Free Market Fail, ISP Edition

Greed, it appears, is not so good

People have been talking for years about how unleashing the creative power on markets on the internet service market.

The problem is that providers are natural monopolies, and as such their incentive is to minimize their monopoly rents, not by providing better and cheaper service.

Case in point, the studies showing that zero-rating some internet content raises prices:

When an ISP decides to exempt certain applications or services from cutting into a user’s data cap, that’s zero rating. And the evidence is in that it conclusively makes broadband more expensive.

A comprehensive multi-year study by the non-profit, comparing the 30 member countries of the European Union (EU) on net neutrality enforcement, has found that zero rating business practices by wireless carriers have increased the cost of wireless data compared to countries without zero rating. This directly contradicts all of the assertions by major wireless carriers that their zero rating practices are “free data” for consumers.

Based on the evidence, zero rating not only serves as a means to enhance ISPs’ power over the Internet, but it’s also how they charge consumers more money for wireless service. Zero rating was originally going to be banned by the FCC under the General Conduct Rule, but when the FCC changed leadership the agency promptly green lighted and encouraged the industry to engage in zero rating practices before it began its repeal of net neutrality.

EU countries that do not have zero rating practices enjoyed a double digit drop in the price of wireless data after a year. In comparison, the countries with prevalent zero rating practices from their wireless carriers consistently saw data prices increase. This makes sense; carriers have an incentive to raise the costs of exploring alternatives in order to make their preferred, zero-rated choice of content more attractive. However, once that incentive is removed, the wireless carrier no longer has a reason to raise the cost of alternatives because nothing is given special treatment. In short, zero rating practices cost you more money.

So not a surprise.

The evidence is clear:  The more that internet service policy depends on “free market” forces, the more that the service costs, and the lower the quality of service.

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