How Might Federal Net Neutrality Regulations Affect Economic Inequality?
In 2018, the Federal Communications Commission (FCC) lost the authority to regulate broadband Internet access services. This decision was a reflection of the Trump administration’s view that unregulated business will yield innovation and economic growth. One effect of this decision was that federal net neutrality regulations were repealed.
Net neutrality is the idea that internet service providers (ISPs) should treat access to all sites equally, regardless of content. Without net neutrality regulations, ISPs can do two main things: block access to websites or throttle content—i.e., they can slow internet connection speeds to specific websites.
Understanding the misuse of blocking is quick. An ISP cannot, for instance, block streaming services like Netflix to push you to buy their cable TV.
Understanding the misuse of throttling takes more of an explanation. For example, at 8:00 p.m. on a Friday, many people watch Netflix, a website that requires transmitting a high volume of data. Since internet connections have a limited bandwidth or data capacity that can be uploaded or downloaded simultaneously, ISPs may slow down everyone’s Netflix internet speed, resulting in less data per second used by each customer. When each person uses a smaller portion of the available bandwidth, more people can use Netflix at the same time. However, throttling can be misused by ISPs if they slow down connections to specific websites to discourage use, pushing customers towards competitors that can afford to pay the ISP to prioritize their sites.
In both cases, the misuse can make the internet an unfair place for businesses to compete. Democrat FCC chair Jessica Rosenworcel does not want America to have an unfair economy. Instead, she wants America to live up to its ideal as the land of opportunity, where people have a fair chance to succeed financially, regardless of background. To meet this ideal, she believes policymakers should restore net neutrality to ensure everyone can benefit fully from the internet age.
In 2019, the Mozilla v. FCC case enabled states to pass their own net neutrality regulations, which only three states have done so far. As such, in the fall of 2023, the Democrat-led FCC voted along party lines to move forward on a proposal to grant themselves regulatory authority over broadband internet access services, allowing them to restore federal net neutrality regulations. The final vote could take place in early 2024. While restoring net neutrality is well-intentioned, doing so could make internet access more expensive for consumers and cause investments into broadband to drop. These factors could make it harder to obtain Internet access, increasing economic inequality and unfairness.
The first reason it could be more challenging to access the internet is increased cost. Under net neutrality, ISPs must maintain equality on the internet, which means ISPs cannot block certain websites or charge different rates to different websites.
However, equal does not mean fair. Some companies use a disproportionate amount of bandwidth. Just nine prominent companies (think Netflix, YouTube, Disney+) are responsible for nearly forty-four percent of global internet traffic. The percentages for the US are likely higher because the US is ranked first in the number of Netflix subscribers and second in the number of YouTube users. Also, the number of Netflix subscribers and YouTube users has increased annually. So ISPs, in addition to maintaining their existing data delivery systems, need to regularly increase those systems’ bandwidth to continue meeting the data demands of popular websites.
To meet this demand, many companies are turning to fiber-optic internet connections over traditional copper cable connections because fiber-optic connections have increased bandwidth capacity and higher speeds, which provide better experiences for data-intensive applications.
Installing fiber-optic cables costs money: an average of $1000 per household. Since ISPs could not charge the most significant traffic drivers on their network additional fees due to net neutrality, the costs would likely trickle down to the ISPs’ customers, making internet access more expensive. While the government could pay, it gets much more of its money from taxpayers (42% in 2021) than large corporations (6% in 2021). Additionally, there are likely other projects with a greater need for tax money than advanced broadband network initiatives, a cost primarily caused by the demand for entertainment.
These increased internet prices (or taxes if the government takes on an expensive broadband project) can mean low-income individuals would face increased difficulties accessing essential services on the internet, such as those required for formal education. Research shows that lacking home internet access hurts standardized test scores. Standardized test scores generally have a positive correlation with GPA, and GPA is a strong predictor of college completion. Lacking a college degree would, in many cases, bar these people from higher-paying jobs, reducing their socioeconomic mobility.
Additionally, without internet access, low-income people might not be able to easily learn about net neutrality or find news of the government’s activity involving it, as news articles covering this information are, by and large, online. So, they may have increased difficulty learning about the FCC’s activities relating to net neutrality or protecting themselves from future regulations that may affect them negatively.
Regarding regulations, the FCC needs regulatory authority over broadband to implement federal net neutrality legislation. And to gain authority, the FCC net neutrality proposal involves reclassifying broadband from an information service to a telecommunications service.
If broadband becomes classified as a telecommunications service, it will become subject to common carrier rules, which allow the FCC to supervise and manage ISPs’ rates and practices. Not knowing what rules the FCC may impose results in regulatory uncertainty, and uncertainty creates risk. Higher levels of risk cause ISPs to be more conservative with how they use investors’ money. Conservative investing in business growth makes it harder for broadband companies to grow substantially in size and profits. Thus, investments in these companies will likely yield less shareholder profit and come with increased risk, making them less attractive to investors.
To illustrate, when the FCC attempted to gain the authority to regulate ISPs and implement net neutrality between late 2010 and early 2015, annual investments in the telecommunications industry were $30 to $40 billion lower than usual. We can use the data for investments in the telecommunications industry because ISPs, like AT&T and Verizon, are a large part of the telecommunications industry.
Furthermore, having fewer interested investors means it will be difficult for ISPs to fund the development of affordable broadband in rural areas. Developing broadband in rural areas is necessary because roughly one in five rural Americans don’t have fixed terrestrial broadband coverage, compared to around one in fifty for urban and suburban areas. In other words, you’re ten times as likely to lack internet coverage if you live in a rural area rather than an urban or suburban one.
Some might argue that rural Americans should use Starlink, a satellite-based internet connection, rather than wait for an ISP to expand their terrestrial network. But Starlink has a downside: it costs $120 per month, often not affordable for people in rural areas.
A survey of offline households revealed that the majority of households where the expense was the main barrier to internet access would use the internet only if it were free. Rural Americans often fall into the category of offline due to the price barrier because poverty is most prevalent in rural America. The issue of internet access in rural America is worse than statistics may indicate because, unlike people in suburban or urban areas, rural Americans cannot easily access free Wi-Fi at their local Starbucks, which means the internet is most inaccessible for those who can least afford it.
Given that the FCC’s current implementation of net neutrality is not a solution to combating economic inequality in the Internet age, what should policymakers focus on instead? One solution to ensuring everyone can use the internet and its essential services may lie in community Wi-Fi networks. These are free-to-use, public networks controlled by the neighborhoods they serve. Volunteers, non-profit organizations, or the government often fund them. Some argue that the community Wi-Fi is unsafe because it’s public. While this may have previously been the case, this is no longer true because 95% of websites are encrypted, which means any information a hacker steals would not be valuable. Those who believe public Wi-Fi is unsafe may also advocate for a virtual private network (VPN), which often charges a monthly fee, to use the internet securely. But, since valuable personal data cannot be stolen due to encryption, using a VPN would be redundant. If anything, VPNs might invade users’ privacy because they will likely sell user data. To sum it up, community Wi-Fi is a good solution that is safe and free to use.
The Democrats have a noble goal: ensuring everyone has a fair chance to improve their financial situation. In today’s world, universal internet access is essential to making that a reality, so net neutrality is not the way forward. If policymakers implement net neutrality, it could hinder socioeconomic mobility and sustain cyclical poverty. America could not benefit from the potential of almost forty million people. Maybe some of these people would have been the next Einstein or led change against the climate crisis. But if they struggle to connect to essential internet services and remain impoverished, it is a loss to us all. No, it is more than that; it is an injustice.