9 December 2022

Net neutrality rules offer a genuine Brexit dividend – ministers should not pass it up


Even the doughtiest Brexiteer would have to admit that the opportunities of leaving the EU have, so far, been squandered. From financial services to agriculture, and trade, we have failed to take advantage of the ability to diverge from and compete with our European neighbours.

That’s partly because many of these areas in which the best Brexit opportunities lie are fraught with political danger. Attempts to reform financial services are likely to be greeted with the same old criticisms about the Tories looking out for their friends in the City, while reforming farming or going for full-fat free trade provokes howls of anguish from the usual producer interests.

But while meaningful progress in these areas looks unlikely in the short-term, that shouldn’t deter the Government from pursuing opportunities in other key areas – not least internet regulation. In 2016, the EU’s Open Internet Access Regulations were imposed by Brussels, which mandated net neutrality.

To recap, net neutrality is the principle that internet service providers (ISPs) may not block, slow, or speed up the transmission of any online content or services. The motivation behind it is commendable: to protect consumers by allowing them unencumbered access to all parts of the internet, and to reduce the possibility of market incumbents erecting barriers to entry for new internet services.

The noble intentions of the policy, however, should not distract from its negative unintended consequences. A new  paper written by the Institute of Economic Affairs’ Matthew Lesh outlines the various ways in which this little-known policy holds back Britain’s telecommunications industry and the ways that the sector could benefit from a different regulatory approach.

A key example is the principle of treating all web traffic equally. By forcing ISPs not to discriminate, the regulations prevent the rational allocation of scarce network resources to their most efficient use. This means that during periods of peak network demand, ISPs are required to run slower services for all network traffic, or forced to buy more equipment, which drives up costs for consumers. Self-evidently, the network speed required for streaming is significantly greater than that which is needed to send an email or share a file, but ISPs are prevented from specialising their service accordingly, which means greater network inefficiency.

Streaming services also share the ISPs’ incentive to deliver a better service for their customers. As such, the market provides an opportunity for companies to invest in the maintenance and innovation of the network in exchange for the ISPs prioritising their customers’ web traffic. By preventing that prioritisation, net neutrality regulations deter investment in British telecommunications, which inhibits its growth and burdens both consumers and taxpayers with greater costs.

In the two years following the introduction of net neutrality rules in the United States, capital investment from the 12 largest American ISPs declined by 5.6% or $3.6bn, demonstrating the tangible costs of limiting their ability to court outside investment from tech companies. Improving network connectivity across the country is a key part of the Government’s levelling up agenda and with the public purse already squeezed, maintaining existing net neutrality regulations means missing out on potential new private investment in the network.

But would that investment come at the cost of an open and dynamic internet?

Proponents of net neutrality have argued that without such regulations, ISPs would engage in predatory market practices, like blocking or charging extra for access to certain services to suppress competition or opposing viewpoints. While theoretically possible, it echoes the widespread but mistaken view that companies operating in a market are unaccountable without prescriptive regulations. On the contrary, free and open markets are an effective mechanism for keeping large companies in check, because the pressures of competition force companies to constantly adapt and innovate around the demands of consumers in order to protect their revenues.

In the case of net neutrality, this principle was echoed by Ofcom, which, in 2011, declined to implement a ‘minimum quality of service’ regulation (de facto net neutrality), instead relying ‘primarily on there being effective competition amongst Internet Service Providers (ISPs)’.

Britain’s regulators should prioritise openness over neutrality. They should allow ISPs to manage network traffic however they see fit and tailor their packages to consumers’ preferences. This would allow ISPs to run their networks more efficiently, attract much needed capital investment from the tech sector, and foster innovation by forcing ISPs to experiment with different packages in order to deliver the best services for consumers.

Net neutrality regulations are a noble attempt to create an open internet, one which is not encumbered by large companies acting as gatekeepers. But network access is a scarce resource, one which requires rational allocation. Only a free and open market is up to that task. Brexit provides an enticing opportunity to foster such a market and we should not squander it.

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Harrison Griffiths is Communications Officer at the Institute for Economic Affairs.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.