There’s a crowd of people who still run around lamenting the death of the old UNE-P regulatory regime. They persist in their misguided belief that infrastructure sharing somehow offers us the path to broadband nirvana.
It’s all quite silly, of course. Forced sharing doesn’t lead to true infrastructure innovation or competition. Indeed, it leads to the exact opposite: technological stasis and plain vanilla networks. If you want real competition and innovation, you have to give carriers the incentive to invest in (and upgrade) their own networks with the promise that they will be able to reap the rewards of positive growth should it occur.
Still, the critcs persist, we’ll never have any real competition without some degree of infrastructure sharing. Nonsense! Let me cite a little statistical and anecdotal evidence to explain just how wrong the infrastructure socialists are.
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Supporters of network neutrality regulation have been deploying a lot of apocalyptic rhetoric. For example, before yesterday’s Commerce committee vote on network neutrality regulation, Rep. Markey warned, “We’re about to break with the entire history of the Internet.” And in the same article, we learn that Rep. Eshoo thinks that “this walled garden approach that many network providers would like to create would fundamentally change the way the Internet works and undermine the power of the Net as a force of innovation and change.”
This is ridiculous. In the first place, the Internet is much bigger than the American broadband market, to say nothing of any one broadband ISP. Even if all of the major American telcos were to simultaneously cut American broadband users off from the Internet (which would obviously never happen), the rest of the world can perfectly well carry on operating the Internet without us, and we could pass network neutrality legislation at that point to force the telcos to re-connect us to the real Internet.
In the second place, it’s important to keep in mind the kind of network discrimination the telcos are likely to use. They’re not going to block users’ access to the Google website unless Google coughs up an access fee. That would be financial suicide. What they’re interested in doing is setting aside some of the new capacity they’re building to deliver their own services. For example, they might build a 25 Mbit fiber pipe into a consumer’s home, and reserve 20 Mbits of it for their own video applications. Now, I think that would suck. But it doesn’t “change the nature of the Internet,” any more than it changes the nature of the Internet when Comcast uses the bandwidth on its coax pipes to deliver video content to its cable subscribers. In this scenario, I’d still have 5 Mbits of “network neutral” access to the Internet. I could do everything on that pipe that I’m able to do today. So the issue isn’t about “the nature of the Internet.” It’s about whether Comcast has the right to decide how to use the infrastructure it deploys.
Finally, if anything, the apocalyptic scenarios run in the other direction. If Congress does nothing this year, they’ll have every opportunity to step in next year, or the year after, to stop any nightmare scenarios that might unfold. On the other hand, if network neutrality regulations are passed and they turn out to be a disaster, they’re unlikely to be repealed. Bad regulations are never repealed. Instead, they spawn endless litigation and “reform” proposals that are even more intrusive. Once we give the FCC authority to regulate the Internet, there’s no going back.
There’s no looming crisis here requiring Congressional intervention. If the pro-regulatory folks turn out to be right, we can always come back and have this debate again in a couple of years. But it’s extraordinarily premature to create a new regulatory framework for technologies that are barely off the ground.
Here is some material generated by PFF scholars:
My short paper “Net Neutrality: Video Dialtone Redux?” A quote:
Right now there are huge opportunities for growth and expansion of broadband networks and services, including content. And problems as well, from spam to capacity limits, from authentication problems to quality of service issues. Hopefully these issues all have technical solutions, but deploying those solutions is going to take some capital. Do we really want to narrow the business models that can be used to raise and recover that capital down to… video dialtone for the Net?
Testimony of Kyle Dixon before the Senate Committee on Commerce, Science and Transportation, February 07, 2006.
Testimony of Randolph May before the House Committee on Energy and Commerce, Subcommittee on Telecommunications and the Internet, March 30, 2006.
“The Economics of Net Neutrality: Why the Physical Layer of the Internet Should Not Be Regulated,” by Christopher S. Yoo, PFF Progress on Point 11.11, July 2004.
See also “Are ‘Dumb Pipe’ Mandates Smart Public Policy? Vertical Integration, Net Neutrality, and the Network Layers Model,” by Adam Thierer, Journal of Telecommunications & High-Technology Law, Vol. 3, Issue 2, 2004.
More links below:
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I’ve been meaning to comment on Ed Felten’s fantastic four–part discussion of the nuts and bolts of network discrimination for a while now. In particular, I think his second installment hints at a strong argument against network neutrality legislation:
If a network provider is using minimal delay discrimination, and the high-priority traffic is bursty, then low-priority traffic will usually sail through the network with little delay, but will experience noticeable delay whenever there is a burst of high-priority traffic. The technical term for this kind of on-again, off-again delay is “jitter”.
Some applications can handle jitter with no problem. If you’re downloading a big file, you care more about the average packet arrival rate than about when any particular packet arrives. If you’re browsing the web, modest jitter will cause, at worst, a slight delay in downloading some pages. If you’re watching a streaming video, your player will buffer the stream so jitter won’t bother you much.
But applications like voice conferencing or Internet telephony, which rely on steady streaming of interactive, realtime communication, can suffer a lot if there is jitter. Users report that VoIP services like Vonage and Skype can behave poorly when subjected to network jitter.
And we know that residential ISPs are often phone companies or offer home phone service, so they may have a special incentive to discriminate against competing Internet phone services. Causing jitter for such services, whether by minimal or non-minimal delay discrimination, could be an effective tactic for an ISP that wants to drive customers away from independent Internet telephone services.
Here’s the problem: let’s say Congress has passed a strong network neutrality rule and charged the FCC with enforcing it. Comcast installs some new network equipment that happens to increase the jitter on its networks. Some Vonage user gets annoyed and files a complaint with the FCC.
The FCC investigates. Comcast says that they installed the new routers for reasons that were unrelated to impeding VoIP traffic. Perhaps the new router offers improved performance in other respects, such as increased throughput or better network-maintenance features. Although they suspect Comcast’s executives chose the routers deliberately to increase jitter, they have no way to prove it. The FCC will be forced to make a judgment call: did Comcast violate network neutrality or not?
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Claims that new video competitors will “redline”–i.e. avoid building out in selected inner-city or minority areas–remain a major stumbling block to video franchise reform in Congress. This was underscored yesterday in a letter by the Congressional Black Caucus sent to Reps. Barton and Dingell calling for anti-bia rules in any legislation. (As reported in Communications Daily (subscription)).
But do providers really have an incentive to redline? Certainly there are economic reasons not to build everywhere at once, but race or geography may have little to do with it. According to a just-released survey by Steve Pociask’s American Consumer Institute, African-Americans may be more profitable customers for video providers than others. At 78 percent, the total African-American subscription rate is one point above the national average. More striking, almost half of those subscribers are signed up for premium channels, compared to 31 percent overall. And a quarter of African-American subscribers have used pay per view features in the past six months, compared to only 19 percent of all cable subscribers.
Similarly, geography may not matter as much as many think. Urban subscribers subscribe to pay TV at almost the national average, and 38 percent of those urban subscribers sign up for premium channels, as opposed to only 17 percent of suburbanites. Rural subscribers, by the way, have the lowest subscription rate, although even they use more premium services that suburbanites.
Income, not surprisingly, does make a difference, with 64 percent of households making $25,000 or less subscribing to pay TV, as opposed to 77 percent of the population at large. But again, premium channels are a different story. Thirty percent of these lowest-income subscribers receive premium channels, almost exactly the national average.
This of course doesn’t mean providers will build out everywhere at once–economically, it makes sense to stagger the buildout. But the factors that determine that buildout may be more complex, and less predictable, than many assume.
Some people just can’t resist a David and Goliath storyline. That’s especially true of “consumer advocates” who see an underdog in the mirror no matter how big the hound is. Case in point: A site called consumeraffairs.com yesterday ran a story on the net neutrality battle with this lead paragraph:
There’s nothing virtual about the battle lines being drawn in the fast-developing
Net Neutrality War. Disney, Verizon and AT&T are among the superpowers developing
a shock and awe strategy intended to annihilate the rag-tag band of consumers and
non-profits working to keep the Internet playing field level.
Just for the record, the pro-regulation “rag tag band” at last count included the following: Amazon.com, Google, e-bay, Yahoo, the Consumer Electronics Associaton, Sony, and of course a small start-up called Microsoft. This band is not rag-tag. It’s an orchestra.
Opponents of regulation, of course, also have some heavy-hitters on their side, including Disney and Cisco in addition to phone and cable companies. But its hardly a David and Goliath struggle. Its more Goliath v. Goliath. Oh, and by the way, there are non-profits and pro-consumer groups on both sides (unless you believe you have to be pro-regulation to be pro-consumer).
Ultimately, the game of “who’s the underdog” simply obscures the real issues in policy debates. The real question is what is good for consumers. And, even wearing Underdog’s cape, net neutrality rules just won’t fly.
One problem at the FCC–and most other regulatory agencies–is the difficulty of getting obsolete restrictions off the books. Even minor changes get bogged down in endless notices of proposed rulemaking and further notices of proposed rulemaking. This make good business for lobbyists, but not good policy. But a provision adopted in the ’96 Telecom Act–until recently rarely used–may change that. Known as “forbearance,” the provision directs the Commission to “forbear”–stop enforcing–regulations it finds are no longer necessary. And, if it doesn’t act within a year on a petition to forbear, the petition automatically takes effect.
That’s exactly what happened this Monday when the deadline for action on a Verizon forbearance petition expired. The petition has asked for deregulation of Verizon’s business broadband services–which operate in a fairly competitive market. It has now taken effect–freeing Verizon of common carrier requirements, line sharing requirements, and a raft of other unnecessary rules.
The exact extent of the change is a bit unclear, since there was no written decision implementing the change. But they are likely substantial, and given the competition in this area, well-justified.
Not all members thought this a good thing. Democratic Commissioner Jonathan Adelstein was apoplectic, saying the non-action “erases decades of communications policy in a single stroke.” That’s an exaggeration, but wouldn’t that be a good thing if true?
Congratulations to Chairman Martin and the FCC for getting unnecessary rules off the books. Hopefully, there will be a lot more to come.
Forget Verizon and AT&T. As American policymakers debate whether to impose “net neutrality” rules to Internet network providers, France–always a step ahead in regulation–has fingered another threat to neutrality: Apple’s iTunes service. In a vote scheduled for today, the French parliament will vote on whether to require Apple to open its iTunes service to competing tune providers.
It would be easy to scoff at this. After all, Apple’s service is one of the most popular innovations since the flush toilet, revolutionizing online music to the benefit of millions of (apparently happy) consumers. But the French are annoyed: “France is against monopolies,” said an adviser at the French Culture Ministry yesterday.
But this is more than an idosyncratic French regulation. Its a logical extension of net neutrality principles: “The consumer must be able to listen to the music they have bought on no matter what platform” the French advisor said. Take away the French accent, and the argument is indistinguishable from that used by U.S. net neutrality proponents.
Of course, in the U.S., policymakers wouldn’t think of applying net neutrality regulations to anyone but the Bells and the cable companies. Would they? Its a question that Internet companies now supporting these net neutrality regulations should think pretty hard about. Maybe they should phone Steve Jobs for his opinion.
Susan Crawford on net neutrality: “When [telcos and cablecos] say ‘internet’ they mean infrastructure. They mean substrate. They say they built the substrate and now own it. … But when users say ‘internet’ they mean relationships. We forget, because so many machines are involved, that the internet is a social world. Users don’t think about transport–they’re indifferent to the substrate. They care about what they do there. And what they do is create a complex adaptive system unlike any other communications network we’ve ever had before. The unpredictable ecology of the internet could never have been generated by a broadcaster or a newspaper. It’s constantly revising itself in response to the feedback it’s getting from everyone. And its value is almost wholly unrelated to the work carried out by the access valves, the gatekeepers to internet access.” She goes on to liken the current debate over ownership of networks to debates over intellectual property.
This clever distinction of “internets”–a physical on and a social one–articulates the reason why I think that net neutrality in the abstract is a good thing. That is, because I like the unpredictable and innovative results of a neutral net. However, what we have to keep in mind is that the laws being proposed to deal with net neutrality affect the first internet–the physical one that is owned property. Physical property is unlike intellectual property. Intellectual property is a temporary monopoly that exists only to give incentive to develop the store of human knowledge. This is why we can justify limiting intellectual property rights through compulsory licenses or fair use. In contrast, physical property is absolute; there is no fair use of my automobile without my permission–even if your need is great, you are a non-profit, and the result of your use will create great value. Therefore, unlike the case with IP, in the net neutrality debate we cannot simply conduct a balancing test and, if limiting an owners’ property right achieves greater social welfare, then be justified in limiting those physical property rights.
Good piece in The Economist this week on the specter of “net neutrality” regulation. The London-based magazine, which is pro-market in a British sort of way, hasn’t hesitated to support competition rules in the past (it was an avid supporter of the Microsoft prosecution). But in an editorial in this weeks issue, it warned against overly-prescriptive net rules, arguing:
An overly prescriptive set of net-neutrality rules could prove counterproductive. For a start, it would mean that all new network construction costs would have to be recouped from consumers alone, which could drive up prices or discourage investment. Ensuring “neutrality” could require regulators to interpose themselves in all kinds of agreements between network operators, content providers and consumers. If a network link is too slow to support a particular service, does that constitute a breach of neutrality? Strict rules could also hinder the development of new services that depend on being able to distinguish between different types of traffic, imposing a “one size fits all” architecture on the internet just as engineers are considering novel ways to improve its underlying design.
The piece does allow that some basic rules could be in order. Alas, one would think that a magazine based in Europe would know more than most that limited and simple regulations all too often turn into expansive and complex rules.
Still worth reading (subscription required).
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