Net Neutrality Law in California Will Negatively Impact Consumers

California consumers are losing access to free streaming services from some ISPs after a law the state enacted in 2018 to protect net neutrality was approved by a federal judge in February. The  California Internet Consumer Protection and Net Neutrality Act of 2018 (CICPNNA) prohibits providers from throttling or degrading connections to services on the internet, much like federal net neutrality regulations  did under the Obama Administration.

This law was passed in 2018 in reaction to the Restoring Internet Freedom Order (RIFO), which repealed Obama-era net neutrality regulations that treated Internet Service Providers (ISPs) as common carriers. California’s  law also bans the practice of zero-rating, a program where ISPs offer consumers to use some audio and video services without it counting against data caps.

California’s net neutrality law inflicts harm to consumers in the state and possibly nationwide. The elimination of zero-rating raises costs on users by forcing them to purchase more expensive data plans to maintain current levels of service and imposing higher compliance costs. These regulations also introduce new bureaucratic red tape, which diminishes the incentive for these companies to innovate and invest in new 5G network infrastructure. Lawmakers in California should not start a trend of putting consumers in harm’s way with painful net neutrality regulations.

As a case in point, prior to the CICPNNA, audio and video streaming were  offered for free through AT&T as zero-rated programs. By banning that practice, the law impacted tens of millions of customers on tiered plans that use their mobile devices to stream DirecTV and other services like HBO via mobile apps.

Eliminating the ability for internet service providers to offer zero-rated programs forces consumers everywhere to have to pay more for extra data to stream the music and shows they previously enjoyed at no extra cost. The loss of these programs are, therefore, a reduction in overall consumer welfare as no one else is made better off by the decision.

These zero-rated programs are an important part of the internet and television plans that consumers demand.  Data from Business Insider showed 40% of Verizon subscribers said the ability to stream content for free was a very important factor in choosing between carriers. Removing the law banning this practice would allow these companies to offer these programs for free, enabling consumers in California to save of money on extra data.

California’s net neutrality will have a negative impact on consumers outside its borders. As the cost of compliance with regulations increases, so too does the cost of providing service for everybody. If broadband becomes more expensive to provide, prices will inevitably increase. In a statement after the passage of CICPNNA, AT&T announced, “Given that the internet does not recognize state borders, the new law not only ends our ability to offer California customers such free data services but also similarly impacts our customers in states beyond California.”

Higher costs nationwide disproportionately impact those at lower incomes, further entrenching the digital divide at a time where the pandemic creates a dependence on the service. According to Pew Research Center, 53% of Americans say internet access has been essential during the pandemic for business and social activity. Net neutrality regulations make internet access less attainable for consumers in this demographic, and legislators should not be passing regulations that make broadband access less affordable.

California’s net neutrality will also have an adverse impact on broadband infrastructure investment in California and other states who follow the state’s example. Statistics from U.S. Telecom show investment in broadband infrastructure decreased $3 billion during the era of “net neutrality” under the Obama administration and only rebounded after regulations were changed in 2017. Lengthy and expensive bureaucratic processes companies must go through to receive approval to build out their networks disincentivizes investment. Returning to heavy regulations on providers now would see less investment in new broadband for Californians in the future.

As America continues to build its 5G network, net neutrality rules will deny consumers and small businesses access to the tremendous benefits that will come from the next generation of internet technology. Ensuring that the most Americans possible have access to 5G will require ditching net neutrality regulations in favor of a light-touch approach. The new net neutrality law in California raises compliance costs on internet service providers, resulting in fewer services, higher prices for consumers, and less broadband investment.

California should remove its onerous regulations on broadband so that consumers in the state and others throughout the country can enjoy the benefits access to broadband can provide for all.

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