Network Neutrality in Practice

by on May 10, 2006 · 24 comments

Larry Lessig periodically links to this 2000 article in the Prospect about network neutrality. In it, he makes the closest thing I’ve seen to a convincing argument that network neutrality regulation was responsible the Internet’s growth:

But there is one part of the Internet where end-to-end is more than just a norm. Here the principle has the force of law, and the network owner cannot favor one kind of content over another or prefer one form of service over another. Instead the network owner must keep its network open for any application or use the customers might demand. Competitors must be allowed to interconnect; consumers must be allowed to try new uses. In this part of the Internet, “open access” is the rule.

This part of the Internet is–ironically enough–the telephone network, where because of increasing regulation imposed by the D.C. Circuit Court of Appeals in the 1970s–leading to a breakup of AT&T by the Justice Department in 1984 and culminating with the Telecommunications Act of 1996–the old telephone network has been replaced with a new one over which the owner has very little control. Instead, the FCC spends an extraordinary amount of effort making sure the telephone lines remain open to innovators and consumers on terms analogous to the terms required by an end-to-end principle: nondiscrimination and a right to access.

The argument here is that by ensuring that any consumer could call any ISP in his or her area code, the FCC’s regulation of the telephone network had the unintended consequence of imposing a de facto network neutrality rule on telecom companies, thereby ensuring that the Baby Bells couldn’t leverage their ownership of phone lines to control the Internet.

This isn’t a crazy argument. I’m rather annoyed that my local telco, SBC (now AT&T) requires me to get Yahoo-branded Internet service, even if I’d rather connect via another ISP. The fact that anybody could become an ISP by connecting to the public phone network indisputably had a positive impact on competition among ISPs.

Still, this argument doesn’t strike me as being quite right.


The problem is that common carrier regualtions impose a relatively static model on telecom companies. If all we wanted was for the Baby Bells and cable companies to continue providing the services they’ve always provided, a network neutrality rule would work pretty well. If our primary fear is that the quality of broadband service will degrade over time, then it might be possible to craft regualtions that require them to continue providing the services they’ve traditionally provided. Bureacracies are pretty good at getting in the way and slowing down the pace of change.

But I don’t think anyone would be satisfied with merely maintaining the status quo. And when you’re trying to promote innovation and new investment, bureaucracies’ penchant for getting in the way isn’t an advantage any more. When a telecom company is building new infrastructure, it’s not obvious what the appropriate non-discriminatory policies and prices for access to the new infrastrcture might be. And regulatory uncertainty dampens new investment.

Here’s a quick and dirty chart that illustrates the problem:

I should emphasize that this is a very rough effort, which I whipped up in an hour or so. The usual caveats about statistics and lying apply. The pre-1997 data is based on this Wikipedia article (along with a couple of educated guesses for the late 1980s, for which the article didn’t have specific dates). The post-1997 data is based on my personal experience: I had a 56k modem in 1998. I got a 256k DSL line in 2000, a 1 Mbit cable modem in 2002, and a 5 Mbit cable modem connection in 2004. I used 15 Mbit for 2006 because Verizon started to roll out 15 MBit FiOS connections last year, and AT&T is planning to roll out similar fiber service this year.

Now, I was in high school when the 1996 telecom bill was passed, so I’m not going to claim there’s a causal connection between the abandonment of the common carrier regime and the increase in Internet connection speeds. Doubtless one factor was simply that consumer demand for broadband grew rapidly as the Internet went mainstream starting in 1995. Still, I think these data are suggestive. Consider this: between 1981 and 1997, a period of 16 years, the typical Internet connection speed increased by a factor of about 200, from 300 bps to 56k bps. Today, after only 9 years, AT&T and Verizon are rolling out fiber connections that boast speeds of 10-30 million bps–that’s another factor of 200. In other words, the pace of innovation almost doubled,

I don’t think it’s a coincidence that cable modems, the speed leaders for the last 5 years or so, have been classified as “information services” and have therefore been exempt from common carrier regulations since the late 1990s. And it’s also probably not a coincidence that the Baby Bells stepped up their investment in new fiber capacity only after they got regulatory assurances that those facilities, too, would be exempt from common carrier regulations.

In fact, I think you could even argue that the speed increases of the 1981-1994 period understate the extent to which common carrier regulations impeded faster data networks. Keep in mind that the speed increases were almost entirely the result of the ingenuity of modem companies who figured out how to squeeze more and more data over a voice channel. The 28.8k modems of 1994 were transmitting data over a line that was little different from the line used by 300 baud modems in 1981. Only in the mid-1990s did the Baby Bells start making infrastructure improvements, first modestly (when they introduced quasi-digital phone lines that allowed 56k modems) and then with a vengeance with the introduction of DSL services.

Are there other explanations I’m not thinking of for the above trend? Can anybody see any problems with my numbers?

  • http://www.gbgames.com/blog GBGames

    I think the argument against regulation is clear, but no one seems to have an answer about potential abuses. There aren’t many ISPs where I lived, and I don’t believe there is that much choice where I am now. If I want high speed Internet for cheap, I must go with an ISP that has terrible customer service and only one package. If I want good service, I have to go with an ISP that doesn’t have very good speeds available in any of its packages.

    So if the ISP I pick starts to degrade the service for a particular website, such as Google and Yahoo vs MSN, my choice would be to go to a different crappy ISP that will probably do the same with whatever other sites it chooses. That’s not really a choice at all, is it?

    If one business pays for better service, what guarantee do I have that the service of another business won’t arbitrarily be degraded by the ISP? Market pressures would be a better argument if there was some choice involved.

    I’m convinced that regulation is bad, but I don’t believe anyone here has addressed the concerns of the net neutrality proponents. Each article I read argues a completely different point entirely.

  • http://www.techliberation.com/ Tim

    GBGames: You’ll get no argument from me that the status quo is well short of the ideal broadband marketplace. Cable franchise reform would be one good incremental step in the direction of more competition. I believe that PFF’s DACA project (which co-blogger Adam Theirer has contributed to) points to competition policy as an alternative to the traditional common carrier regime.

    Are there other pro-competitive measures that you think free-market types should be paying more attention to?

  • http://www.gbgames.com/blog GBGames

    I think the argument against regulation is clear, but no one seems to have an answer about potential abuses. There aren’t many ISPs where I lived, and I don’t believe there is that much choice where I am now. If I want high speed Internet for cheap, I must go with an ISP that has terrible customer service and only one package. If I want good service, I have to go with an ISP that doesn’t have very good speeds available in any of its packages.

    So if the ISP I pick starts to degrade the service for a particular website, such as Google and Yahoo vs MSN, my choice would be to go to a different crappy ISP that will probably do the same with whatever other sites it chooses. That’s not really a choice at all, is it?

    If one business pays for better service, what guarantee do I have that the service of another business won’t arbitrarily be degraded by the ISP? Market pressures would be a better argument if there was some choice involved.

    I’m convinced that regulation is bad, but I don’t believe anyone here has addressed the concerns of the net neutrality proponents. Each article I read argues a completely different point entirely.

  • http://www.techliberation.com/ Tim

    GBGames: You’ll get no argument from me that the status quo is well short of the ideal broadband marketplace. Cable franchise reform would be one good incremental step in the direction of more competition. I believe that PFF’s DACA project (which co-blogger Adam Theirer has contributed to) points to competition policy as an alternative to the traditional common carrier regime.

    Are there other pro-competitive measures that you think free-market types should be paying more attention to?

  • Dave

    This may sound good in theory. In practice however it’s a different ball of wax. The FCC has sided again and again with the big telco’s. Independent CLECs that are not facilities based will be gone next year, thank you FCC. The FCC has also ruled that the telco’s don’t have to share fiber with ISPs or CLECs. The telco’s feed fiber to an area’s phone switch then don’t have to wholesale out the copper lines beyond the fiber because they don’t have to share the fiber! The list goes on and on since the republican’s have been in office and had control of the FCC. It’s the same old story: it’s about money. Quite frankly the telco’s are using the regulating powers of the FCC to basically declare the 1996 Telecom Act null and void without bad publicity. Notice all the mergers in the Telco industry the last few years? They are slowly and quietly putting Ma Bell back together again.

    Net Neutrality? Give me a break. If the Congress does not protect it the Internet will be lifeless enity in a couple of years. Remember the phone system before the break up of Ma Bell? In many parts of the country you used the phone that the phone company provided. (and charged you for)Phones were hard wired to the wall, cordless phones didn’t exist and the only answering machines you could use were what you bought from the phone company and paid out the wazoo for. Long distance was so expensive if you wanted to call your cousin 4 states away everyone gathered together to make the call on Sunday when rates were cheaper.

    You say that’s ancient history and those day’s are over? I work with these companies everyday and the only thing they have learned is that they screwed up when they had a chance to make the internet an unregulated monopoly because they were short sited monopolists. Now they are trying to fix that mistake by getting rid of the real innovators (ISPs)and putting their monopoly back together. The consumer will suffer but so will tons of other people if net neutrality isn’t protected by congress. Neutrality and innovation are what has made the net what it is today. If it’s not protected look for lot’s of layoffs in the technology fields.

  • http://www.techliberation.com/ Tim

    Dave,

    If the FCC has sided again and again with the big telcos, why do you think giving them more power by enacting NN regulations would improve matters?

  • Dave

    This may sound good in theory. In practice however it’s a different ball of wax. The FCC has sided again and again with the big telco’s. Independent CLECs that are not facilities based will be gone next year, thank you FCC. The FCC has also ruled that the telco’s don’t have to share fiber with ISPs or CLECs. The telco’s feed fiber to an area’s phone switch then don’t have to wholesale out the copper lines beyond the fiber because they don’t have to share the fiber! The list goes on and on since the republican’s have been in office and had control of the FCC. It’s the same old story: it’s about money. Quite frankly the telco’s are using the regulating powers of the FCC to basically declare the 1996 Telecom Act null and void without bad publicity. Notice all the mergers in the Telco industry the last few years? They are slowly and quietly putting Ma Bell back together again.

    Net Neutrality? Give me a break. If the Congress does not protect it the Internet will be lifeless enity in a couple of years. Remember the phone system before the break up of Ma Bell? In many parts of the country you used the phone that the phone company provided. (and charged you for)Phones were hard wired to the wall, cordless phones didn’t exist and the only answering machines you could use were what you bought from the phone company and paid out the wazoo for. Long distance was so expensive if you wanted to call your cousin 4 states away everyone gathered together to make the call on Sunday when rates were cheaper.

    You say that’s ancient history and those day’s are over? I work with these companies everyday and the only thing they have learned is that they screwed up when they had a chance to make the internet an unregulated monopoly because they were short sited monopolists. Now they are trying to fix that mistake by getting rid of the real innovators (ISPs)and putting their monopoly back together. The consumer will suffer but so will tons of other people if net neutrality isn’t protected by congress. Neutrality and innovation are what has made the net what it is today. If it’s not protected look for lot’s of layoffs in the technology fields.

  • Dave

    Net Neutrality should be passed by CONGRESS not the FCC. It should be an act to outlaw any owner of any lines blocking traffic that that person’s customer wants. As it stands now the Telco’s want to block VOIP services on DSL and fiber lines that their customers pay for. They also want to adjust bandwidth for competing services and websites thereby giving preference to their own or to the highest bidder. If congress doesn’t stop this it will be the end of the net as we know it.

    This pretty much the understanding that I got from reading material sent to me by one of the ISP trade groups.

  • http://www.techliberation.com/ Tim

    Dave,

    If the FCC has sided again and again with the big telcos, why do you think giving them more power by enacting NN regulations would improve matters?

  • Dave

    Net Neutrality should be passed by CONGRESS not the FCC. It should be an act to outlaw any owner of any lines blocking traffic that that person’s customer wants. As it stands now the Telco’s want to block VOIP services on DSL and fiber lines that their customers pay for. They also want to adjust bandwidth for competing services and websites thereby giving preference to their own or to the highest bidder. If congress doesn’t stop this it will be the end of the net as we know it.

    This pretty much the understanding that I got from reading material sent to me by one of the ISP trade groups.

  • DigitalMaven

    “Net Neutrality? Give me a break. If the Congress does not protect it the Internet will be lifeless enity in a couple of years.”

    That above statement may be one of the most “ill-informed” and “factually devoid” arguments I have read recently, and I’ve seen a bunch. Whoever authored this little ball of wit should recuse himself from further discussions until such time as logic, reason and sanity begin creeping into the frontal lobe.

  • DigitalMaven

    “Net Neutrality? Give me a break. If the Congress does not protect it the Internet will be lifeless enity in a couple of years.”

    That above statement may be one of the most “ill-informed” and “factually devoid” arguments I have read recently, and I’ve seen a bunch. Whoever authored this little ball of wit should recuse himself from further discussions until such time as logic, reason and sanity begin creeping into the frontal lobe.

  • fowl

    Here’s the thing–I trust innovation and invention via the market WAY more than I trust the members of Congress to fairly regulate the internet. It’s just too hard to unring the regulation bell…

  • fowl

    Here’s the thing–I trust innovation and invention via the market WAY more than I trust the members of Congress to fairly regulate the internet. It’s just too hard to unring the regulation bell…

  • Ant

    I do agree that rules and bureaucracy are much more likely to stifle innovation than encourage it – and can’t the companies involved in this debate (Google and company on one side, telcos on the other) reach a compromise that eliminates the need to bring our hapless elected officials into the fray? Let the market do its thing!

  • watcher

    It seems to me that the answer to the problem isn’t increased regulation but increased competition. I don’t know what factors cause the monopolies/duopoloies that exist in most markets, but something needs to be done about it. Competition is sure to increase with satellite, high-speed wireless, and fiber optic technologies developing, but in the meantime, if we could find a way to allow multiple high-speed providers into every market, that would do a far better job of preventing net abuses than any amount of government regulation.

  • Ant

    I do agree that rules and bureaucracy are much more likely to stifle innovation than encourage it – and can’t the companies involved in this debate (Google and company on one side, telcos on the other) reach a compromise that eliminates the need to bring our hapless elected officials into the fray? Let the market do its thing!

  • watcher

    It seems to me that the answer to the problem isn’t increased regulation but increased competition. I don’t know what factors cause the monopolies/duopoloies that exist in most markets, but something needs to be done about it. Competition is sure to increase with satellite, high-speed wireless, and fiber optic technologies developing, but in the meantime, if we could find a way to allow multiple high-speed providers into every market, that would do a far better job of preventing net abuses than any amount of government regulation.

  • Net Chick

    Competition is key to keeping costs down for consumers. Why should one ISP get to dictate how the entire internet is going to be? That doesn’t sound very “neutral” to me. Google is trying to take advantage of big ISP companies to get a free ride. Why shouldn’t they have to pay for top billing?

  • Net Chick

    Competition is key to keeping costs down for consumers. Why should one ISP get to dictate how the entire internet is going to be? That doesn’t sound very “neutral” to me. Google is trying to take advantage of big ISP companies to get a free ride. Why shouldn’t they have to pay for top billing?

  • stevens33

    Government regulation, when it comes to the internet is and always will be a bad idea. I cannot support such a clearly foolish plan and I worry that the issue will become politicized.

  • stevens33

    Government regulation, when it comes to the internet is and always will be a bad idea. I cannot support such a clearly foolish plan and I worry that the issue will become politicized.

  • http://www.gbgames.com/blog GBGames

    watcher: I think it is very difficult to have multiple phone companies or multiple cable companies in an area if each company is expected to string up their own lines. So now the problem becomes one of infrastructure and who owns it. There isn’t an incentive to spend tons of money when your competitors can get access to those lines, but at the same time customers probably won’t like having redundancy in terms of wiring to their homes just so they can have a choice of competitors.

    Bigger companies have the means to create some awesome infrastructure. Smaller companies don’t. The free market would mean that bigger companies can become even more competitive, leaving smaller companies to either die or merge. Hence, duopolies and why AT&T is now pretty much composed of its baby bells again.

    When a company that provides such services gets large enough, the barrier to entry gets too high, I think. How does a new competitor enter a market in which they must first build up their own infrastructure to compete with an existing infrastructure? When selling regular products, you simply need a store front and the customers come to you, or you use some kind of a mailing system like USPS or UPS or Fedex. Those services don’t need to lease the roads to send their delivery trucks. On the other hand, electric, phone, and cable companies get pretty much a guaranteed monopoly because once you put the infrastructure in place, it is like putting up your own private road and barring other companies from using it.

    I once again admit ignorance of the details. Perhaps competition between telephone companies can exist without legally requiring one company to lease its lines to the other company at cost, but if it was possible, I imagine we would have seen it by now. The only other alternative would be government control of the lines, leasing them to any company, but then that goes back to larger government and regulations.

    Government enforced net neutrality is probably not a good thing, but so far the market hasn’t shown me that I can go to Google and MSN without worrying about Yahoo having somehow paid to degrade my experience with its competitors. Or that I could go to a website supporting a political view without another view somehow getting the ISPs to degrade its opposing viewpoint to the point of restricting free speech.

    And competition only works if an ISP can spring up on the basis that it supports all manner of speech and allow me to see the Green or communist or anarchist or libertarian or whatever party that the other ISP for some reason has troubles with due to sufficient GOP/DNC money. I doubt such a competitor will be able to exist since I don’t see how the infrastructure can be built. I don’t see cities being happy having multiple sets of cable wires, especially if one set is only marginally better.

  • http://www.gbgames.com/blog GBGames

    watcher: I think it is very difficult to have multiple phone companies or multiple cable companies in an area if each company is expected to string up their own lines. So now the problem becomes one of infrastructure and who owns it. There isn’t an incentive to spend tons of money when your competitors can get access to those lines, but at the same time customers probably won’t like having redundancy in terms of wiring to their homes just so they can have a choice of competitors.

    Bigger companies have the means to create some awesome infrastructure. Smaller companies don’t. The free market would mean that bigger companies can become even more competitive, leaving smaller companies to either die or merge. Hence, duopolies and why AT&T; is now pretty much composed of its baby bells again.

    When a company that provides such services gets large enough, the barrier to entry gets too high, I think. How does a new competitor enter a market in which they must first build up their own infrastructure to compete with an existing infrastructure? When selling regular products, you simply need a store front and the customers come to you, or you use some kind of a mailing system like USPS or UPS or Fedex. Those services don’t need to lease the roads to send their delivery trucks. On the other hand, electric, phone, and cable companies get pretty much a guaranteed monopoly because once you put the infrastructure in place, it is like putting up your own private road and barring other companies from using it.

    I once again admit ignorance of the details. Perhaps competition between telephone companies can exist without legally requiring one company to lease its lines to the other company at cost, but if it was possible, I imagine we would have seen it by now. The only other alternative would be government control of the lines, leasing them to any company, but then that goes back to larger government and regulations.

    Government enforced net neutrality is probably not a good thing, but so far the market hasn’t shown me that I can go to Google and MSN without worrying about Yahoo having somehow paid to degrade my experience with its competitors. Or that I could go to a website supporting a political view without another view somehow getting the ISPs to degrade its opposing viewpoint to the point of restricting free speech.

    And competition only works if an ISP can spring up on the basis that it supports all manner of speech and allow me to see the Green or communist or anarchist or libertarian or whatever party that the other ISP for some reason has troubles with due to sufficient GOP/DNC money. I doubt such a competitor will be able to exist since I don’t see how the infrastructure can be built. I don’t see cities being happy having multiple sets of cable wires, especially if one set is only marginally better.

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