Two-sided platforms to every story
On network neutrality and the inter-industry fight to preserve the open internet
In a split 3–2 decision along partisan lines, the Federal Communications Commission voted to repeal the Commission’s 2015 Open Internet Rules banning internet service providers from prioritizing online content. Unlike in 2014, a groundswell of public sentiment failed to sway FCC Commissioner Ajit Pai’s one-man mission to deregulate the internet at any cost. Repealing network neutrality is an unequivocal victory for AT&T, Comcast, and Verizon, whose executives no doubt are popping bottles and breaking out the cigars. Of course, the battle isn’t over. Like past decisions, today’s ruling will likely be fought in the courts for years to come and already multiple state attorney generals have lined up to sue the FCC over the controversial decision.
Before we engage in a collective gnashing of teeth and rending of garments that is social media in 2017, let’s put today’s repeal into perspective. The network neutrality debate is typically framed as a conflict between carriers and consumers, but it is also helpful to think about the debate as a simultaneous struggle between carriers and internet content providers like Netflix, Google, Facebook, or Reddit. This is because broadband ISPs are an example of what economists call two-sided markets, which serve as an intermediate good joining in this case content providers and end consumers. While all the attention has been on the consumer side of this two-sided market, what about the relationship between ISPs and edge providers?
When this debate first started back in the early 2000s, edge providers were small start-ups celebrated for their innovative potential. Network neutrality rules were a necessary check on the market power of hulking telecommunication giants. So long as ISPs 1) maintained their monopoly over the last mile wire to the home and 2) could backwards integrate with content, non-discrimination rules were necessary to level the playing field for all internet content providers.
This idea had a long vintage going back decades to the FCC’s Computer Inquiries, which left highly competitive data and information services unregulated, but saddled telecommunication services then monopolized by AT&T with complex injunctions and non-discrimination rules, preventing telcos from picking winners and losers in the data services market. This distinction between unregulated information services and heavily regulated telecommunication services lies at the heart of present-day controversy over whether to regulate ISPs as public utilities.
But now in 2017, we face a very different situation than in the early 2000s. Unregulated edge providers are not pets.com or askjeeves.com, but the Amazons, Facebook, and Googles of the world — multi-billion dollar companies whose scale and scope eclipses even Comcast or Verizon. While I favor strong network neutrality rules for market dominant ISPs, I do so recognizing that these rules do little to address large tech companies whose online platforms are operated in a decidedly non-neutral fashion.
Indeed, paid prioritization is the core business model not for telecos, but for social media companies through pinned tweets, paid content, and algorithmic content optimization. Concern over protecting political speech and online censorship during last year’s election was directed not at AT&T, but instead Facebook, whose reach has transformed your favorite way to share cat pictures and embarrassing college moments into a leading news distributor for better or for worse. For all of the talk of Comcast throttling internet traffic, internet content providers that can afford to peer their servers can essentially create dedicated fast lanes to end consumers. (In an irony of ironies, Ajit Pai in his statement today cited precisely these practices for why network neutrality needed to be repealed in order to treat ISPs and edge providers on the same footing).
While consumers generally stand to benefit from network neutrality rules, large content providers have arguably gained even more. In treating all internet traffic equally, last-mile broadband providers are generally blocked from charging bandwidth-intensive content providers more to transit their traffic. Such was the heart of the three-year dispute between Level 3 Communications — the content delivery network for Netflix — and Comcast over peering agreements and transit fees for streaming Netflix content. Especially as broadband ISPs integrate more with content companies like the proposed AT&T-Time Warner merger, internet content providers are rightfully worried that a repeal of network neutrality rules will not only endanger the foundational principles of a free and open internet, but more simply will raise their transit costs to access end consumers.
Unlike in years past where tech companies were at the forefront of fighting for network neutrality rules, Apple, Google, and Facebook among others sat out the fight this time around. Their collective silence speaks volumes on the changing market politics of online platforms. Entrepreneurial origin myths aside, such companies can no longer pretend to be plucky upstarts. Their concentration of technical and economic power now poses a political risk that Google or Facebook would rather have people forget. In an industry once praised for its competitive intensity, the market power of big tech raises similar concerns to the age-old monopolies of the phone company and its progeny.
If we, as consumers and citizens, are committed to a free and open internet, today’s disappointing FCC ruling should not distract from the broader push for less market concentration, more competition, and stronger consumer protections at both ends of the wire. Granted, agency regulation and antitrust enforcement have tended to go after carriers of content rather than content providers. But competition between edge providers is no longer a sufficient safeguard in an era of integrated platforms, which affords unimagined anti-competitive behaviors.
Should Google or Facebook, therefore, be classified and regulated as a public utility? Or perhaps could antitrust officials break up large tech companies? The current political climate militates against either option (at least in the U.S.), but just as the market power of Comcast and Verizon contributes to a profoundly unequal internet, so too can massive online platforms.