Last week the United States Department of Justice weighed in on "net neutrality," important news for California consumers and legislators.  Net neutrality sounds innocent but means more government regulation of the Internet, which the DOJ thinks is a bad idea. Californians often opt to pay for faster Internet service but net neutrality would ban differential charges for priority traffic.  

"Differentiating service levels and pricing, for example, is a common and often efficient way of allocating scarce resources and meeting consumer preferences," explains the Department of Justice in a September 6 filing with the Federal Communications Commission. For example, the DOJ cites the United States Postal Service which charges more for express mail than bulk delivery. That is a response to market demand and consumer choice, says the DOJ, and nobody proposes that the U.S. Postal Service be "banned from charging different fees for next-day delivery than for bulk mailers."

The DOJ further notes that no one challenges the benefits to society of the "differentiated products," offered by the Postal Service. "Whether or not the same type of differentiated products and services will develop on the Internet should be determined by market forces, not regulatory intervention," says the DOJ filing.

Net neutrality is the latest slogan of the "digital divide," the notion that new technology instantly creates new legions of haves and have-nots, an emergency situation requiring new government regulation. Yet, in their filings with the FCC, organizations such as the NAACP and Jesse Jackson's PUSH coalition did not call for net neutrality, only for expanded access.

Net neutrality proponents fear that companies will block access to websites not to their liking but only a single case of such blockage emerged in thousands of filings with the FCC. As the DOJ observed, "The FCC promptly addressed the issue and commenters submitted no evidence of any such blocking or other harmful conduct since this 2005 incident." Indeed, the Internet is "flourishing" without the kind of regulations neutrality proponents want.

The DOJ cites an "explosion" of usage, including 2.5 billion YouTube videos and e-commerce of $31 billion in the first quarter of 2007, an increase of 18 percent from the first quarter of 2006. That kind of service requires investment, flourishing under current conditions, when broadband providers and ISPs can give priority to, say, streaming telemedicine video over video games. But such investment might not be forthcoming under a new regulatory regime, according to the DOJ filing:

"There is reason to believe that the type of regulatory restraints proposed by some commenters under the mantle of 'neutrality' could actually deter and delay investment and innovation, and result in less choice and higher prices to consumers of Internet services," the Department said.

"Free market competition, unfettered by unnecessary governmental regulatory restraints, is the best way to foster innovation and development of the Internet," says the DOJ filing. "Free market competition drives scarce resources to their fullest and most efficient use, spurring businesses to invest in and sell as efficiently as possible the kinds and quality of goods and services that consumers desire. Past experience has demonstrated that, absent actual market failure, the operation of a free market is a far superior alternative to regulatory restraints."

Remember, this is the United States Department of Justice speaking, not the Milton Friedman Foundation or the economics department at the University of Chicago.
The Federal Trade Commission (FTC) also has doubts about net neutrality, which consumers and policy makers can read about in Net Gains or Net Losses: The Net Neutrality Debate and the Future of the Internet, released by PRI in August.

Net neutrality would mean higher prices, less investment, and fewer choices. That is why governments, including California's, should not impose a one-size-fits-all regulatory regime masquerading as neutrality. Without such a regime, Internet ubiquity and diversity will continue to expand for all Californians.