Enlarge /. President Donald Trump at a "Make America Great Again" rally in Phoenix, Arizona on August 22, 2017.
Getty Images | AFP contributor
A new White House report claims without convincing evidence that the abolition of consumer protection laws in the broadband industry has increased real incomes by tens of billions of dollars a year. Including an alleged improvement in "consumer protection," the report claims an annual benefit of more than $ 100 billion in eliminating rules for net neutrality and data protection.
The February 2020 "Economic Report of the President" claims that "the Trump administration's decree to restore internet freedom increases real income by more than $ 50 billion a year and consumer welfare by nearly $ 40 billion a year becomes". This refers to the Federal Communications Commission's repeal of network neutrality regulations and the associated deregulation of the broadband industry.
The White House report also claims that Congress and President Trump have decided to drop broadband privacy regulations to create "an additional real income of about $ 11 billion a year". This financial benefit will double over the years, the report said. "After 5 to 10 years if these effects are fully realized, the total impact on real income is estimated at $ 22 billion."
The President's Report covers all of these allegations on a little over three pages in a section entitled "Internet Access Savings." The report claims that the Obama-era net neutrality rules hurt Americans in this paragraph:
Before the Trump administration, another FCC rule passed in 2015 restricted ISPs' vertical pricing agreements, i.e., monetary transactions between ISPs and Internet content providers such as Netflix and Yahoo. The 2015 rule also included government supervision over communications services, making it difficult for these companies to respond quickly to competition and offer new goods and services on the market. These vertical prices and other restrictions will be lifted by the FCC's Internet Freedom Restoration order to restore regulation of ISPs under Title I of the Communications Act.
How did the repeal of these rules lead to an increase in "real income" of $ 50 billion a year and an increase in "consumer prosperity" by $ 40 billion a year? The White House report supported this conclusion by referring to a 2008 DSL DSL sharing study that the White House describes as follows:
Previous research shows that vertical broadband price restrictions significantly reduce the quantity and quality of services received by broadband consumers. For example, Hazlett and Caliskan (2008) investigated "Open Access" restrictions that apply to DSL (US Digital Subscriber Line Service) but not CM (Cable Modem) access. They found that three years after the restrictions on DSL services were relaxed in 2003 and 2005, US DSL subscriptions increased by approximately 31 percent compared to the trend, while US CM subscriptions increased compared to Trend increased slightly. The average revenue per DSL subscriber declined, while the average revenue per CM subscriber remained constant (although the quality increased). At the same time, DSL and CM subscriptions in Canada, where there were no regulatory changes, did not increase compared to the trend. If we apply these results to ISPs in 2017-27, we will see that by abolishing vertical pricing rules through the Trump Administration's "Restoring Internet Freedom" regulation, real income is more than $ 50 billion a year and that Probably the consumer will grow by almost $ 40 billion a year.
However, the FCC's network neutrality rules hardly met the old DSL requirements for line sharing. With the rules for the sharing of lines, DSL Internet providers can offer services over the telephone lines controlled by established telephone companies, so that consumers can choose from many DSL providers instead of just one.
Unlike line sharing, net neutrality rules have not addressed the competitive problem that is giving many Americans the choice between just one or two high-speed carriers today. Instead, the rules prohibited certain types of anti-consumer behavior that ISPs are more likely to pursue when they have virtual monopolies over Internet access. The Obama era rules prohibited blocking, throttling, and paid prioritization. Forced ISPs to be more transparent about prices and the consequences of exceeding data limits; and gave consumers more legal options to complain about harmful business practices.
The White House analysis not only clumsily equated line sharing with net neutrality, but also ignored what happened in the years when the rules on net neutrality were in effect. Ajit Pai, chairman of the FCC, claims that the net neutrality rules have reduced investment in broadband networks and that the removal of the rules has caused providers to expand their networks. In reality, industry data touted by the cable industry shows that broadband speeds have risen while net neutrality rules have been enforced, and large ISPs admitted to investors that net neutrality rules didn't affect network spending. FCC data show that broadband networks grew at about the same rate before and after net neutrality was lifted.
Even this modest growth is now at risk as AT&T, Comcast and Charter cut capital investments. If anything, the evidence suggests that regulation and deregulation have little impact on broadband growth. As AT&T told the FCC in 2010, capital investments are based on technology upgrade cycles and should not increase year on year. Capital investments are, of course, "lumpy" and go up and down from year to year based on specific needs at certain times, AT&T said at the time.
Step 1: end data protection rule. Step 2: ? Step 3: profit
However, the opt-in provision never came into effect, as the Republican-led Congress in March 2017 voted to remove the rule before it was enforced and Trump signed the lifting. Since the rule never came into effect, ISPs were never forced to change their business practices. If Congress and the White House had not taken any action, the opt-in rule would have come into force in December 2017 or later.
This is how the new White House report describes the rule change:
Before 2016, ISPs were allowed and often allowed to use and share personal customer information, such as browsing history on the Internet, unless the consumer "refused" to share data. With so many consumers sticking to the default sharing option, ISPs could earn revenue from both subscriber fees, as measured by the industry's consumer price index (CPI), and the use or disclosure of customer data. Accordingly, by receiving customer data, ISPs were able to achieve the same profits with a lower subscription fee. In fact, consumers paid for their subscriptions partly with money and partly with personal data.
The report then claims that "the removal of the FCC opt-in has resulted in lower prices for wired and wireless Internet services." Using consumer price index (CPI) data, the report states that wired and wireless declines "are approximately $ 40 per subscriber over the life of the subscription."
However, the White House report does not explain why Congress's measures to prevent the enforcement of a data protection rule that never came into force are the only factor that causes prices to drop. The report also does not point out that CPI broadband data excludes rural services and is based only on prices in urban areas. In addition, a White House chart only includes data for 2016 and 2017, with no mention of government CPI data showing that internet prices have risen again since 2018.
The same data used in the White House report also suggests that wired broadband prices fell 3.6 percent and 3.8 percent over the period from Title II 2015-2017 (Network Neutrality Rules) have risen since the Trump FCC voted to reverse the Obama FCC policy. "Research director Derek Turner of the Free Press consumer protection group said today to Ars. Turner also described problems in the White House's allegation about falling mobile phone prices:
Although the White House also recognizes the decline in quality-adjusted prices for cellular services, the reality here is that since the end of the Great Recession during Obama's first term, this index has seen a steady decline and a very sharp decline at the beginning of 2017. However, this decline is not due to the feelings of the industry regarding the regulation of Title II, but rather that this price index was strongly influenced by the return of unlimited data tariffs with which T-Mobile and Sprint brought AT&T back in autumn 2016 and Verizon follow a few months later. However, the White House no longer mentioned or considered the data after 2017 and showed that the rate of falling mobile phone prices decreased by 180 revolutions. The upcoming merger of T-Mobile and Sprint heralded the end of the so-called price war.
Despite all of these issues, the White House estimated "a total annual subscription fee saving of $ 11 billion" and attributed the savings entirely to the elimination of data protection regulations.
"One of the fun things about the way people use pseudo-economy in public order is that it can be used to justify all sorts of price cuts and consumer harm other than" efficiency "and then build a model that a correspondingly impressive number of "consumer surplus" that makes everything look fine, "said Harold Feld, a broadband industry expert, senior vice president of consumer advocacy group Public Knowledge, today to Ars." This report is like a master class in this genre. Despite the fact that anyone who pays for broadband can tell you that their bill will continue to rise, we should believe that if you look at the bill correctly, you are actually paying less. "
Feld also pointed out that "much of the supposed" consumer surplus "and" cost reduction "is due to behaviors that ISPs claim do not and never would" such as prioritizing Internet content in exchange for Payment and preference for their own partners.
Even if the report was correct, "it still misses the point that these" efficiencies "and" consumer surpluses "are achieved by ISPs exploiting their market power and their access to our personal information can use, "said Feld. "In economic terms, the alleged efficiency gain and the resulting consumer surplus are completely captured by the oligopoly. To translate into English, you are cheated and asked to love it."