No enclosure of the internet

Victory for a democratic internet say the proponents; "Obamacare for the internet" says the opposition. The US Federal Communications Commission passed "net neutrality" yesterday and it's the proponents who are right. These rules are a more or less unalloyed good.

Net neutrality is, in a word, a prohibition against broadband networks' charging differential fees depending on the content that is being transmitted. A 2-minute FT video explains the concept and this long analysis gives more detail. For those seeking to be entertained as well as enlightened, oatmeal.com has a (pro-neutrality) explainer in comic book format.

In the broad debate, net neutrality is about freedom of choice: the activists who have fought successfully for the principle object to how networks can use their price structure to direct users to or away from certain types of content. The horror scenario is that the networks' throttling of Netflix while the film streaming provider was negotiating access fees will become a regular occurrence.

As for the more technical arguments, the economics of net neutrality is fairly clear. Economic models show that content-based price discrimination allows networks to capture the value of the highest-quality consumer experience. That capture in turn removes the incentive for generating better content in the first place, so content is likely to be worse in consumers' eyes. Similar research demonstrates that the industry's principal objections are wrong: it is not true that competition can fully substitute for neutrality rules; nor is it true that such rules will reduce investment by internet service providers. The academic behind this research argues that net neutrality should apply to mobile networks as well.

No wonder, then, that much of the doom-saying has proved unfounded, as Tim Wu's New Yorker column points out. Not only did people falsely predict that it would be politically impossible to pass net neutrality, Wu writes, the opponents were also wrong about the danger to them: "the moment that [FCC chairman] Tom Wheeler announced his plans for strong net-neutrality rules, on 4 February, broadband stocks jumped and they have stayed buoyant".

This should not have come as a surprise to interested Americans bothering to look beyond the country's borders. A New York Times reporter visiting the Netherlands, where similar rules were introduced two years ago, found that "the new law was not the Internet Armageddon that many Dutch telecommunications companies, industry lobbyists and some lawmakers had predicted".

Be careful what you wish for (and be grateful if you lose), seems to be the message to the industry lobbyists. Wu suggests that net neutrality actually locks in their huge profit margins in broadband provision. That makes him think that another much-repeated prediction, that this is only the beginning of years of costly litigation to undo the new rules, is incorrect as well.

If this victory of activists and consumers over a politically influential industry is more secure than often thought, then one can only hope they will not rest on their laurels but campaign for US internet users finally to get decent broadband speeds.

Insider warring

It's not just the Oscars that are better predicted by financial traders than by so-called experts. So is Vladimir Putin's rogue imperialism. A riveting column by Leonid Bershidsky reports research showing that the activity of well-informed traders in Russian stock futures spiked before Russia's little green men in Crimea were generally recognised for what they were - and before the share prices of Gazprom and other Russian companies plummeted as a result.

Weekend readables

  • Michael Pettis has a new, long analysis of the eurozone debt crisis. A few weekends back, Free Lunch recommended an earlier piece of his, which showed that the crisis is a conflict not between European countries, but between debtor and creditor classes across countries. The new article argues, quite rightly, for the necessity of debt restructuring.
  • Against complaints that Greece has not done enough, Zsolt Darvas shows just how much more the country has adjusted than other recipients of eurozone rescue loans.
  • Quartz reports on research showing that one-third of the difference between people's savings behaviour may be genetically determined.

Numbers news

  • What's the opposite of stagflation? The Swedish economy, in deflation and with negative interest rates, stepped on the growth accelerator with 1.1 per cent quarterly growth in October-December.

To receive Martin Sandbu's Free Lunch by email every workday, sign up here.

Get alerts on Columnists when a new story is published

Copyright The Financial Times Limited 2018. All rights reserved.

Follow the topics in this article