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Net Neutrality: A Tax on the Internet

By Mike Jude, researcher at Stratecast (a division of Frost & Sullivan)

Broadband is the new infrastructure on which the 21st century economy is being built. As such, its ubiquity, accessibility and cost to U.S. consumers are critical to our financial future. Net neutrality -- the idea that data on the Internet should be moved without regard to content, destination or source -- has the potential to distort the parameters built into the business models of broadband operators in such a way that will increase expected risk and significantly discourage further industry investment. As a result, the average American citizen will pay the price.

A recent study I conducted for Stratecast estimated the effects that net neutrality regulations would have on consumers and the greater U.S. economy. Our model attempted to look at such regulations on broadband operators through the eyes of a CFO, who is charged, both from a legal and business perspective, to invest the funds of the company wisely. The model indicates that in the presence of net neutrality, investment in infrastructure would decrease, our economy would suffer with job losses, and the costs would ultimately be borne by the consumer.

The most negatively impactful of net neutrality options, strict non-discrimination, would tend to increase operators' costs by anywhere from $20 billion to $40 billion annually. If the operator were unwilling or unable to recover the costs from the subscriber base, then the model predicts that the operator would likely curtail network investment. This would not only lead to an eroding infrastructure, but also to an alarming erosion of jobs and overall economic growth.

Each Internet job spurs additional jobs within the economy. By our estimate, as many as 3.7 million jobs currently depend on the Internet, driving direct and indirect salaries and wages of up to $370 billion. Net neutrality regulations would have a drastic effect on jobs and the economy, and they would impact almost immediately. In 2011 alone, new regulations could impose a seven billion dollar a year overhead on the economy, with a commensurate impact of over 70,000 jobs.

In a scenario where operators would maintain investment in broadband infrastructure, they would be forced to adopt other methods for covering deployment costs, such as creating expensive service bundles or passing along costs to content providers.

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