Sometimes corporate leaders say the darnedest things.
Take, for instance, Netflix CEO Reed Hastings, who during a recent earnings call compared the Internet industry to the power industry. Hastings’ comments are part of his argument that the Federal Communications Commission should regulate the web like a public utility under Title II of the 1934 Communications Act.
“It is like power distribution where it’s a natural monopoly in the last mile,” said Hastings. “There should be one fiber or one cable going to a home with super-high speed and that’s the architecture of the future. So everything around it being a utility is great for Internet companies like ourselves and it’s great for consumers.”
Not so fast. The Internet and power industries are virtually nothing alike. While a “natural monopoly” makes sense in the context of electricity, it has long proved ineffective in the case of communications policy. Rather, the longstanding approach to communications policy has been to encourage competition, a successful model that uses market principles — not regulation — to produce consumer benefits.
The power industry adopted the ‘regulated monopoly’ model for very good reasons. The production of power is a massive undertaking; it makes little sense for multiple enterprises to create duplicate systems, and the close regulation of a single authorized provider helps keep costs down for customers. Experience has shown, in fact, that regulated power markets have lower costs than deregulated ones.
The Internet marketplace is far more dynamic, meaning a heavy government hand is more likely to hurt consumers than help them.
The differences between the Internet and power industries don’t stop there. The reason homes are served by one electricity wire couldn’t be simpler. Customers are paying for electrons — nothing more. Regardless of where their power comes from, customers simply want the lights to come on when they flip the switch. And in the end, regardless of whether an electron began its life in a nuclear reactor or a solar panel, the customer simply can’t tell a difference.
The Internet, on the other hand, is vastly different. Internet service providers and networks vary widely both technically and in the broad range of content, products and services that high-speed networks deliver to consumers. Web traffic — billions of information packets traveling across multiple networks — is far more complex than just electrons traveling through the cable entering your home. Netflix certainly sends its share of content through America’s web infrastructure. In fact, the viewing of Netflix videos consumes up to 30 percent of the nation’s Internet bandwidth. I should know; as a Netflix customer, I do my fair share of binge watching.
The truth is that Reed Hastings is using a bad analogy to push an even worse idea. He wants to use the FCC regulations for a competitive advantage. He believes this will help Netflix maintain its dominant place in the market by making it harder for smaller content providers to find innovative new ways to compete and by reducing competition in the Internet marketplace. Regardless of whether it is in the best interest of consumers, and it’s likely not, he wants his company to dominate a single portal into American homes. Who could blame him, really, but does anyone believe the same speeds and prices would be available under his preferred approach?
Public policy has taught us time and time again that what is one industry’s treasure can be another industry’s trash. That couldn’t be truer in the case of regulation, which has worked to the benefit of power customers nationwide but which likely will spell trouble for Internet users. It’s hard to blame Netflix for trying to stack the deck in its favor, but its CEO’s comparison of the Internet industry to the power sector just does not hold water with those of us who understand the energy industry. We can protect Internet openness without government regulating the web as if it were a public power utility.
Lance Brown is the Executive Director of the Partnership for Affordable Clean Energy (PACE).Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
