Regulation is often portrayed as the use of government authority to alter market outcomes away from the interests of firms and toward those of consumers and employees. In turn, the “story” associated with deregulation is the opposite: Corporations and the powerful use their influence to eliminate public sector controls on their conduct at the expense of consumers and employees.
But if the usual narrative is true how do we explain a full-page ad that AT&T recently published in multiple newspapers, including the Washington Post and the New York Times, calling on Congress to pass new legislation to guarantee internet neutrality? The short answer is that existing companies often favor regulation that reduces competition in ways not well understood by consumers or legislators.
AT&T, one of the nation’s largest ISPs and a company that recently dedicated significant resources to support the FCC’s recent repeal of Title II net neutrality regulations, seems like an unlikely proponent of net neutrality legislation. But its position on the policy highlights why companies sometimes support regulations that would appear to harm them.
AT&T’s opposition to Title II net neutrality regulations is not based on a general hostility towards all regulations, but instead stems from the specific types of rules that Title II regulations would impose. Title II of the Federal Communications act of 1934 was originally intended to regulate telephone companies, and gave the government the ability to review and accept or reject telephone rates. During the fight for net neutrality regulation over the last ten years, the FCC sought to regulate the internet under other parts of the Communications Act, but courts continually said no, forcing the Commission to regulate under Title II. Because Title II comes with the possibility of price controls like those imposed on telephone companies, AT&T opposed that regulatory system and called for Congressional action to ensure net neutrality without the possibility of price controls.
As I’ve previously argued, net neutrality regulations are an attempt to settle fights between ISPs and content providers, like Netflix or Hulu. Both sides “need each other to satisfy consumers, but they fight each other to capture the larger share of consumers’ payments.” Title II price controls would have disadvantaged ISPs and benefitted content providers. Now that the debate over whether ISPs should be regulated under Title II is, at least temporarily, seemingly in its favor, why is AT&T continuing to call for new legislation?
Whereas Title II regulations disadvantaged AT&T, new legislation could create regulations that would benefit it by reducing the number of dimensions over which firms can compete and differentiate themselves. This would disproportionately hurt smaller companies and new market entrants and aid larger companies with larger networks and economies of scale allowing them to offer lower prices than competitors.
One example of differentiation that would be banned under net neutrality is known as “zero rating,” the offering of internet access plans that allow customers to access specific content or applications that don’t count against a customer’s data cap. Christopher Yoo of the University of Pennsylvania Law School argues that, on the demand side, zero rating would allow companies to tailor plans to different groups and types of consumers, and would help consumers save money by enabling them to buy only the plan they need.
Zero rating is a threat to AT&T because it increases competition. As Yoo contends, “on the supply-side, service differentiation promotes competition by broadening the ways that ISPs can compete. Offering service-specific plans that are targeted at key subsegments of the population can promote entry even by firms that suffer from disadvantages in cost and network.” AT&T’s call for new legislation constitutes an attempt to stifle smaller companies ability to compete through differentiation and specialization.
Instead of enacting new legislation to aid AT&T, the internet should be allowed to operate under the hands-off regulatory framework under which it flourished This would allow continuing innovation and let companies specialize to attract consumers without restricting AT&T’s own ability to differentiate.
The ad says:
AT&T is committed to an open internet. We don’t block websites. We don’t censor online content. And we don’t throttle, discriminate, or degrade network performance based on content.
Regulation is not necessary for AT&T to continue that commitment. It can market its position on net neutrality as a business model and let competitors that don’t support the policy explain to consumers why their position is better. Congress should resist the call for legislation and let the value of net neutrality be determined by consumers.
Written with research assistance from David Kemp.