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Regulation’s Hidden Perils
By Marina Krakovsky
Government plays a crucial
role in ensuring successful
markets, says Wharton’s Gerald
Faulhaber. Online and elsewhere,
that’s easier said than done.
In the summer of 2006, the nation’s largest Internet service providers duked it out with the likes of Google, Yahoo, and Microsoft over proposed laws that could forever change the economics of both their industries. The battle, fought on Capitol Hill and in the op-ed pages, raged over “net neutrality,” the push to prevent Verizon and Comcast from introducing multitiered pricing for broadband Internet services. Wharton’s Gerald Faulhaber, Professor of Business and Public Policy, Management, and Law, seemed above the fray, coolly and logically unraveling the issues. But that’s not to say he has no opinion.
The argument of the Internet purists — that we should treat every bit of data the same — “is impossibly easy to knock down,” says the former AT&T executive and veteran of such debates.
Suppose someone has a heart attack and the paramedics whisk him off to the ER, says Faulhaber. En route, they hook him up to a cardiac monitor, which uses wi-fi to transmit the ECG to the hospital. The setup’s a marvel of the modern Internet, unimagined by the network’s founders. “But guess what? A bunch of teenage boys are downloading the latest Pamela Anderson video.” In a genuinely democratic, bit-is-a-bit-is-a-bit world, the potentially life-saving ECG has no priority over Ms. Anderson’s video. Equally urgent and valuable are spam, viruses, and worms. But, in fact, customers want their ISPs to block spam, Faulhaber points out. The purists don’t have a case.
Faulhaber systematically dismantles the practical pro-neutrality arguments, too — more on that later — and in so doing hits on some of his favorite themes, especially regulation and anti-trust. After studying the weak evidence that discriminatory pricing is actually occurring, he wrote in a 2007 paper, “If net neutrality is the solution, what exactly is the problem? What exactly is it that needs to be fixed? At this point, it would appear that the problems are all potential problems, not actual problems.”
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