Network Neutrality and Termination Fees

by on March 5, 2007 · 38 comments

Tim Wu has an interesting (rough draft of a) short paper here that re-conceptualizes the network neutrality issue as a question of termination fees. He draws a little diagram showing you connected to eBay like this:

wu.jpg

And Wu says:

What is notable is the lack of termination fees, or fees charged to reach customers. That is, your ISP, ISP1, doesn’t charge eBay an additional fee to reach you. Similarly, eBay’s ISP, ISP2, doesn’t charge you any money to reach eBay.

Viewed from this perspective, much of the current network neutrality debate can be cast as a debate over termination fees. The “priority-lane” proposals advanced by AT&T and others can be understood as proposals to begin charging a fee, not for transport, but to reach their customers.

That charging such a fee is possible as a matter of technology and economic power is clear. In our diagram above, in order to reach you, eBay must go through ISP1. In telecom jargon, ISP1 has a “termination monopoly” over you. Provided eBay wants to reach you, it would have to pay the termination charge ISP1 wants to charge. The diagram below shows this.

It seems to me that Wu makes precisely the same conceptual error that Yochai Benkler makes in The Wealth of Networks.


As I said of Benkler’s argument:

Sometimes, highly styized examples like this can illuminate important points by removing extraneous details. In this case, Benkler has done just the opposite: he’s abstracted away all the real-world characteristics of the web that are relevant to this issue. When we add them back in, it becomes obvious that this argument doesn’t work.

I think it’s far from clear that ISP1 has the ability to charge a termination fee to eBay, and I think Wu’s simplified example obscures, rather than illuminates the essential features of the problem. Certainly, they have the ability to threaten to cut eBay off, and to follow through on the threat if they don’t get what they want, but that does not demonstrate that eBay would actually acquiesce.

This is a bilateral monopoly. It’s in the interests of both eBay and ISP1 that the customer be able to access eBay. eBay obviously cares because it loses a customer. ISP1 cares because the price it can charge its customer is proportional to the value of the service, and so the price it can charge for no-eBay Internet access is lower than the price it can charge for unfiltered Internet access.

Looked at from this perspective, it might seem that the ISP has the upper hand because eBay would completely lose access to its customer, while the price the ISP could charge its customer would be only slightly diminished. However, I think three factors are likely to tip things in eBay’s favor. First, ISP1 doesn’t, in fact, have a termination monopoly over the customer in the sense that ISP can entirely block the customer from accessing eBay. People can access the Internet from work, from their neighbors’ WiFi, from friends or families’ houses, from a coffee shop, or a public library. So for a lot of ISP1 customers, cutting off eBay would simply irritate the customer (thereby hurting ISP1) without having much negative impact on eBay’s business. Certainly, if my ISP cut off eBay access, I’d have no trouble doing my shopping at work or at my girlfriend’s house.

Second, the consumer’s reaction to the loss of service would be strongly influenced by whom she perceived to be at fault. If she heard the ISP had cut off service deliberately, she’d be far more likely to cancel her service, switch to another broadband ISP, or call her Congresscritter demanding NN legislation than if she perceived that it was an innocent. Even if none of those options were available to her, she would be far more likely to go out of her way to continue patronizing eBay as a way of sticking it to her greedy ISP. This is why when negotiations between a cable company and a TV network break down, both sides spend so much time and effort trying to convince the public that the other is to blame.

Finally, and I think most importantly, we have to keep in mind that the negotiation would not be between ISP1 and eBay. It would between ISP1 on the one hand and eBay, Google, Yahoo, Microsoft, AOL, Disney, Skype, Blizzard, Apple, etc on the other hand. This adds a serious layer of complication for ISP1. Because even if it can afford to shut off eBay, it certainly can’t afford to shut off the entire Internet (or any significant fraction of it). That would guarantee that a lot of its customers would switch, cancel, or call their Congresscritters.

But eBay knows this. The know that if no one coughs up any money, ISP1 will be stuck, because it won’t be able to switch off everyone’s service at once. Moreover, eBay would know that if it made a deal first, there would be a risk that its competitors might negotiate a lower fee, putting it at a competitive disadvantage. So each website would, individually and collectively, have a strong incentive to refuse to pay ISP1′s toll. And as long as no one broke ranks, there would be nothing ISP1 could do about it.

We also have to remember that there’s more than one company in ISP1′s position, and eBay knows that too. It knows that if it gives in to ISP1′s demands, ISPs 3-8 will smell blood in the water and come around demanding the same price. Therefore, it’s in eBay’s interest to resist ISP1′s demands—even if it costs them some money in the short run—to scare ISPs 3-8 off from trying the same trick.

As I’ve pointed out before, we already have a situation in which the owners of various networks on the Internet try to maximize their profits by charging other networks what the market will bear. So if the broadband ISPs had the market power they needed to charge other networks for access to their customers, that market power would already be reflected in the peering agreements they negotiate with other networks. The fact that tier 1 networks peer on a settlement-free basis is evidence that they have roughly equal bargaining power.

So it seems to me that Prof. Wu is not entitled to simply assume that ISP1 can charge eBay a termination fee. Maybe there’s some clever strategy ISP1 could employ to coerce eBay into paying up, but I haven’t seen anyone explain how such a scheme would work.

  • http://enigmafoundry.wordpress.com eee_eff

    “Certainly, if my ISP cut off eBay access, I’d have no trouble doing my shopping at work or at my girlfriend’s house.”

    Well, this is ignoring the fact that in many markets there is a monopoly of providers. For example, in Saint Louis, you have service from AT&T;, and you really don’t have an alternative in some areas. For example, in some areas cable is available, but not all. Although I did in the past have earthlink, in fact the DSL service was provided by AT&T.; So if a monopoly or near Monopoly player can corner the market, they can cut you off.

    For this reason, I really think the right analogy is with a road system. We may elect in some areas to have a toll road built, but excepting public safety rules (like the largest size of a truck permitted) we wouldn’t ever stand for someone saying: we don’t like your political ideas, so we wouldn’t let you drive.

    The attempts of the National Security apparatus to take control of the internet must not be overlooked either. 1984 is looking closer and closer…

  • http://enigmafoundry.wordpress.com/ enigma_foundry

    “Certainly, if my ISP cut off eBay access, I’d have no trouble doing my shopping at work or at my girlfriend’s house.”

    Well, this is ignoring the fact that in many markets there is a monopoly of providers. For example, in Saint Louis, you have service from AT&T, and you really don’t have an alternative in some areas. For example, in some areas cable is available, but not all. Although I did in the past have earthlink, in fact the DSL service was provided by AT&T. So if a monopoly or near Monopoly player can corner the market, they can cut you off.

    For this reason, I really think the right analogy is with a road system. We may elect in some areas to have a toll road built, but excepting public safety rules (like the largest size of a truck permitted) we wouldn’t ever stand for someone saying: we don’t like your political ideas, so we wouldn’t let you drive.

    The attempts of the National Security apparatus to take control of the internet must not be overlooked either. 1984 is looking closer and closer…

  • http://bennett.com/blog Richard Bennett

    Wu is misrepresenting what net neutrality is really about. When Ed Whitacre said “Google ain’t using my pipes for free” he was talking about his IPTV service, not about Internet subscriber access. Whitacre’s point was that Google can’t stream live TV down Comcast’s video channels, so they aren’t going to be streaming any sort of HDTV down AT&T;’s IPTV fast lane.

    IPTV isn’t an “Internet service”, it’s a private network service just like Cable TV. The fact that it happens to be framed with Internet Protocol doesn’t make it part of the Internet any more than the military networks that use IP are part of the Internet. It’s a private network service that co-exists on the same wire as Internet and phone service.

    All this crap about termination fees is just an obfuscation tactic.

  • http://bennett.com/blog Richard Bennett

    Wu is misrepresenting what net neutrality is really about. When Ed Whitacre said “Google ain’t using my pipes for free” he was talking about his IPTV service, not about Internet subscriber access. Whitacre’s point was that Google can’t stream live TV down Comcast’s video channels, so they aren’t going to be streaming any sort of HDTV down AT&T’s IPTV fast lane.

    IPTV isn’t an “Internet service”, it’s a private network service just like Cable TV. The fact that it happens to be framed with Internet Protocol doesn’t make it part of the Internet any more than the military networks that use IP are part of the Internet. It’s a private network service that co-exists on the same wire as Internet and phone service.

    All this crap about termination fees is just an obfuscation tactic.

  • http://linuxmusicreview.com Diomedea

    Richard:

    I think the biggest challenge here is that it is not possible anymore to distinguish between the Internet and a “private network service” like TV. Is something like YouTube an Internet service or more like TV? At the current level, YouTube is arguably only one of many Internet sites, but I believe in the future the borders between both will vanish.

    Anyway, from my consumer point of view I pay for a service from my ISP. And I want the ISP to be “neutral”. If not, I would be inclined to switch but then as enigma_foundry already argued, there is a practical ISP monopoly in many markets. As long as there is not a significant number of independent ISP choices (and I mean not only 2) there will be a need for regulation.

  • http://linuxmusicreview.com Diomedea

    Richard:

    I think the biggest challenge here is that it is not possible anymore to distinguish between the Internet and a “private network service” like TV. Is something like YouTube an Internet service or more like TV? At the current level, YouTube is arguably only one of many Internet sites, but I believe in the future the borders between both will vanish.

    Anyway, from my consumer point of view I pay for a service from my ISP. And I want the ISP to be “neutral”. If not, I would be inclined to switch but then as enigma_foundry already argued, there is a practical ISP monopoly in many markets. As long as there is not a significant number of independent ISP choices (and I mean not only 2) there will be a need for regulation.

  • http://jerrybrito.com Jerry Brito

    Tim- It’s interesting that this is another exploration of framing the neutrality issue not as one of discrimination, but interconnection. Kevin Werbach has a new paper that makes this case, and I wrote about it here last week. He argues that the Tier 1 networks’ peering arrangement is unsustainable, and recommends mandatory interconnection. -JB

  • http://www.jerrybrito.com Jerry Brito

    Tim- It’s interesting that this is another exploration of framing the neutrality issue not as one of discrimination, but interconnection. Kevin Werbach has a new paper that makes this case, and I wrote about it here last week. He argues that the Tier 1 networks’ peering arrangement is unsustainable, and recommends mandatory interconnection. -JB

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

    Enigma,

    In this particular case, my girlfriend and I both have Charter, and my employer (which is a very small organization) gets DSL from AT&T.; However, there’s also a coffee shop with WiFi access less than a block from my house (which most likely gets access from either Charter or AT&T;), and her school has WiFi access that I would bet money is connected using something beefier than a DSL or cable connection. So if Comcast tried to block eBay, I could shop using my AT&T; connection at work, and if they both blocked eBay, I could still visit her at school when I wanted to access eBay. Definitely a pain in the ass, but my irritation would be directed at Charter and AT&T;, not eBay.

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

    Enigma,

    In this particular case, my girlfriend and I both have Charter, and my employer (which is a very small organization) gets DSL from AT&T. However, there’s also a coffee shop with WiFi access less than a block from my house (which most likely gets access from either Charter or AT&T), and her school has WiFi access that I would bet money is connected using something beefier than a DSL or cable connection. So if Comcast tried to block eBay, I could shop using my AT&T connection at work, and if they both blocked eBay, I could still visit her at school when I wanted to access eBay. Definitely a pain in the ass, but my irritation would be directed at Charter and AT&T, not eBay.

  • http://bennett.com/blog Richard Bennett

    it is not possible anymore to distinguish between the Internet and a “private network service” like TV

    It’s not so hard. Youtube is a Internet-based service, and Cable TV is not; the difference isn’t in the content, but in the source.

    If you pay a cable company for phone, TV, and Internet, you have no expectation that you can mix modes with the three services, do you?

  • http://bennett.com/blog Richard Bennett

    it is not possible anymore to distinguish between the Internet and a “private network service” like TV

    It’s not so hard. Youtube is a Internet-based service, and Cable TV is not; the difference isn’t in the content, but in the source.

    If you pay a cable company for phone, TV, and Internet, you have no expectation that you can mix modes with the three services, do you?

  • http://www.digitalproductions.co.uk Crosbie Fitch

    What one could do is create two Internets:

    A) Regulated, copyright enforced, family-friendly, guaranteed network neutral
    B) Unregulated, copyright agnostic, dangerous, free-for-all business models

    OBVIOUSLY people would flock to Internet A in droves because it would have far greater value…

  • http://www.digitalproductions.co.uk Crosbie Fitch

    What one could do is create two Internets:

    A) Regulated, copyright enforced, family-friendly, guaranteed network neutral
    B) Unregulated, copyright agnostic, dangerous, free-for-all business models

    OBVIOUSLY people would flock to Internet A in droves because it would have far greater value…

  • http://suspendedconversation.blogspot.com Chris Riley

    Tim,

    I’m concerned about the supposed competitive environment across eBay, Microsoft, Yahoo, et al. Relying on the market in this particular context will squeeze out small competitors in the Application Service Provider market – not small competitors in the ISP market, and not established competitors in the ASP market, all of whom will still have a chance.

    Imagine in the early days of Google, before it acquired massive, massive amounts of capital, that Yahoo could have paid off AT&T;, Charter, Verizon, AOL, and other service providers to get them to block Google. Would customers track down one random small ISP that Yahoo failed to pay off in order to use Google? No, because they’d have barely known that Google existed, and would not generate enough demand for the service to weaken Yahoo’s resolve in the slightest. Would Google be able to buy off Yahoo? Not likely. Let’s assume that Yahoo bought off the top 10 ISPs in volume. Let’s further assume that Google only needed to outbid Yahoo for one of these to acquire a user base. Could it do that? Not when it was just an idea of a couple grad students.

    So, a non-neutral Internet translates to an enormous start up cost for new corporations, the exact opposite of the value of the Internet to begin with.

  • http://suspendedconversation.blogspot.com Chris Riley

    Tim,

    I’m concerned about the supposed competitive environment across eBay, Microsoft, Yahoo, et al. Relying on the market in this particular context will squeeze out small competitors in the Application Service Provider market – not small competitors in the ISP market, and not established competitors in the ASP market, all of whom will still have a chance.

    Imagine in the early days of Google, before it acquired massive, massive amounts of capital, that Yahoo could have paid off AT&T, Charter, Verizon, AOL, and other service providers to get them to block Google. Would customers track down one random small ISP that Yahoo failed to pay off in order to use Google? No, because they’d have barely known that Google existed, and would not generate enough demand for the service to weaken Yahoo’s resolve in the slightest. Would Google be able to buy off Yahoo? Not likely. Let’s assume that Yahoo bought off the top 10 ISPs in volume. Let’s further assume that Google only needed to outbid Yahoo for one of these to acquire a user base. Could it do that? Not when it was just an idea of a couple grad students.

    So, a non-neutral Internet translates to an enormous start up cost for new corporations, the exact opposite of the value of the Internet to begin with.

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

    Chris,

    Could you please explain more about how a scheme to block small websites would work? Would our hypothetical ISP1 block every website that hadn’t paid up? Wouldn’t that require them to switch off the majority of the web, since most websites wouldn’t pay up initially? And wouldn’t blocking the majority of websites cause a lot of people to cancel their service, if not file a lawsuit?

    Or, alternatively, would they block websites selectively somehow? If so, using what criteria? Would Yahoo actually go to the top 10 ISPs with a list of websites they wanted blocked? Wouldn’t that generate an enormous backlash—against both Yahoo and the ISP—and a lot of free publicity for the blocked websites?

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

    Chris,

    Could you please explain more about how a scheme to block small websites would work? Would our hypothetical ISP1 block every website that hadn’t paid up? Wouldn’t that require them to switch off the majority of the web, since most websites wouldn’t pay up initially? And wouldn’t blocking the majority of websites cause a lot of people to cancel their service, if not file a lawsuit?

    Or, alternatively, would they block websites selectively somehow? If so, using what criteria? Would Yahoo actually go to the top 10 ISPs with a list of websites they wanted blocked? Wouldn’t that generate an enormous backlash—against both Yahoo and the ISP—and a lot of free publicity for the blocked websites?

  • http://suspendedconversation.blogspot.com Chris Riley

    Tim,

    No, ISP1 would not need to block every website that hadn’t paid up. It can examine packets based on their content, identify streams of data that correspond to a particular type of web service, and block (or at least delay/slow down) any non-sponsored entity offering a web service of a particular type. Let’s look at map services, for example. Online map services almost universally involve ‘map’ or ‘maps’ in the domain name, and they transmit certain types of images and text, in response to queries from a user that contain what look like an address. ISP1 signs a big contract with Mapquest to slow down non-Mapquest map services, on the basis of its ability to go into the packets to detect this data. So if it sees that customer Aaron is trying to communicate with a non-Mapquest map service, like Yahoo Maps, it will set the priority of that traffic to a very low setting, or cap its bandwidth, or perhaps even block it. This is ostensibly to make sure that customer Brian, who is connecting to Google maps at the same time, doesn’t have his packets delayed by Aaron’s non-sponsored map requests.

    Now, if this is really Mapquest v. Yahoo, established large companies, then the two can get into a bidding war, and the winner will be the more efficient and effective of the two services. If ISP1 really does block Mapquest or Yahoo completely, then yes, consumers will complain. But if Yahoo detects this new and neat map service, Google Maps, and it knows it can’t compete, Yahoo can go to ISP1 and ask that the new service (not yet widely adopted by consumers) be blocked completely. Will customers complain? Nah. They’re happy with their choice between Mapquest and Yahoo, and the vast majority of them won’t know about and won’t perceive the loss of the upstart. Sure, an angry message board post might appear on Slashdot, at least if it was completely blocked. And, if the traffic to Google Maps was just slowed down a lot, it would be more likely to be attributed to the server than the ISP, and it’s unclear that anyone (either Google or the customers) would be able to detect the slowness.

    There are still problems with this hypo. The competitor could use an encrypted communications system, I suppose, frustrating the ISP’s ability to tell what is and what is not a map service. It would probably, at the least, have to take ‘map’ out of the URL. But that shouldn’t be necessary.

  • http://suspendedconversation.blogspot.com Chris Riley

    Tim,

    No, ISP1 would not need to block every website that hadn’t paid up. It can examine packets based on their content, identify streams of data that correspond to a particular type of web service, and block (or at least delay/slow down) any non-sponsored entity offering a web service of a particular type. Let’s look at map services, for example. Online map services almost universally involve ‘map’ or ‘maps’ in the domain name, and they transmit certain types of images and text, in response to queries from a user that contain what look like an address. ISP1 signs a big contract with Mapquest to slow down non-Mapquest map services, on the basis of its ability to go into the packets to detect this data. So if it sees that customer Aaron is trying to communicate with a non-Mapquest map service, like Yahoo Maps, it will set the priority of that traffic to a very low setting, or cap its bandwidth, or perhaps even block it. This is ostensibly to make sure that customer Brian, who is connecting to Google maps at the same time, doesn’t have his packets delayed by Aaron’s non-sponsored map requests.

    Now, if this is really Mapquest v. Yahoo, established large companies, then the two can get into a bidding war, and the winner will be the more efficient and effective of the two services. If ISP1 really does block Mapquest or Yahoo completely, then yes, consumers will complain. But if Yahoo detects this new and neat map service, Google Maps, and it knows it can’t compete, Yahoo can go to ISP1 and ask that the new service (not yet widely adopted by consumers) be blocked completely. Will customers complain? Nah. They’re happy with their choice between Mapquest and Yahoo, and the vast majority of them won’t know about and won’t perceive the loss of the upstart. Sure, an angry message board post might appear on Slashdot, at least if it was completely blocked. And, if the traffic to Google Maps was just slowed down a lot, it would be more likely to be attributed to the server than the ISP, and it’s unclear that anyone (either Google or the customers) would be able to detect the slowness.

    There are still problems with this hypo. The competitor could use an encrypted communications system, I suppose, frustrating the ISP’s ability to tell what is and what is not a map service. It would probably, at the least, have to take ‘map’ out of the URL. But that shouldn’t be necessary.

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

    Chris, you’re talking about two different issues: paying the ISP to degrade the performance of high-profile competitors, and paying the ISP to block obscure competitors. I think it’s best to keep the two scenarios separate.

    In the former case, it strikes me as unlikely that this would happen, because it would be obvious to everyone that getting into such a bidding war would be lose-lose for website operators. No website operator could gain a lasting advantage (since the price would be bid up to the point where the winner wouldn’t be able to make a profit), and so it would just be a way to transfer a bunch of money to the ISP.

    In the latter case, I’ll repeat my previous argument: it’s hard to imagine a better source of PR than to have your biggest competitor bribe ISPs to block you. If I were a start-up online map company, I would be praying for Mapquest to do this. Yes, it would prevent ISP1′s customers from getting to me, but it would create a tremendous amount of buzz that would drive customers of other ISPs to my site.

    Remember that the biggest challenge for any small start-up is getting noticed, and that the goal for most of them is to get bought out by Yahoo, Google, Microsoft, or another large company. So the strategy you describe would be a completely ineffective way to stop the growth of new web-based applications. A couple of other points:

    Sure, an angry message board post might appear on Slashdot, at least if it was completely blocked. And, if the traffic to Google Maps was just slowed down a lot, it would be more likely to be attributed to the server than the ISP, and it’s unclear that anyone (either Google or the customers) would be able to detect the slowness.

    This doesn’t make sense. If the slowdown is so minor that no one even notices it, then how is it going to discourage people from using the site? It can’t simultaneously be so minor as to go unnoticed and so major as to give the preferred company a decisive advantage.

    Moreover, there are plenty of tools for measuring very precisely where slowdowns are occurring on a network. At the simplest level, you can measure ping times to a site from different ISPs. If the ping time is significantly higher from ISP1′s network than it is from other networks, that’s pretty strong evidence that the ISP is at fault.

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

    Chris, you’re talking about two different issues: paying the ISP to degrade the performance of high-profile competitors, and paying the ISP to block obscure competitors. I think it’s best to keep the two scenarios separate.

    In the former case, it strikes me as unlikely that this would happen, because it would be obvious to everyone that getting into such a bidding war would be lose-lose for website operators. No website operator could gain a lasting advantage (since the price would be bid up to the point where the winner wouldn’t be able to make a profit), and so it would just be a way to transfer a bunch of money to the ISP.

    In the latter case, I’ll repeat my previous argument: it’s hard to imagine a better source of PR than to have your biggest competitor bribe ISPs to block you. If I were a start-up online map company, I would be praying for Mapquest to do this. Yes, it would prevent ISP1′s customers from getting to me, but it would create a tremendous amount of buzz that would drive customers of other ISPs to my site.

    Remember that the biggest challenge for any small start-up is getting noticed, and that the goal for most of them is to get bought out by Yahoo, Google, Microsoft, or another large company. So the strategy you describe would be a completely ineffective way to stop the growth of new web-based applications. A couple of other points:

    Sure, an angry message board post might appear on Slashdot, at least if it was completely blocked. And, if the traffic to Google Maps was just slowed down a lot, it would be more likely to be attributed to the server than the ISP, and it’s unclear that anyone (either Google or the customers) would be able to detect the slowness.

    This doesn’t make sense. If the slowdown is so minor that no one even notices it, then how is it going to discourage people from using the site? It can’t simultaneously be so minor as to go unnoticed and so major as to give the preferred company a decisive advantage.

    Moreover, there are plenty of tools for measuring very precisely where slowdowns are occurring on a network. At the simplest level, you can measure ping times to a site from different ISPs. If the ping time is significantly higher from ISP1′s network than it is from other networks, that’s pretty strong evidence that the ISP is at fault.

  • http://suspendedconversation.blogspot.com Chris Riley

    Tim,

    I was using Google Maps as a hypothetical small competitor, so really, I was only discussing slowing down or stopping small competitors. Perhaps I would have been clearer had I used a fictitious name, like NewMaps. I also misspoke in saying ‘would be able to detect the slowness’ – I omitted “source”, intending to say ‘would be able to detect the source of the slowness’. You are correct in your observation that, if customers from ISP1, ISP2, and ISP3 all compared ping times to NewMaps, they would be able to determine that ISP1 was heavily slowing down traffic to NewMaps. My contention is in part that NewMaps would not have gained a large enough audience to inspire such a comparison, and in part that this discovery would really pose the sorts of public complaints that you say it would. After all, nobody seriously complaints that they can only use certain types of cell phones with certain providers. That sort of tying works in the cell phone market, but not in the Internet.

    While I have not intended in my previous posts to introduce the bidding war concept [I only intentionally referred to competition among equals in describing the nature of the map-based discrimination], I do agree that no website operator would gain an advantage from it, but could any of them afford not to pay? Isn’t this a classic prisoner’s dilemma, where they all are worse off than if none of them paid, but the one who stops paying first will lose too much market share? Anyway, I don’t want to repeat that debate, as it’s assuredly been made many times in many other contexts.

  • http://suspendedconversation.blogspot.com Chris Riley

    Tim,

    I was using Google Maps as a hypothetical small competitor, so really, I was only discussing slowing down or stopping small competitors. Perhaps I would have been clearer had I used a fictitious name, like NewMaps. I also misspoke in saying ‘would be able to detect the slowness’ – I omitted “source”, intending to say ‘would be able to detect the source of the slowness’. You are correct in your observation that, if customers from ISP1, ISP2, and ISP3 all compared ping times to NewMaps, they would be able to determine that ISP1 was heavily slowing down traffic to NewMaps. My contention is in part that NewMaps would not have gained a large enough audience to inspire such a comparison, and in part that this discovery would really pose the sorts of public complaints that you say it would. After all, nobody seriously complaints that they can only use certain types of cell phones with certain providers. That sort of tying works in the cell phone market, but not in the Internet.

    While I have not intended in my previous posts to introduce the bidding war concept [I only intentionally referred to competition among equals in describing the nature of the map-based discrimination], I do agree that no website operator would gain an advantage from it, but could any of them afford not to pay? Isn’t this a classic prisoner’s dilemma, where they all are worse off than if none of them paid, but the one who stops paying first will lose too much market share? Anyway, I don’t want to repeat that debate, as it’s assuredly been made many times in many other contexts.

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

    My contention is in part that NewMaps would not have gained a large enough audience to inspire such a comparison.

    I personally have friends in the Twin Cities), DC, Boston, Saint Louis, New York, Ann Arbor, Chicago, San Diego, and Seattle. I’m pretty sure that covers all the major Bells and cable companies. If I were running an Internet start-up, I could easily send them each emails asking them to visit the site and tell me if it seemed slow. About a third of them are tech-savvy enough that I could ask them to use tools like Ping and Traceroute to help pinpoint the source of the block. So even if I had no users at all, I could single-handedly orchestrate such a comparison.

    Under your scenario, would the existence of the blocking program and the list of sites being blocked be public or private?

    Nobody seriously complaints that they can only use certain types of cell phones with certain providers. That sort of tying works in the cell phone market, but not in the Internet.

    …which is precisely the point. People are used to cell phones only offering the functionality their carriers choose to give them. In contrast, users now have a decade of experience with ISPs that give them unfettered access to any content they please. Those expectations matter. And if people weren’t sensitive to the issue a couple of years ago, they certainly are sensitive to it today, after more than a year of heated debate over the issue.

    It’s also worth keeping in mind that blocking startups wouldn’t be all that valuable to incumbent websites in the first place. Most startups die in a few years without any help from discriminatory policies. The fraction of market share that a new startup takes is tiny, and the losses are likely to come equally from all incumbents. Paying someone to block a competitor’s site would come across as extremely paranoid and mean-spirited. It would be widely seen as an admission by the incumbent that it couldn’t compete on the merits.

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

    My contention is in part that NewMaps would not have gained a large enough audience to inspire such a comparison.

    I personally have friends in the Twin Cities), DC, Boston, Saint Louis, New York, Ann Arbor, Chicago, San Diego, and Seattle. I’m pretty sure that covers all the major Bells and cable companies. If I were running an Internet start-up, I could easily send them each emails asking them to visit the site and tell me if it seemed slow. About a third of them are tech-savvy enough that I could ask them to use tools like Ping and Traceroute to help pinpoint the source of the block. So even if I had no users at all, I could single-handedly orchestrate such a comparison.

    Under your scenario, would the existence of the blocking program and the list of sites being blocked be public or private?

    Nobody seriously complaints that they can only use certain types of cell phones with certain providers. That sort of tying works in the cell phone market, but not in the Internet.

    …which is precisely the point. People are used to cell phones only offering the functionality their carriers choose to give them. In contrast, users now have a decade of experience with ISPs that give them unfettered access to any content they please. Those expectations matter. And if people weren’t sensitive to the issue a couple of years ago, they certainly are sensitive to it today, after more than a year of heated debate over the issue.

    It’s also worth keeping in mind that blocking startups wouldn’t be all that valuable to incumbent websites in the first place. Most startups die in a few years without any help from discriminatory policies. The fraction of market share that a new startup takes is tiny, and the losses are likely to come equally from all incumbents. Paying someone to block a competitor’s site would come across as extremely paranoid and mean-spirited. It would be widely seen as an admission by the incumbent that it couldn’t compete on the merits.

  • http://suspendedconversation.blogspot.com Chris Riley

    I think this is the heart of the disagreement. I would love to believe that the public is connected and alert enough to care seriously that their Internet choices are being constrained, but I can’t accept that. I am too suspicious that the ISPs will construct the digital jukebox of the Internet, the world where consumer internet access is free and very fast, but grants consumers access only to approved suppliers or approved products. This will be very valuable for the ISPs, who can extract more money from the ASPs than the consumers, and it will be very much appreciated by the consumers who only need to access some sort of usable email, some sort of usable map service, NYTimes.com, and so forth. I imagine you would say that if such a system could run in parallel to a system of open access, then everything would balance out. My fear that is it would be adopted by people who are swayed by the nominal value of their monthly ISP bill, and who fail to properly value the freedom that they are giving up. Not only would these people have made inefficient choices, but they would also greatly shrink the pool of people on the free and open Internet, reducing the amount of money and value in it, and reducing the incentives (in advertising dollars and in general popularity) behind Internet innovation.

    But now I’m stretching the topic beyond its intended aim. My apologies for the side topic, and I appreciate the conversation. I am still trying to understand every side of this issue.

  • http://suspendedconversation.blogspot.com Chris Riley

    I think this is the heart of the disagreement. I would love to believe that the public is connected and alert enough to care seriously that their Internet choices are being constrained, but I can’t accept that. I am too suspicious that the ISPs will construct the digital jukebox of the Internet, the world where consumer internet access is free and very fast, but grants consumers access only to approved suppliers or approved products. This will be very valuable for the ISPs, who can extract more money from the ASPs than the consumers, and it will be very much appreciated by the consumers who only need to access some sort of usable email, some sort of usable map service, NYTimes.com, and so forth. I imagine you would say that if such a system could run in parallel to a system of open access, then everything would balance out. My fear that is it would be adopted by people who are swayed by the nominal value of their monthly ISP bill, and who fail to properly value the freedom that they are giving up. Not only would these people have made inefficient choices, but they would also greatly shrink the pool of people on the free and open Internet, reducing the amount of money and value in it, and reducing the incentives (in advertising dollars and in general popularity) behind Internet innovation.

    But now I’m stretching the topic beyond its intended aim. My apologies for the side topic, and I appreciate the conversation. I am still trying to understand every side of this issue.

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

    I am too suspicious that the ISPs will construct the digital jukebox of the Internet, the world where consumer internet access is free and very fast, but grants consumers access only to approved suppliers or approved products.

    This isn’t a hypothetical situation. What you’re describing is the state of the online market in the early- to mid-1990s, when proprietary networks like AOL, Prodigy, and Compuserve were dominant. It took about 5 years for the Internet to go from an obscure academic network populated by computer nerds to completely dominate the online marketplace. The “jukebox” companies of the day had to be dragged kicking and screaming into giving their customers unfettered access to the real Internet.

    Today, the Internet is vastly larger and more useful than it was 15 years ago, and consumers are far more used to unfettered access. If walled gardens weren’t able to compete in 1994, I don’t see any reason to think they’ll fare better in 2008.

    I appreciate the discussion as well.

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

    I am too suspicious that the ISPs will construct the digital jukebox of the Internet, the world where consumer internet access is free and very fast, but grants consumers access only to approved suppliers or approved products.

    This isn’t a hypothetical situation. What you’re describing is the state of the online market in the early- to mid-1990s, when proprietary networks like AOL, Prodigy, and Compuserve were dominant. It took about 5 years for the Internet to go from an obscure academic network populated by computer nerds to completely dominate the online marketplace. The “jukebox” companies of the day had to be dragged kicking and screaming into giving their customers unfettered access to the real Internet.

    Today, the Internet is vastly larger and more useful than it was 15 years ago, and consumers are far more used to unfettered access. If walled gardens weren’t able to compete in 1994, I don’t see any reason to think they’ll fare better in 2008.

    I appreciate the discussion as well.

  • http://suspendedconversation.blogspot.com Chris Riley

    The early days of AOL, Prodigy et al constituted a locked internet, but if I recall correctly (admittedly I was very young at the time), they did not confer a cost advantage to their customers. They tried to succeed through a content advantage – AOL took subscriber fees to pay for the creation of content which it then locked up so that no non-AOL subscribers could access it. AOL was actually MORE expensive, in the early 1990′s, than my dad’s subsidized dial-in account to his employer, or even than competing private dial-in accounts. So I don’t think the situations are as comparable as you suggest. The future Internet jukeboxes will offer high speed Internet access for free or for nominal fees, like $5 a month; and they will not pay for the creation of content, but will merely mooch some content off of the free Internet. Contrast this with the open Internet, which will cost the same $50 per month that it costs now (for high speed access), perhaps even more with the increasing rollout of fiberoptic lines. Now that seems like a legitimate competition. Except, of course, for the possibility of inaccurate valuation of freedom.

  • http://suspendedconversation.blogspot.com Chris Riley

    The early days of AOL, Prodigy et al constituted a locked internet, but if I recall correctly (admittedly I was very young at the time), they did not confer a cost advantage to their customers. They tried to succeed through a content advantage – AOL took subscriber fees to pay for the creation of content which it then locked up so that no non-AOL subscribers could access it. AOL was actually MORE expensive, in the early 1990′s, than my dad’s subsidized dial-in account to his employer, or even than competing private dial-in accounts. So I don’t think the situations are as comparable as you suggest. The future Internet jukeboxes will offer high speed Internet access for free or for nominal fees, like $5 a month; and they will not pay for the creation of content, but will merely mooch some content off of the free Internet. Contrast this with the open Internet, which will cost the same $50 per month that it costs now (for high speed access), perhaps even more with the increasing rollout of fiberoptic lines. Now that seems like a legitimate competition. Except, of course, for the possibility of inaccurate valuation of freedom.

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

    I don’t understand how this business model works. Isn’t the cable company’s goal to maximize revenue? Why would they offer a crippled Internet for $5/month? That doesn’t make sense, if they can get $50/month for unfettered Internet access (which, let’s remember, doesn’t require them to spend any money developing content).

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

    I don’t understand how this business model works. Isn’t the cable company’s goal to maximize revenue? Why would they offer a crippled Internet for $5/month? That doesn’t make sense, if they can get $50/month for unfettered Internet access (which, let’s remember, doesn’t require them to spend any money developing content).

  • http://suspendedconversation.blogspot.com Chris Riley

    Well this is where it circles back on my earlier assumptions. Their crippling of the internet is a tactic to extract revenue from the application service providers. Some ISPs, a subset of those with a large customer base already, will begin by charging ASPs fees for accelerated service; the prisoner’s dilemma will lead to them paying, assuming the ISP is a large one. Some ISPs will hold out. The first set of ISPs will begin undercutting the second set on price, and can afford to do so because of the ASP fees. The second set will lose customers when the first set lowers its rates enough. To steal more customers from the second set, the first set will raise its ASP fees more, which it can afford to do because of its increased customer base after the first customer price cut; in conjunction with the ASP fee raise, the first set will lower its prices to customers more, will steal more customers from the second set, and so forth.

  • http://suspendedconversation.blogspot.com Chris Riley

    Well this is where it circles back on my earlier assumptions. Their crippling of the internet is a tactic to extract revenue from the application service providers. Some ISPs, a subset of those with a large customer base already, will begin by charging ASPs fees for accelerated service; the prisoner’s dilemma will lead to them paying, assuming the ISP is a large one. Some ISPs will hold out. The first set of ISPs will begin undercutting the second set on price, and can afford to do so because of the ASP fees. The second set will lose customers when the first set lowers its rates enough. To steal more customers from the second set, the first set will raise its ASP fees more, which it can afford to do because of its increased customer base after the first customer price cut; in conjunction with the ASP fee raise, the first set will lower its prices to customers more, will steal more customers from the second set, and so forth.

  • Simon Schlauri

    Tim, you seem to overlook the fact that exactly the cell phone market is giving us the counter-example to your expectations idea: People’s expectation is that it is normal not to use bluetooth or IR to exchange pictures between their phones (which is – like many other functions – impossible because providers would never subsidize phones that include such a function – they want us to use MMS). Obviously most of the people accept this restraint because they simply can’t think of a phone with such a function, even if direct transmission would be much more efficient. It seems to me that phone providers are blocking efficient innovation here, which we probably also have to expect from ISPs in the future.

  • Simon Schlauri

    Tim, you seem to overlook the fact that exactly the cell phone market is giving us the counter-example to your expectations idea: People’s expectation is that it is normal not to use bluetooth or IR to exchange pictures between their phones (which is – like many other functions – impossible because providers would never subsidize phones that include such a function – they want us to use MMS). Obviously most of the people accept this restraint because they simply can’t think of a phone with such a function, even if direct transmission would be much more efficient. It seems to me that phone providers are blocking efficient innovation here, which we probably also have to expect from ISPs in the future.

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