Why Everyone Was Wrong About Net Neutrality

February 26, 2015
Why Everyone Was Wrong About Net Neutrality
By Tim Wu

Tim Wu writes regularly for newyorker.com. He is a professor at Columbia Law School and the director of the Poliak Center for the First Amendment at the Columbia Journalism School.

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It is often the case in Washington that ideas gain the status of deep truths not because they are actually true, but only because they are repeated often enough. That was the case for another widespread idea: that enacting strong net-neutrality rules would lead to a collapse in the value of broadband providers like Comcast and Verizon. In a May letter, twenty-eight industry C.E.O.s warned of an “investment-chilling effect” that would destroy millions in market value. And, in fact, fears of such a collapse were a large part of what stopped the F.C.C. from enacting Title II rules in Obama’s first term.

Yet the moment that Tom Wheeler announced his plans for strong net-neutrality rules, on February 4th, broadband stocks jumped, and they have stayed buoyant. This has confused experts. Craig Moffett, whom I consider to be the smartest telecom analyst around, was forced to blame the market. “I think it just shows you that the market doesn’t really understand these issues,” he said.

The theory of the wisdom of crowds suggests that the markets have noticed something: the broadband industry hates net neutrality, but its existence has always had a huge and unnoticed upside. Selling broadband is a great business: Moffet has pointed out that the margins are north of ninety-seven per cent. Stated simply, a strong net-neutrality rule locks in the status quo for the most profitable part of the cable industry’s business.

Looking to the future, there’s one last thing that everyone might be wrong about. The general assumption is that the new rules will be met with fierce and protracted litigation (perhaps decades of it, warn the greatest doomsdayers). I’ve said myself that there will be litigation, and it is true that, in our times, most serious regulation is immediately challenged in court, almost as a kind of corporate reflex. Verizon and A.T. & T. have both already threatened to sue. But maybe this prediction is wrong, too.

For one thing, given the jump in stock prices, filing a lawsuit will technically be suing to invalidate rules that seem to have created billions of dollars of shareholder value for the broadband providers. For another, suing the F.C.C. tends to annoy the agency, meaning that you might count out A.T. & T. and Comcast, both of whom have pending mergers before the commission. Sprint has already said that it doesn’t mind net-neutrality regulation, and it is hard to imagine a smaller company really wanting to bother. So it probably comes down to whether Verizon or a trade group like the National Cable & Telecommunications Association thinks that it is worth the time, money, and continued uncertainty inherent in trying to knock out the new rules.

http://www.newyorker.com/business/currency/why-everyone-was-wrong-about-net-neutrality