The damaging effects of a flawed Internet creation myth

[Commentary] In his 2003 article on network neutrality, Tim Wu made a fundamental error: He conflated product differentiation with price discrimination. This error has resulted in the promulgation of a flawed Internet creation myth — namely, that price and product differentiation on behalf of Internet service providers must be banned in order to preserve the Internet as its originators intended it to be. Wu asserted that his neutrality principle is “a tradeoff between upward (application) and downward (connection) neutrality. If it is upward, or application, neutrality that consumers care about, principles of downward neutrality may be a necessary sacrifice.” These broad statements echo the Internet creators’ acceptance of pricing flexibility and ongoing commercial innovation.

Unfortunately, Wu’s erroneous conflation of price discrimination, product differentiation, and non-neutrality has fed a movement calling for bans on virtually all changes to ISP price structures. The net neutrality crusade now threatens the ability of commercial Internet innovation to proceed in step with technical innovations, in the manner that the Internet’s creators expected. At the end of the day, a less dynamic Internet ecosystem means fewer new applications and less innovation in fields that desperately need it, including health care, financial systems, and the fight against homelessness. Regulators — and potential “converts to the faith” — should consider this when evaluating the credibility of advocacy underpinned by the modern network neutrality creed.

[Howell is general manager for the New Zealand Institute for the Study of Competition and Regulation and a faculty member of Victoria Business School, Victoria University of Wellington, New Zealand.]