We return with the next installment in our Deadly Sins of Net Neutrality series:

“Net Neutrality exempts the huge content providers from contributing to the next generation of the Internet”

So here’s the basic gist: Google, Amazon, eBay and friends have made billions upon billions through the Internet and they want to make billions more by providing you with all sorts of high-tech, high-bandwidth applications. Sounds great.

The catch? They don’t want to help pay for the expanded broadband infrastructure that these new technologies will require.

The good news for them? Net neutrality prevents the pipe owners from offsetting some of the investment costs by charging the big content providers more for massive bandwidth use.

The bad news for you? Guess who is going to be offsetting those expansion costs if net neutrality becomes law.

As students around the country are leaving behind their studies and moving on to summer jobs, backpacking trips around Europe or auditions for the next installment of Survivor, we here at Hands Off the Internet are getting back to our studies — or in this case, a study by the American Consumer Institute called “Net Neutrality and the Effects on Consumers.” You can read the whole thing in PDF format.

The bottom line: “restrictions on price, product and service differentiation would result in higher prices for lower income broadband consumers, which would result in significantly lower industry demand and revenue, deterring investments in next generation network and reducing consumer welfare.”

In short, net neutrality regulations would have a negative impact on the average Internet user. Here are other findings from the summary:

This study also finds that restrictions on multi-sided market pricing would mean that consumers lose $69 billion in potential benefits over the next 10 years. In effect, net neutrality regulations would require consumers to pay all of the upgrade costs of the next generation Internet and prohibit voluntary commercial agreements that would lower consumer broadband prices.

Net Neutrality regulations would also increase the price of broadband services, because it increases the cost of the network that provides those services. Because broadband services are very price sensitive, just a $5 increase in price could lead to a 15% drop in total broadband subscribership and a 60% decline in demand for lower-income, price sensitive consumers. In summary, this study finds that Internet regulations would harm consumers and agrees with an earlier finding by the FCC1 – namely, that Internet regulations would impede investment, reduce broadband demand and raise consumer prices. In summary, net neutrality is not, by all accounts, about helping consumers.

More numbers and charts in the full study itself — unless you’re heading out to the lake or the movie theater, check it out. In fact, bring it along — it can’t be any worse than this.

Edward Norton and Paul Giamatti may be able to conjure something from nothing in the movies, but in real life it’s a bit harder. Not that it’s stopped supporters of Internet regulations from claiming that there will be problems if a “net neutrality” law hasn’t passed.

Luckily, our own Chris Wolf published an op-ed in the International Herald Tribune (that’s the overseas version of the New York Times) last week titled “The illusion of ‘net neutrality.’” Pointing out basic facts of court law, he makes it clear why it would be such a mistake to take them seriously:

[C]ourts regularly are confronted with theoretical conflicts that have not yet occurred and they regularly refrain from meddling. As a matter of prudence, the judicial branch of government will not rule on such cases as they are not “ripe” for review. Claims that rest upon future events that may never occur routinely are thrown out of court.

One reason courts refrain is that it is difficult, if not impossible, to fashion appropriate remedies in the abstract without harming the parties and the public interest.

In policymaking, too, in the absence of a real problem, there is a substantial risk of “solutions” harming the companies making the investment in - and responsible for - the Internet infrastructure, and of harming the public interest in the rapid build-out of the next-generation Internet.

Without knowing what constitutes a bull’s eye, it is difficult if not impossible to aim relief. The courts know this to be the case when they are presented with hypotheticals. In the case of regulated “Net neutrality,” policymakers would be wise to exercise similar restraint. To imagine a new department of Internet regulation is to glimpse the nightmare of unintended consequences.

When you have common sense on your side, you don’t need to be a magician. And unless you can see the future, a wait-and-see approach makes the most sense of all.

We’ve talked off and on about the probability that Internet video could lead to a disastrous bandwidth crunch. And we’re not the only ones. Voice over IP requires reliable packet delivery, and the About VoIP blog recently touched on this issue:

The whole net neutrality debate was sparked, from what I interpret, when Internet providers felt they had to apply a tiered price structure for connections based on expected usage. Fact is, if we suddenly had the billion or so current Internet users all using VoIP and/or IPTV simultaneously, the current infrastructure couldn’t handle it. (Correct me if I’m wrong.)

Nope, that’s a pretty good estimate — and a lot better than the politically-charged interpretations coming from pro-”neutrality” activists.

We all probably want faster connection speeds, and they’re coming, but will take time to roll out. What could come sooner is a new set of video compression codecs … coupled with high-power graphics cards sporting their very own quad cores or more. If our graphics cards were powerful enough, and we used super-crunched video formats, we might possibly reduce bandwidth requirements down to a point where every Internet user could potentially watch Internet TV simultaneously.

Interesting. Hey, sounds great to us. But as good as quad core is, we should still be building out our broadband infrastructure, especially in fiber-to-the-home. No reason we can’t have both.

We were surprised to see TechDirt’s over-the-top reaction to one of our posts this week, “Hands Off the Wireless Spectrum.” If our characterization of their position as “reluctant” was wrong, we apologize. But we have nothing to apologize for in terms of our legitimate and substantive role in this important public policy debate.

Our focus is on the nation’s broadband needs and on the facts. Facts are neither honest nor dishonest — they are the facts — and people can reach their own conclusions over what the facts mean in terms of whether we need new laws on net neutrality. We happen to think we don’t need new laws, because the facts we have been pointing out for some time are these:

• There is no problem to solve. Nobody has shown that there have been any meaningful breaches of basic neutrality on the web. Pro-regulation activists have tried to make case studies out of AOL, Cox and a Canadian telecom firm, and none of those bore out. (This may have something to do with why you never hear about those situations anymore). Broadband providers are committed to a robust, uncensored Internet and also aware of the consumer outcry if they provide anything less.

• Nobody has effectively argued that current laws are insufficient to deal with any possible market abuses that could potentially arise in the future.

• More fathers of the Internet, including Dave Farber and Robert Kahn, have come forward to express their reservations about imposing net neutrality laws than have come forward to support such laws. That is because regulation has the real potential of adverse unintended consequences.

• It is probable and even likely that in the not-too-distant-future, worldwide demand for broadband will exceed existing capacity. A massive new build-out to handle that capacity is needed, and net neutrality would effectively require broadband providers to pass the cost of that build-out on to consumers exclusively.

• The Internet has never been “neutral” in the way that net neutrality activists claim. There is no utopia to return to; the Net has always been a mishmash of “best effort delivery” networks and loose agreements. Having smart networks, which net neutrality regulation would prohibit, will help to rationalize and improve the existing situation.

• In Canada, where a similar debate is occurring, their CTC bureaucracy is so mired in red tape they can’t even remove online death threats against human rights attorney Richard Warman.

• Dorgan-Snowe’s first effect would be to freeze the broadband marketplace exactly where it is, disallowing not just theoretical abuses but new innovations, too.

• The United States ranks 16th worldwide in access to broadband Internet.

• Hands Off the Internet has always endorsed the four principles of net neutrality: Consumers are entitled to access the lawful Internet content of their choice; Consumers are entitled to run applications and use services of their choice, subject to the needs of law enforcement; Consumers are entitled to connect their choice of legal devices that do not harm the network; Consumers are entitled to competition among network providers, application and service providers, and content providers.” We even took out a print ad last year to say so.

TechDirt, maybe we’re not so different. If we agree that the basic ideas of net neutrality are inoffensive but mandating them into law could be a disastrous move, then there’s more to agree on than disagree

We don’t know very much about the blog Alonline except that it is probably written by a guy named Al, and that Al definitely works in the telecom field. One other thing we know is that he makes a great case about why “net neutrality” legislation would be a bad deal for consumers:

Working in a telecommunication company I can understand the immense investment that is required to get a measurable increase in Internet speed for customers. Just working on a very local level can involve digging up roads, buying land for equipment to stand on, and a lot of very expensive equipment. When you come to the connection to the backbone then you are looking at considerably more expense as you head into units that have figures like 256Gbps in their description. And when you see what these units need to do then you realise why they cost so much. However the cost of the units is nothing compared to ensuring that the fibre optic network they connect to has the capability to carry the volume of data required - quality fibre optic cable is not cheap at all. So if a telecommunication company cannot realise any major revenue from upgrading these expensive items what do you think it’s going to do? Spend and be damned, or wait until it has to spend and then spend as little as possible? As you can see, offering the telecommunication companies an opportunity to charge the service provider companies that use the most bandwidth might be the only way that the Internet can get a chance to expand to have any redundancy and spare capacity. So it might, actually be worth voting against Net Neutrality from now on - at least if you hope to get speeds above a couple of Mbps.

If you’re reading this now and you’re in the position of voting on net neutrality, two things: 1) Hello, Senator or Representative! It’s good to have you here. 2) Alonline has a point.

With each passing week, it seems more and more voices are stepping into the debate about “net neutrality” — and many (perhaps even most) of them are adding new points about why net neutrality legislation would be a big mistake.

Try David Cowan, a venture capitalist and blogger, who recently posted an extremely insightful essay about the claims and realities of the proposed legislation. It’s clear and concise, but even better, it tackles the “FedEx analogy” with important detail that’s worth quoting at length:

The call for net neutrality is superficially appealing, in the same way that it’s easy to oppose free trade in defense of your countrymen’s jobs. But just like regulating imports, regulating ISPs with rules on net neutrality is short-sighted and, in the long term, terrible for both businesses and consumers. It’s politically incorrect to say so, it’s likely to get me flamed, and Google won’t like me for saying it, but it’s true.

Market forces will, as they always have, drive innovation on the internet. ISPs will find ways to accelerate and guarantee delivery with all sorts of interesting new services, and businesses who can deliver more value to their consumers through better internet performance can afford to pay for them. Should Fedex have been prohibited from competing against the Post Office, so that “big corproations” wouldn’t have an advantage over the little guy? Of course not.

Proponents of net neutrality would counter that Fedex doesn’t hurt the performance of old-fashioned mail, while express lanes for packets will necessarily slow down “free packets” pushed to the back of the line. On the contrary: allowing ISPs to profit from delivering express services for special classes of traffic will directly lead to the rapid development of additional internet capacity. There is no limit to the number of lanes one can build on the information highway, unless of course you regulate and cripple the only entities capable of building those lanes.

As we’ve long argued, net neutrality would almost certainly hinder investment in new broadband capacity, while allowing the pipe-owners to innovate will spur more innovation and investment. And Cowan has a great find in the quote he uses to lead his post. We’ll use it to end this one:

“People who demand neutrality in any situation are usually not neutral but in favor of the status quo.” — Max Eastman

We couldn’t have said that better ourselves.