What you need to know about net neutrality

With a recent court decision there have been several stories about what is now known as net neutrality. What is net neutrality? What will it mean going forward, and what are the aspects beyond the general news stories?

First we will look at what exactly is the internet? how does net neutrality play into the way the internet actually works.

What is the internet?

Before we go into net neutrality we need to first understand what the internet really is. Basically it is a network of connected server computers, personal computers, and other devices. What the internet actually does is package up data in to a set of protocols (known as internet protocols, or IP) and deliver those packages, or packets, to distant users. When you search in Google, you are asking for particular data packets to be delivered to your pc, laptop, or tablet. When someone types your URL into a web browser it sends out a request to receive your websites data. Data is delivered through the network and it is based on a package provided by internet service providers, or ISP’s.

Now the net neutrality facts

Basically the premise behind net neutrality is Americans are paying a premium for priority of the delivery of the data packets through ISP’s. Some people do not have the luxury of paying for these highly efficient networks, thus creating an uneven playing field.  What net neutrality will do is eliminate these pay, or premium, for priority plans and deem all data as equal. So packets of data coming from a buyer’s signed contract through a business channel will be treated the same as someone downloading or streaming grumpy cats latest video hit through a home channel. Sounds like something that should be just fine, right? Think of other data neutral forms of communication that we have had in our lives. The postal service is a great example. All letters are treated equally, right? But to our individual needs, how is the data prioritized to us? Would a letter from the IRS seeking return have a higher priority than the local car ad? How would you feel if the IRS letter never arrived? Can you see the possible ramifications for net neutrality?

Moving forward with net neutrality

What this means is we could have slower connections. Businesses typically pay a premium for faster speeds, meaning faster data packet delivery and requests. With the ruling of net neutrality these premiums will not matter, data will be considered equal. We know some information is simply more important than other information. Price is usually a way for ISP’s to allocate resources and the bandwidth we have in the network is a resource. Let’s look at this further.

What is rarely mentioned about net neutrality?

We often forget in economics there is a role for supply and demand. Believe it or not there is a scarcity to the way the internet network was built. We cannot simply stream video all day long and expect other people to do the same. There are restrictions as to what the network can handle. This is where the role of price comes in. Price allow companies to properly prioritize their capacity. It is also where companies can gain a competitive advantage. If you can promise your customer your website will be up and running at all times, which you will pay a premium for, it can give you an edge over your competition.


Net neutrality still has to play out in the courts and through other government channels, so the changes listed here may or may not take effect in the near term. However, the debate goes on about exactly what the government should regulate