The American Consumer Institute Finds Regulations Will Harm Consumers

Proposals to Regulate the Internet Threaten Lower Cable Prices

 

Summary

Legislation is before Congress that would speed cable competition and lower consumer prices.  That’s a good thing.  However, this legislation is hung up in the Senate because of an amendment dubbed net neutrality, which would regulate the Internet and Internet pricing practices.  This ConsumerGram explores how consumers would be affected by passage of this amendment, and finds that proposals to regulate the Internet would harm consumers and prevent many innovative Internet-based services and applications from reaching consumers. 

 

Legislation for Lower Cable TV Prices in Jeopardy

As our recent ConsumerGram found, there are numerous studies concluding that cable TV competition would save Americans as much as 50% off their current cable TV bill.  Legislation now before the U.S. Congress would speed cable competition and lower consumer prices, but an amendment to regulate the Internet threatens passage of the bill. 

 

Consumers Want Internet Choices that Regulation Would Bar

Internet regulations being advocated by Google, Microsoft, Yahoo!, eBay and other Web-centric companies would prohibit Internet Service Providers (ISPs) from offering consumers a choice to buy services customized to their needs – services with different speeds, higher security, guaranteed reliability or other sorts of service differentiation.  These regulations are being pushed on behalf of consumers, yet in a nationwide survey conducted by the Research Network for the American Consumer Institute, 84% of consumers supported giving ISPs the option of providing “premium services that are faster, safer and more reliable.” 

 

This is an issue of consumer choice.  Some work-at-home businesses prefer super fast Internet speeds, but the occasional e-mailer neither needs nor wants to pay for higher speeds.  Service guarantees are important to consumers who, for whatever reasons, place high value on reliability and continuity of service for which other consumers would rather not pay.  Consumers also place different values on security for their emails, hospital records, financial transactions or other transmissions.  Hospitals are obliged to protect patient records and are willing to pay for premium protection. 

 

Consumers should have choices and should not be forced to pay for a one-size-fits-all solution.  One-size-fits-all forces some consumers to pay for service quality they do not want, while denying others the opportunity to buy services they want.  Such a rule would effectively increase the price or reduce the value of broadband services to most consumers.  Proposed Internet regulations would limit consumer choices, raise consumer prices and, suppress innovation and customized services.  Consumers lose.    

 

Studies Agree that Internet Regulation Harms Consumers

No empirical studies support Internet regulations, but there are numerous studies estimating harm to consumers from unnecessary price regulations.  The American Consumer Institute recently released such a study by Dr. Larry Darby, former FCC chief of the Common Carrier Bureau and a senior fellow at the Institute.  Dr. Darby found that proposed Internet regulations, in the guise of net neutrality, would require consumers to pay for all of the upgrades to the Internet and thereby increase consumer prices and decrease broadband demand.  The study estimated the present value of lost consumer welfare to be as much as $32 billion, or about $285 per broadband household. 

 

Service Innovation Threatened by Internet Regulations

Internet regulations denying ISPs the ability to differentiate services and prices stymie Internet service innovation with the tragic result that some services and applications will never reach the consumer market.  Net neutrality advocates support regulations that would prohibit an ISP from giving service guarantees to telemedicine applications between patients and hospitals.  They also support provisions that would prevent network operators from giving priority to the delivery of emergency information over spam, as well as requiring consumers to “pay all” and prohibiting Internet sponsors from paying for access to super fast Internet customers.  Here are some specific examples of Internet service applications that would be lost if regulations are imposed:

 

  • Internet Regulations Harm Consumers with Disabilities

Dr. Frank Bowe, a distinguished professor for the Study of Disabilities at Hofstra University, believes that net neutrality regulations would inhibit supportive technologies that can help millions of Americans with disabilities.  Net neutrality would prohibit service level guarantees, which would hamper video relay and peer-to-peer video services.  For Americans with hearing loss, these services are “functionally equivalent to a voice phone,” according to Professor Bowe.  Regulations may also inhibit development of innovative Internet services, such as text-to-speech applications that help the blind.

 

  • Internet Regulations Would Harm Low-Income Consumers

Some Internet proposals would prohibit differentiated services.  That means an ISP offering a super fast 50 megabit per second service for $60 per month, would have to stop offering its 1.5 megabit per second service for $29 per month and thereby deny the choice to low-income consumers perfectly satisfied with the $29 a month service.  As Dr. Darby pointed out in a recent ConsumerGram, service and price differentiation is not only prevalent in the marketplace, but it is a requirement for real competition.  A law against such differentiation would discriminate against poor consumers who prefer economy services that would be foreclosed by the one-size-fits-all requirement. 

 

  • Internet Regulations Would Harm the Aged and Infirm

Because Internet regulations would prohibit ISPs from offering tailored services to customers, some unique network-based applications would never be developed to help the elderly.  Thus, ISPs would be prohibited from adding extra network security for online access to hospital medical data banks.  Dedicating bandwidth to integrated monitoring and interventions systems for chronically ill patients would be illegal, since it would require prioritizing medical needs over less critical information – like music downloads and other entertainment content.  Unique video-based applications for telemedicine would be prohibited, including, for example, applications that allow doctors and hospitals to share and send video telecommunications, X-rays, and digital images to doctors and hospitals located in other parts of the country.  At risk would be telemedicine applications now used to diagnose diseases such as osteoporosis, arthritis and cancer, as well as services used to monitor homebound patients with diabetes, congestive heart failure and other serious illnesses. 

 

            According to Dr. Litan, a senior fellow for the Brooking Institution and vice president of the Kauffman Foundation, accelerating broadband use – just for senior citizens and those with disabilities alone – will add $620 billion in economic benefits in the next 25 years.  However, Litan sees the imposition of Internet regulations as a real threat to these benefits.  One endocrinologist, Max E. Stachura, M.D., correctly summarized the problem with way:

“A telehealth provider could conceive a new application for monitoring or remote management and therapy, but a network neutrality framework could preclude the broadband provider from offering the necessary bandwidth configuration.  The point is that it is impossible to know today the network requirements of tomorrow’s telemedicine.  Policymakers would be unwise to lock in regulations that can only limit the flexibility of the broadband Internet.”

 

Conclusion 

Consumer needs are varied, as are their willingness and ability to pay for different kinds of services.  A law that denies producers the incentive and opportunity to identify unique consumer needs, tailor services to reflect the differential value of services, and vary prices accordingly is simply not in the consumer’s best interest.  Their response to surveys makes that abundantly clear. 

 

If one-size-fits all is such a good idea, why not make all consumers eat the same breakfast cereal, watch the same TV shows, and drive the kind of car?  Creating a “vanilla Internet” will not promote innovation, nor will it provide options for consumers to live healthier, productive and more independent lives.

 

 

Suggested Readings:

·         Frank G. Bowe, “Net Neutrality and People with Disabilities,” Hofstra University, May 2006.

·         Robert Litan, “Great Expectation: Potential Economic Benefits to the Nation from Accelerated Broadband Deployment to Older Americans and Americans with Disabilities,” NMRC, Dec. 2005.

·         Robert Litan, “Catching the Web in a Net of Neutrality,” Special to Washingtonpost.com, May 2, 2006.

·         Max E. Strachura, M.D., “Promoting Telehealth in a Broadband World, APT, June 2006.

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