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The Case for Case-by-Case Treatment

Economist Hal Singer, a principal at Economists Inc., laid out five reasons for priority treatment of Internet traffic in his opening remarks at the Federal Communications Commission’s Oct. 2 panel on the economics of network neutrality.

First: Economists and engineers who have studied the issue of priority service unanimously believe that a market for priority could be a good thing for all parties to the transaction, including broadband customers.

While priority arrangements could be used by an ISP for bad reasons — like favoring its own content or an exclusive app provider — priority could also be used for good reasons. The packets associated with a life-saving telemedicine application demand better treatment than the packets associated with a cat video. Both the app provider and the customer benefit because the customer gets to experience the real-time app in all its glory, and the ISP finds a new source of revenue.

Second: Not only do all parties to the priority transaction benefit, no third party is worse off with priority.

Net-neutrality proponents counter that an upstart app provider that can’t afford the upgrade is worse off, but that’s only the case if the ISP degrades the connection of app providers that decline priority. Were the ISP to keep whole those apps that decline priority, then there is no impairment in any meaningful sense. This is why we need to distinguish between “No Slow Lanes” and “No Fast Lanes.” The former would ban ISPs from degrading service for those who decline priority, while the latter would prevent ISPs from offering any priority. Proponents of strong net neutrality claim, without a shred of evidence, that the mere thought of a priority deal occurring would cause fragile upstarts to shutter.

Third: Priority could be a good thing so long as it is user-directed and users pick up the tab.

Users served by two or more ISPs already have an implicit say on harmful priority deals by voting with their feet. But to make their say explicit, we can involve end users in crafting priority arrangements. As soon as one acknowledges that priority could benefit broadband customers, the claim that all priority should be banned evaporates.

Fourth: Even if the FCC wanted to ban priority outright, there is no guarantee that Title II is up for the task.

Trying to ban priority under Section 706 is what got the FCC’s 2010 order vacated by the [U.S. Court of Appeals for the] D.C. Circuit, which said: “If the commission will likely bar broadband providers from charging edge providers for using their service, thus forcing them to sell this service to all who ask at a price of $0, we see no room at all for ‘individualized bargaining.’ ” Net-neutrality proponents are advising FCC chairman Tom Wheeler that, if he wants to ban all forms of priority, he would be better off using Title II. But even advocates concede Title II would permit priority arrangements.

Fifth: The case-by-case critiques should not persuade the FCC to embrace a blanket prohibition on priority.

As the economic expert in several discrimination cases against cable operators, let me be the first to admit that the FCC’s adjudication process could use some tweaks. It takes too long, can be expensive for upstarts and fails to provide relief even after the plaintiff. But the commission can address these challenges when it designs the ground rules. The costs associated with using a case-by-case approach — even under an imperfect process — pale in comparison to the costs that would be inflicted on the Internet ecosystem from an investment slowdown if we embrace common carriage.