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Saturday, June 18, 2016

Net Neutrality is Bad

If you care about open internet and understand the basic principals of a free market you will understand Net Neutrality is bad.

One major assertion by Net Neutrality proponents is that without it, new businesses and internet startups will be hindered. It is exactly the opposite. The current way of doing business helps big business and hurts the little guy. Applying the principals of a free market will help you understand why.

Think of the internet like a pipe transferring water. Each packet of information (every video, picture, or web page) is contained in drops of water. Some things, like videos, are composed of many drops of water while other are composed of fewer drops of water. Further, some websites send more drops of water per user than other. For example, a website that has more ads will have to send more drops of water through the pipe to their users than a website that has chosen not to have as many ads. Also, websites like Netflix that are heavily used use up vast amount of the 'water' that runs through the pipe that is the internet. Unfortunately, eventually the pipe will fill up and no more water will be able to be sent through. At this point, the ISPs must invest money in order to build a second pipe or to install a wider pipe in order to let an expanding amount of data 'water' through.

So the question becomes, who pays to install the pipe expansion? With Net Neutrality forcing the ISPs to price all information the same, small startup websites are paying a disproportionate amount of the cost to expand that pipe when it fills up.

The issue here is a misunderstanding of how a market works. A market works off revenue. If you were to figure out the number of packets of information a website, such as Netflix, uses, you could then divide that by the total revenue of the website. A small website will have a much smaller revenue/information packet than a large website will. So if small websites are making less money per packet, that means that a higher percentage of their revenue will go toward expanding the pipe. This puts large business at an advantage economically because a smaller amount of their revenue is going toward the ISPs.

In a free market internet, websites like netflix who use up vast amounts of data will be charged for that. Net Neutrality unfortunately assumes linear scaling for website revenue, which is the only way it could work. Anyone who has run a website knows that revenue does not scale on a liner curve. If ISPs are able to charge however they wanted, there would also be competition that would drive the price down. Under Net Neutrality, the ISPs are only able to compete based on their price per packet. If they are able to choose how to charge not just what to charge it will open up another area of competition which can only lead to a better deal to the end user.

The real ones who want Net Neutrality? Netflix, Youtube, Video Games companies. They want to keep their prices low, while everyone else's prices skyrocket.