Beyond Network Neutrality

Abstract

In this Article, Professor Yoo takes issue with the emerging scholarly consensus in favor of "network neutrality," which would prohibit network owners from employing proprietary protocols or entering into exclusivity agreements with content providers that would reduce the transparency of the Internet. Economic theory suggests that network neutrality advocates are focusing on the wrong policy problem. Rather than directing attention on the market for Internet content and applications, the segments of the industry that are the most competitive and the most likely to remain that way, communications policy would be better served if the focus were placed on the segment of the industry that is the most concentrated and protected by entry barriers, which in the case of broadband is the last mile. Furthermore, network neutrality is something of a misnomer. Standardizing protocols would inevitably favor certain applications over others and would place the government in the unfortunate position of picking technological winners and losers. The regulatory tools needed to implement network neutrality are also likely to prove ineffective in a world in which communications are increasingly decommodified and in which technological change has become increasingly dynamic.

Most importantly, network neutrality threatens to make things worse by reinforcing the sources of market failure in the last mile and dampening incentives to invest in alternative network capacity. Instead, Professor Yoo proposes a "network diversity" approach that would use product differentiation to encourage investment and to mitigate the supply-side and demand-side scale economies associated with the impact of up-front, fixed costs and by network economic effects. Network diversity can thus make it possible for three different last-mile networks to coexist: one optimized for traditional Internet applications such as e-mail and website access, another for security-sensitive applications like e-commerce, and a third for time-sensitive applications such as VoIP. Although the welfare implications and institutional considerations are complex, in the end Professor Yoo concludes that the policy balance tips in favor of network diversity.