national debt must be less than 60% of GDP and the deficit should be no more than 3%. For the moment, these rules have been set aside due to the coronavirus crisis, but next year national leaders must decide how to go forward and whether the rules should be reinstated in 2023.

Europe's north-south divide lives on

The debate looks set to be intense. Fiscally conservative countries, above all Austria and the Netherlands, are against relaxing the rules as they recently made very clear in a joint position paper on the subject. In contrast, southern European countries that are dealing with high levels of national debt believe that now is the moment to relax the rules.

Those governments are calling for countries to be given more freedom over their levels of national debt so that the economy, which is recovering remarkably quickly thanks to coronavirus spending and the European Central Bank's relaxation of its fiscal policy, can continue to grow.

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive.

The rules must be "adapted to fit the new reality," said Spanish Finance Minister Nadia Calviño in Brdo. She says the eurozone needs "new rules that work." Her Belgian counterpart agreed. The national debts in both countries currently stand at over 100% of GDP. The same is true of France, Italy, Portugal, Greece and Cyprus.

Officials there will be keeping a close eye on the German elections — and the subsequent coalition negotiations. Along with France, Germany still sets the tone in the EU, and Berlin's stance on the brewing conflict will depend largely on what the coalition government looks like.

A key question is which party Germany's next finance minister comes from. In their election campaign, the Greens have called for the debt rules to be revised so that in the future they support rather than hinder public investment. The FDP, however, wants to reinstate the Maastricht Treaty rules exactly as they were and ensure they are more strictly enforced than before.

This demand is unlikely to gain traction at the EU level because too many countries would still be breaking the rules for years to come. There is already a consensus that they should be reformed; what is still at stake is how far these reforms should go.

Mario Draghi on stage in Bologna

Prime Minister Mario Draghi at an event in Bologna, Italy — Photo: Brancolini/ROPI/ZUMA

Time for Draghi to step up?

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive. That having been said, starting in January, France will take over the presidency of the EU Council for a period that will coincide with its presidential election campaign. And it's likely that Macron's main rival, right-wing populist Marine Le Pen, will put the reforms front and center, especially since she has long argued against Germany and in favor of more freedom.

Rome is putting its faith in the negotiating skills of Prime Minister Mario Draghi, a former head of the European Central Bank. Draghi is a respected EU finance expert at the debating table and can be of great service to Italy precisely at a moment when Merkel's departure may see Germany represented by a politician with less experience at these kinds of drawn-out summits, where discussions go on long into the night.

The Stability and Growth pact may survive unscathed.

Regardless of how heated the debates turn out to be, the Stability and Growth Pact may well survive the conflict unscathed, as its symbolic value may make revising the agreement itself practically impossible. Instead, the aim will be to rewrite the rules that govern how the Pact should be interpreted: regulations, in other words, about how the deficit and national debt should be calculated.

One possible change would be to allow future borrowing for environmental investments to be discounted. France is not alone in calling for that. European Commissioner for Economy Paolo Gentiloni has also added his voice.

The European Commission is assuming that the debate may drag on for some time. The rules — set aside during the pandemic — are supposed to come into force again at the start of 2023.

The Commission is already preparing for the possibility that they could be reactivated without any reforms. They are investigating how the flexibility that has already been built into the debt laws could be used to ensure that a large swathe of eurozone countries don't automatically find themselves contravening them, representatives explained.

The Commission will present its recommendations for reforms, which will serve as a basis for the countries' negotiations, in December. By that point, the results of the German elections will be known, as well as possibly the coalition negotiations. And we might have a clearer idea of how intense the fight over Europe's debt rules could become — and whether the hopes of the southern countries could become reality.

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