Regulate the Web as If Life Depended on It
Most Americans can’t imagine life without the Internet. They go online to work, to communicate and to get news about the world. If the technorati in Silicon Valley have their way, health care, education and transportation (hello Uber!) will depend on a reliable, fast connection to the Internet too, through wearable devices, tablets and mobile phones.
Even without the current debate about net neutrality -- that wonky fight over Internet broadband speeds -- it seems inevitable that at some point in the future we’ll decide that Internet access is as essential to civilized life as running water, electricity and phone calls. Messaging and self-driving car apps and health records will reside on your phone, along with the videos of panda cubs wrestling with zoo keepers. And you won’t be able to live without any of it.
When that realization hits, it should follow that the Internet service providers --companies such as Comcast and Time Warner Cable now, and likely a company like Google in the future -- will be regulated like utilities. They should be held to a different standard if they provide services that are essential to daily life. Water prices, for example, stay within certain bounds so that wild market swings don’t force swaths of the population to live without the ability to bathe, drink and cook. Remember the debacle of the Enron energy traders and the California power crisis and unnecessary brownouts? Regulating services as utilities is designed, in part, to keep things like that from happening.
But corporations have never been ones to bend over backward and accept oversight, even if it’s for the common good. The Internet service providers are no different.
The regulation battle is being waged around net neutrality, the idea that big companies such as Comcast shouldn’t be allowed to call the shots when it comes to what we can read and watch online. President Barack Obama recently said that the only way to ensure net neutrality is to regulate the service providers like utilities; the cable companies, as expected, have enlisted powerful political allies to shoot that idea down.
There’s a non-ideological argument that’s used against net neutrality that goes like this: The Comcasts of the world should be allowed to pick content winners and losers because it’s the only way to guarantee that they will have incentives to be innovative and improve their services. The logical leap here is a strange one: if broadband carriers can create an uneven playing field for content providers, they will be likely to create better technology and services for consumers.
But the true fight is an ideological one: it’s about whether you believe that regulation is never acceptable and that it’s always a matter of government overreach.
That was the point of U.S. Senator Ted Cruz’s much-maligned tweet about Obama’s net-neutrality statement. When Cruz compared regulation of cable companies to Obamacare it was a shorthand way to say it’s all a version of too much government, even though regulating companies is clearly not the same as creating an insurance marketplace that might actually enrich big insurers and create more customers.
Lost in the rancor, of course, is the reality that being regulated as a utility hasn’t done much to harm the fortunes of the utilities companies themselves. More to the point, government oversight has created some very profitable publicly traded companies that richly reward investors.
Power, water and phone companies have historically been havens for investors during economic downturns. During a recession, people still use their utilities and find ways to pay their bills. Even a company such as AT&T, which has lagged the Standard & Poor's 500 Index during the past five years, posted a total return of 75 percent, including dividends. It now has a 5.2 percent dividend yield, which is typical of utility stocks, too.
The same is true of the five-year total returns of Consolidated Edison (89 percent), Southern Co. (88 percent) and American Electric Power (131 percent), compared with the S&P 500's 104 percent. Not too bad given that these stocks are supposed to underperform during a bull market, like the one we have now.
No matter how the fight on net neutrality turns out, someday we’ll decide that Internet service providers sell a product that’s not an option like cable television, but an essential service. Let's remember that these companies will always do well, whether or not they’re regulated, but that the same can’t be said for their customers.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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James Greiff at email@example.com