California is America’s poverty capital. United Nations poverty experts say that the squalor of tent cities in San Francisco and Skid Row in Los Angeles make the Golden State look like Mumbai. The problem has been building for decades, but the state is doubling-down on policies that have failed to work, cementing a de facto caste system of an underclass to support its high tech professionals. California not only looks like India, it wants to adopt its policies, including the world’s most draconian form of internet regulation, a ban on flexible pricing for internet access.
What is the outcome of India’s restrictive internet regulation?
In 2015 regulatory advocates attempted to implement full price controls on internet access. While they did not succeed at the Federal Communications Commission, they and their counterparts did succeed in India, achieving a complete ban on flexible pricing. India outlawed free, discounted, and subsidized offers under the belief that they are harmful and discriminatory to the purity of the digital elite’s preferred forms of internet access, a position confirmed by India’s Telecom Secretary as the world’s strictest policy. Now that this policy has been in place for three years in India, it’s appropriate to review its effectiveness.
Data from the International Telecommunications Union on internet penetration provides preliminary insight. From 2009-2014, India’s rate of internet adoption (year over year growth) averaged 38 percent, but after 2015, it plummeted to 13.6 percent in the most recent measure. Only 1 in 3 Indians is online today, a ratio that hasn’t budged since the policy took effect. Had adoption remained at its previous rate, there could be as many as 400 million more Indian internet users today, almost doubling of the number of people online in just 4 years.
Of course, the rate of internet adoption has been slowing precipitously around the world because of lack of relevant content and the inapplicability of traditional advertising models to emerging markets. According to internet analyst Mary Meeker, the “easy growth” of internet adoption ended in 2015. But she notes India as the exception, suggesting that the country with 1.3 billion people, of whom just a third access the internet, could still adopt the internet at a brisk rate.
In addition to significant personal and social benefits, internet adoption is important because it improves economic growth. The World Banks suggests that every 10 percent increase in internet penetration in developing countries increases GDP growth by 1.21 percent. Had India not discriminated in favor of a single form of access, it could have improved its GDP by as much as $125 billion today. India’s mobile broadband prices are less than half of the world average, but for a poor Indian, the effective price is two-three times higher because of the cost of a device and electricity.
The value of flexible pricing is underscored by economist William Baumol in Regulation Misled by Misread Theory (Dupuit noted this as early as 1854; Google’s Hal Varian agreed 1996), showing that effective competition drives a variety of price points in the market. Once a broadband network has been built, setting uniform prices as prescribed by regulatory advocates, denies the network operator the ability to recoup costs. In the real world, internet providers have no choice but to offer free and discounted options; the market demands it. While regulatory advocates like to invent concepts for regulatory prejudice such as “zero rating” and “paid prioritization”, these are normal activities across the entire economy and without them, there would be no market for telecommunications.
While India may reject more than a century of economic evidence favoring flexible prices, dozens of emerging countries have embraced free data mobile apps for basic communications, health, employment, government services, and so on. These countries enjoy an internet adoption rates significantly higher than India, now ranked at 143rd of 208 countries measured by the ITU for internet penetration. 1 World Connected, a project at the University of Pennsylvania, is evaluating over 700 projects for broadband adoption to produce evidence-based policy recommendations.
Regulatory prejudice will harm California’s poor, old, minorities, and immigrants
Internet penetration is 76 percent in the US. While this exceeds the world average of 51 percent, it falls short of many developed countries. Increasing internet penetration by 10 percentage points in developed countries has an even higher GDP multiple, 1.38. According to the Pew Research Center, Americans aged 65 and older are least likely to access the internet; at least a third don’t connect for fear of online threats and a belief that the internet has nothing valuable. Of California’s 40 million residents, some 5.5 million are 65 or older. Additionally 4 in 10 Californians live at or near poverty, including 135,000 homeless (about the population of Bellevue, WA), making the state a de facto third-world country. These groups — and some 10 million immigrants — would benefit tremendously from free data and differential pricing to access the Internet. “Ending free internet data is particularly harmful to younger, low-income and minority Californians,” noted the California State Conferences of the NAACP. Nevertheless California Democrats want to prohibit such freedoms.
Like India, the proposed California Internet Consumer Protection and Net Neutrality Act of 2018 bans flexible pricing for internet access. It also includes this ominous language: “Almost every sector of California’s economy, democracy, and society is dependent on the open and neutral Internet that supports vital functions regulated under the police power of the state.” There is no empirical evidence for this statement. Moreover, we should strongly reject that the internet be regulated by the “police power of the state,” a clear violation of the freedom of speech.
It is illegal for California to make its own internet policy, but policymakers do it for symbolic reasons, to win media attention, and to fundraise. Adopting a policy that unduly burdens 2 out of 3 people from getting online can’t be good for California. Leaders should welcome economic instruments that make internet access more affordable and accessible. Promoting internet adoption will improve California’s economy and quality of life.