July 2008

FCC Chairman Kevin Martin received a reprimand from the Republican Leader of the House of Representatives, John A. Boehner, based upon reports that Martin plans to side with the commission’s two Democrats on Friday to interfere with the network management decisions of broadband providers in the matter of Comcast delaying the uploading of P2P file sharing when necessary to relieve network congestion:

When a small minority of subscribers – often using these applications to share pirated music and movies – began clogging the networks to the harm of the large majority of users, broadband providers began taking steps to alleviate the congestion. This, in turn, has prompted peer-to-peer developers to collaborate with broadband providers to find better ways to manage traffic.  It is this market-based self-governing nature of the Internet that is the key to its success.  Your heavy-handed attempts to inject the FCC into the middle of that process threaten to hijack the evolution of the Internet to everyone’s detriment.  It will also deter the very broadband investment we need for the Internet to continue growing to meet the increasing demands being placed upon it.

Comcast has already adjusted its policy based upon public reaction and perhaps the threat of regulation.  The question is whether this incident needs to be enshrined in permanent regulation or whether it indicates that the market actually works to protect legitimate consumer interests in the absence of reglation.  I think it’s the latter.

For the FCC commissioners, this is a choice between good politics and good policy.  Good politics would be to hammer Comcast, although that wouldn’t buy popularity for the Bush administration or any of its appointees.  Their enemies are their enemies.  Good policy would be to declare that this matter has been resolved.  Ultimately, appointees of the Bush administration will be judged on their policies, not their politics.

I’m finally reading Cato’s 2006 Policy Analysis on spectrum property rights. It’s got a lot of good information, but this sentence made me do a double-take:

In free space, radio waves steadily weaken in a very uniform, predictable way and at a rate that depends on frequency. In particular, the higher the frequency, the faster the waves weaken. In the real world—on the earth and in its environs—the situation is much more complicated, and radio links are affected by the earth itself, the atmosphere, and the intervening topography and natural and manmade objects such as foliage and buildings.

It’s been a while since I took physics, but I seem to recall (and Wikipedia seems to agree) that the strength of an electromagnetic wave falls with the square of the distance from the source. Indeed, this result seems to be compelled by the geometry of the situation and the conservation of energy. What am I missing?

Assuming I’m not just confused, one possibility is that they’re talking about propagation in the atmosphere rather than free space. It appears to be true that lower-frequency radio waves travel further along the surface of the Earth because they are affected more by the Earth’s atmosphere.

Om Malik has a hot-headed screed on his blog today about the supposed evils of capitalism, full of tales of corporate conspiracies and the such. But I love the way most of his reader have taken him to task for calling on FCC Chairman Kevin Martin to become a true “21st century Robin Hood who is looking out for the U.S. Internet consumer” by “putting an end to this metered broadband nonsense right now.”

Just jump past Om’s irrational rant and go right the really excellent discussion taking place among his readers in the comments. It’s the best discussion I have seen on the issue in a long time.

My last post sparked some interesting discussion about the economics of the Internet. With all due respect to my co-blogger Hance, though, this is precisely the sort of thing I was talking about:

[Tim's post] unfortunately overlooks the essence of what NN regulation is really about as far as commercial entities are concerned, i.e., profitable online properties don’t want to be asked or obliged to negotiate service agreements with network providers in which they agree to share some of their profits with network providers for the upkeep of the Internet and for the improvement of the overall online experience — just like retailers in a shopping mall share a small percentage of their profits with the landlord.

Bret likewise says that “NN advocates have for several years now wanted to force service providers into one business plan where the end-user pays ALL the costs of the network.” It will surely be news to Eric Schmidtt, Steve Ballmer, and Jerry Yang that they aren’t “obliged to negotiate service agreements with network providers.” In point of fact, Google, Microsoft, Yahoo! and other big service providers pay millions of dollars to their ISPs to help finance the “upkeep of the Internet.” The prices they pay are negotiated in a fully competitive market.

Here’s a thumbnail sketch of how the Internet is structured: it’s made up of thousands of networks of various sizes, with lots and lots of interconnections between them. When two networks decide to interconnect, they typically evaluate their relative sizes. If one network is larger or better-connected than the other, the smaller network will typically pay the larger network for connectivity. If the networks are roughly the same size, they will typically swap traffic on a settlement-free basis.
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The Journal has an editorial today on Kevin Martin’s crusade against Comcast that generally reaches the right conclusions—network neutrality regulations aren’t necessary, and even if they were the FCC doesn’t have the authority to impose them unilaterally. But in the process, they repeat a line that is repeated fairly often by free-marketeers, but is nevertheless seriously confused:

Net neutrality proponents want all Internet traffic treated “equally.” They would prohibit Internet service providers from using price to address the ever-growing popularity of streaming video and other bandwidth-intensive programs that cause bottlenecks.

I don’t know of any plausible interpretation of any network neutrality proposal that would preclude ISPs from using price to address bandwidth scarcity. To the contrast, as Adam noted earlier today, network neutrality advocates like Tim Wu are quite clear that metering, bandwidth caps, and charging different rates for different connection speeds would be legal under leading network neutrality proposals.

In fact, this passage gets things almost precisely backwards. What network neutrality proposals are designed to do, rather, is to prevent ISPs from dealing with congestion using non-price, content-based routing policies. Snowe-Dorgan, for example, would have required that ISPs “Not impose a charge on the basis of the type of content, applications, or services made available via the Internet into the network of such broadband service provider.” “Quantity of bandwidth consumed” is not on that list.

This is part of the broader problem of opponents of network neutrality regulation becoming knee-jerk critics of network neutrality as such. The arguments against network neutrality as a technical principle aren’t especially strong, and they’re especially likely to be confused when they’re made by people who know very little about how the Internet works. As I’ll argue in my forthcoming Cato Policy Analysis, the best reasons to oppose network neutrality regulation isn’t because network neutrality is a bad idea (it isn’t), but because network neutrality opponents (1) overestimate the fragility of network neutrality and (2) underestimate the unintended consequences that are likely to flow from new regulations.

As an aside, it’s kind of ironic that so many network neutrality critics have found themselves in the position of critiquing the structure of an industry—long-haul Internet access—that was forged by more than a decade of brutal market competition. The Internet’s current “neutral” architecture and the web of contractual relationships that binds it together has endured for a quarter-century precisely because it’s phenomenally efficient. Google and Yahoo don’t pay Verizon and AT&T for “last mile” bandwidth because those kinds of payments would greatly increase the Internet’s billing overhead with no real benefit. Ordinarily, when the marketplace produces an outcome, free marketeers are inclined to leave well enough alone. But in their zeal to stop network neutrality regulation, a lot of free marketeers have become amateur network architects, insisting that unless AT&T can charge YouTube extra money for video downloads (or whatever), the Internet will grind to a halt. There are some real network engineers who make arguments of this sort, and they should be taken seriously, but when it’s made by people whose expertise is in the social sciences, it just makes them look silly.

When I was growing up in Illinois and Indiana, my friends and family used to make fun of me for always having my nose in a book. Everywhere I went I carried a book–first comics then novels–and was constantly reading while I walked about the neighborhood. [I still do so today, except it's more like nerdy law review articles and government filings these days.] My dad used to always say that if I didn’t cut it out that one day I was going fall on my face or, worse yet, get hit by a car.

Luckily that never happened. But I thought of this again today when reading about this new law from my old birth state of Illinois that would ban texting and talking on mobile devices while walking through roadways. The penalty isn’t all that steep (just a $25 misdemeanor) and the law certainly is well-intentioned (trying to deter pedestrian injuries / fatalities or traffic accidents), but one wonders if such a law is really needed or if it will accomplish the goal of improving public safety.

As a general matter, I think it’s unwise for governments to pass laws protecting people from their own stupidity. But proponents might respond that the measure is equally as important in protecting others from your stupidity. That is, a distracted pedestrian could cause accidents. Therefore, it should be a crime for them to text or talk while crossing a roadway.
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Customer-Owned Fiber

by on July 30, 2008 · 8 comments

I’ve got a new piece up at Ars Technica that explores the concept of customer-owned fiber. It was inspired by a post by Google’s Derek Slater, who is working with Tim Wu on a paper making the case for customer-owned fiber in more detail.

The structure of today’s telecom market is roughly analogous to a road system in which most peoples’ driveways were owned by a private company. (To make the analogy, you’d have to imagine that most homes have two driveways owned by different companies) If another company owns your driveway, that company has a significant amount of leverage over you. Regulatory proposals like “open access” and “network neutrality” are like taking this system of third-party-owned driveways for granted and trying to use regulatory levers to ensure that companies don’t abuse that power.

But a much better approach may to recognize that the whole setup is screwy: it makes more sense for the owner of a particular piece of property to also own that part of the telecommunications infrastructure that’s exclusive to that property. A world of customer-owned fiber would solve a lot of the thorny policy problems because the barriers to entry in telecommunications markets would be radically lower. Entering the ISP market in a given neighborhood would simply require running a single strand of fiber to that neighborhood’s peering point.

The question is how you get there from here. In the near future, this will no longer be just a theoretical discussion, as a private company in Ottawa recently completed construction of a 400-household fiber network that it plans to sell to local homeowners. The preliminary cost estimate, based on 10 percent take-up, is $2700 per participating home. A higher sign-up rate means a lower cost per home. We’ll know in a few months if that estimate was optimistic or pessimistic.

In my piece, I talk about the economics of fiber rollout and the likely obstacles. I’m skeptical that it can be made to work because the costs are substantial and this is an obstacle with a lot of interia. There is also a group of incumbent companies—not a cartel—who are likely to do everything they can to kill such an effort if it gained momentum. But I think it’s absolutely worth trying, because if it could be made to work, the benefits would be huge.

Over at Techdirt I respectfully disagree with Adam’s broadside against Tim Wu’s “absurd” piece on the broadband cartel.

Tim Wu’s an ideologically savvy guy, and he’s a master at deploying libertarian rhetoric in defense of not-very-libertarian proposals. I get that, and I’m perfectly willing to call him out when he does so. But in other cases, Wu makes arguments that are just straight-forewordly libertarian. For example, I’m finding it hard to detect the hidden socialist message in this passage:

Our current approach is a command and control system dating from the 1920s. The federal government dictates exactly what licensees of the airwaves may do with their part of the spectrum. These Soviet-style rules create waste that is worthy of Brezhnev.

Many “owners” of spectrum either hardly use the stuff or use it in highly inefficient ways. At any given moment, more than 90 percent of the nation’s airwaves are empty.

Now, as I say in my Techdirt post, Wu would take this line of reasoning in a somewhat different direction than most of us libertarians would. Wu wants to allocate more spectrum to use as a commons, whereas TLFers would generally like to see it allocated to a system of private ownership. But the op-ed isn’t an argument for spectrum commons, it’s an argument against the FCC’s current command-and-control model.

Even if Wu’s article were a brief for spectrum commons, I think we should remember what Adam so eloquently wrote in 2002:

The intellectual battle between adherents to the property rights and commons models of spectrum governance has been a refreshing telecommunications debate for two reasons. First, at the heart of both models is a desire to promote increased flexibility, innovation, and efficient use of the spectrum resource. More important, both groups generally agree that the current command-and-control system is a complete failure and must be replaced. Indeed, both commons and property rights proponents question the continuing need for the FCC in this process at all. Second, and perhaps because of these preceding points, this war of ideas has not been characterized by the rancor typically witnessed in other telecom industry disputes.

Exactly right. So I hope we can dial down the rancor a couple of notches, acknowledge that Wu makes some valid (even, dare I say it, libertarian) points, and engage the arguments Wu actually makes, rather than trying to ferret out the secret agenda lurking behind his words.

In today’s New York Times, Tim Wu writes in favor new regulation of the Internet and uses a number of bad analogies to do so. Let us count the ways.

My colleague Adam Thierer has already noted that OPEC is a group of mostly government-run oil companies whereas U.S. broadband service providers are private companies operating in an intensely competitive environment.

Wu bungles another analogy between oil and bandwidth. Wu writes, “Americans today spend almost as much on bandwidth — the capacity to move information — as we do on energy….If we aren’t careful, we’re going to repeat the history of the oil industry by creating a bandwidth cartel” — implying that bandwidth prices, for lack of competition, are about to skyrocket.

But in the last decade, the nominal price of oil has risen by a factor of 12. In the same time period, the nominal price of U.S. residential bandwidth has dropped by a factor of five or more. Mobile phone bandwidth has dropped in price even more. Thus $10 worth of oil in 1998 now costs around $120. Ten dollars of residential bandwidth in 1998 now costs about $2 or less.

Wu could not have chosen a worse metaphor.

Oil prices are mostly governed by the Fed’s monetary policy (not OPEC, yet another Wu blunder), and we don’t know which way oil prices are headed. But we know for sure bandwidth prices measured in dollars-per-bit-per-second will continue falling dramatically. The imperial forces of Moore’s Law and the equally powerful innovations of fiber-optic, memory, and hard-disk storage technology assure it.

This isn’t to say broadband networks are cheap. No, they are very expensive. They will cost hundreds of billions of dollars over the next five to 10 years. It is to say silicon and optical technologies are massively productive and will deliver ever greater services at ever lower prices. As Wu states, Americans may actually spend more and more dollars on monthly communications services overall. But per bit, they will be spending dramatically less. All this means is communications is becoming a vastly more important part of our lives.

By all means, let us explore and develop “alternative sources of bandwidth” as Wu desires. Unlike natural resources such as oil, which, while abundant, are at some point finite, bandwidth is potentially infinite. The miraculous microcosmic spectrum reuse capabilities of optical fiber and even wireless radiation improve at a rate far faster than any of our macrocosmic machines and minerals. It is far more efficient to move electrons than atoms, and yet more efficient to move photons. Left unfettered, these technologies will continue delivering bandwidth abundance.

But Wu fools no one with his slight of hand — attacking a phantom bandwidth “OPEC” — when his real goal is to establish and further empower his own cartel of scarcity-rationing bandwidth bureaucrats.

Texaco Star Theater Last month I posted a tongue-and-cheek piece thanking policymakers for taking steps to save us from loud TV ads and product placements. The whole thing just strikes me as the height of absurdity; it’s a stupid way for regulators to spend their time and it’s a complete waste of taxpayer dollars. Backers of such regulations assume that we in the public are little more than ignorant sheep whose minds will be subliminally programmed to want to drink certain colas or drive certain cars just because they saw them in a TV show. Absurd.

The other thing that kills me about this debate is how some people seem to imagine that product placement has somehow come out of nowhere recently and taken over broadcast TV and radio to an unprecedented extent. That’s either revisionist history or ignorance of it. The fact is, broadcasting has been filled with product placement for years. Media guru Jack Myers points this out in a good piece on the issue this week:

Those old enough to recall the early days of television news recall that Camel cigarettes and Timex sponsored the NBC News with John Cameron Swayze. On-set signage was prominent. Local radio personalities have always used their relationships with consumers to advance their sponsors’ interests.

But it goes way beyond that. For God’s sake, has everyone forgotten about the “Texaco Star Theater“? It was the top-rated show of the 1950s, pulling in a stunning 61.6 rating in 1950-51 alone. How did the show begin? Here’s how the Wikipedia entry describes it:

On television, continuing a practice long established in radio, Texaco included its brand name in the show title. When the television version launched, Texaco also made sure its employees were featured prominently throughout the hour, usually appearing as smiling “guardian angels” performing good deeds of one or another kind, and a quartet of Texaco singers opened each week’s show with the following theme song:

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