Broadband & Neutrality Regulation

Sen. Wyden yesterday introduced legislation to mandate “net neutrality” by Internet network operators. the proposal is pretty far ranging, banning everything from “priority lanes” for time-sensitive traffic to requiring transparent rates, terms and conditions for service (one wonders how the famously confidential but sucessful Internet backbone market would fare under such a requirement).

It’s a bad idea–for reasons many have outlined. (For an excellent discussion of the issues, check out this excellent study by Christopher Yoo published by the Progress and Freedom Foundation.)

What particularly got my eye, however, was a comment Wyden made to journalists defending the proposal. He said:

You kind of get the sense big network operators are saying we built he network we own the network. What I am saying no, consumers built network subscribers built the network, they paying for it (sic).

Imagine! Just because the operators built it they think they own it. Amazing. Next thing you know, everyone will be claiming they own what they built.

Wyden’s “this really isn’t private property” argument actually isn’t new. It’s a retread from the battle over forced access to telecom networks, where proponents argued that telephone networks belonged to the public, not to telephone companies. That argument was baseless, as I argued here.

If anything, declaring that privately-built Internet facilities belong to the “public” is less justified. Just because Internet providers get their revenue from customers doesn’t mean the customers “own” the facilities. Otherwise, I’d own vast stakes in everything from Starbucks to my dry cleaner. Moreover, at a time when private investment in the Internet is critically needed, loose talk about the network being socialized is definitely unhelpful, to say the least.

The WSJ reports today that “Large phone companies and telecom-equipment makers are developing plans that would blow up the flat-fee structure for high-speed Internet access and instead charge customers different rates based on how much bandwidth, or Internet capacity, they use.” This makes eminent sense to me and seems to address ISPs’ concerns about who is paying for their networks. That is, instead of charging content providers such as Google or Yahoo!–with whom they have no relationship–for access to their networks, they can charge their customers, with whom they do have a relationship.

Theoretically, Google may not have a choice but to pay up if it wants users of a certain ISP to be able to connect to its site. (Actually, that’s debatable, because I doubt consumers would stand for an ISP that didn’t allow them access to Google.) However, under this new scheme, customers are the ones footing the bill and they in turn do have a choice of ISPs.

Some, including Techdirt, are already arguing that this is a nefarious plan. They argue that content providers could still be extorted: “Google, if you pony up, our users will surf for free–if not, it’s gonna be $50 per megabyte.” Once more I’ll ask: What customer will stand for $50 per MB to access Google?

It has been pointed out that there may not be sufficient competition to give consumers real choice. First, I genuinely curious to know how much competition will be enough? Where I live I have a choice of broadband from two cable companies, the phone company, and possibly pay wi-fi. If the FCC can manage to get its act together, we can expect Wi-Max and other wireless broadband systems. Second, it seems that the alternative to working to foster competition is government regulation. What’s after net neutrality regs? Price regulation for ISPs?

I do agree with Techdirt on one thing. Pay-as-you-go pricing for network access has never worked well. For whatever reason, American consumers hate it. I think they don’t like the uncertainty of it. (Maybe if I click this link or stay on too long I’ll get a huge bill.) So it will be interesting to see how this pans out.

Today’s USA Today editorial on network neutrality exemplifies many of the things that are wrong with that debate:

Much of the Internet’s appeal is that no one controls it in the way that, say, a grocery store decides which brands to stock. Within its virtual walls, a start-up such as MySpace or Craigslist can surge to prominence entirely on the power of an idea. Now, some very old-school companies want to change all that. Using market dominance achieved through the relative scarcity of lines into people’s homes, phone companies such as BellSouth, Verizon and AT&T are eyeing a system that would demand that operators of search engines, e-commerce sites and other Web applications pay them fees or be relegated to the slow lane.

In the first place, these companies have no ability to change “all that.” Each of them controls a fairly small share of the US residential broadband market. The Internet is bigger than residential customers, and it’s bigger than the United States. There’s no threat that AT&T, Comcast, or anyone else will change the way the Internet as a whole operates.

Secondly, the web is not the Internet. And in fact, the web is largely irrelevant to the debate. The bandwidth that’s available today is already more than enough to browse the web comfortably. Network neutrality regulations, if they are necessary at all, are required for next-generation services like video and voice, not web sites.

I find myself unimpressed by this site urging people to contact their Congresscritter and support network neutrality. We’re told:

This broadband assault would reduce your choices and stifle the spread of innovative and independent ideas that we’ve come to expect online. It would shift the digital revolution into reverse. Internet gatekeepers have already:

Blocked services: In 2004, North Carolina ISP Madison River blocked their DSL customers from using any rival Web-based phone service.

Blocked content: In 2005, Canada’s telephone giant Telus blocked customers from visiting a Web site sympathetic to the Telecommunications Workers Union during a contentious labor dispute. If these media giants get their way, they’ll shut down the free flow of information and dictate how you use the Internet forever.

That sounds at least moderately ominous. Let’s dig a little deeper:

Continue reading →

I don’t think anyone’s ever accused The Nation of being a magazine of sober or nuanced thinkers. But this article on network neutrality is strikingly clueless and hysterical even by that magazine’s standards:

Without proactive intervention, the values and issues that we care about–civil rights, economic justice, the environment and fair elections–will be further threatened by this push for corporate control. Imagine how the next presidential election would unfold if major political advertisers could make strategic payments to Comcast so that ads from Democratic and Republican candidates were more visible and user-friendly than ads of third-party candidates with less funds. Consider what would happen if an online advertisement promoting nuclear power prominently popped up on a cable broadband page, while a competing message from an environmental group was relegated to the margins. It is possible that all forms of civic and noncommercial online programming would be pushed to the end of a commercial digital queue.

Sounds pretty scary! How are broadband providers going to accomplish this feat?

Beats me. Websites will still be controlled by third party companies like Google and Yahoo, as well as millions of individuals. Ads on those websites will be controlled by them as well. Comcast might be able to block websites whose content it disagrees with, but there’s not much they can do to change what content a given website contains.

Couldn’t Comcast replace website ads with ads of their own before they’re delivered to the consumer? They talk about “deep packet inspection” technologies that allow them to monitor and manipulate Internet traffic at the application layer. But while such technology does exist, it’s far too clumsy, brittle, and labor-intensive to do anything like what this paragraph describes. There are lots of ways to evade such technologies, especially if there are billions of dollars in advertising revenues at stake.

More to the point, it’s extremely hard to imagine that Comcast would attempt such a stunt, as there would be a ferocious backlash from consumers, from web site owners, and from Congress. And besides, what presidential candidate or major corporation would buy ads that are placed in such a sleazy manner? There’s a reason you don’t typically get unsolicited spam for Ford trucks–mainstream institutions have reputations to protect.

The author of this article seems to assume that the Internet as we know it will be replaced with a ComcastNet that only has Comcast-approved web sites. But that doesn’t make a lot of sense. Who would pay money for such an Internet? How would they explain to the millions of people who read DailyKos, or use Craig’s List, or post to their LiveJournals, that they’re no longer allowed to access those sites, but that there are comcast-approved websites they can visit instead! The reality is that telecom companies just aren’t that powerful, and consumers just aren’t that docile. Consumers are already well used to having unfettered access to the entire web, and they’re not likely to meekly accept it if that access is restricted.

There are some pretty good arguments in favor of network neutrality regulation, but invoking wildly pessimistic visions of Internet dystopias isn’t among them.

I’m still trying to wrap my head around all the intricacies of the net neutrality debate. The latest twist is a report that Verizon plans to reserve 80% of the capacity of its network for its video service. This has prompted some to argue that Verizon is skewing the Net.

Leading Net companies say that Verizon’s actions could keep some rivals off the road. As consumers try to search Google, buy books on Amazon.com, or watch videos on Yahoo!, they’ll all be trying to squeeze into the leftover lanes on Verizon’s network. On Feb. 7 the Net companies plan to take their complaints about Verizon’s plans to the Senate during a hearing on telecom reform. “The Bells have designed a broadband system that squeezes out the public Internet in favor of services or content they want to provide,” says Paul Misener, vice-president for global policy at Amazon.com.

But I don’t see how Google or Amazon have a right to tell Verizon how it should allocate the capacity of its network–and certainly not by running to the Senate. This is a different issue than Verizon trying to charge those companies for access to their customers. It would seem that this is a matter of internal allocation of a company’s resources. If customers aren’t happy with the speeds they’re getting because 80% of the bandwidth is tied up in video, they can always switch providers–to the cable companies and hopefully to wireless providers some day. That’s why we need deregulation to ensure competition, not regulation of what firms can do with their own pipes.

P.S. Does anyone know what FCC filing the report is referring to?

I’m kind of baffled by the network neutrality debate. Take this quote for example:

At the end of the day, Google’s Davidson says that his biggest worry is not for Google but for the prospect of bringing fresh innovation to the Internet. After all, if worse comes to worst, Google can pay AT&T or BellSouth to maintain its role as the Internet’s dominant search engine. But the bright young start-up with the next big innovative idea won’t have that option.

That’s the last paragraph from a long article about the network neutrality debate. The article implies that the outcome of the network neutrality debate could determine whether the telcos end up in control of the Internet.

Except that it doesn’t make a lot of sense. Take the paragraph I just quoted. I’m having trouble even imagining a plausible scenario in which the above could happen. Think about it: let’s say that Verizon wanted to get every website on the Internet to pay it a fee for access to its customer base. How would they do it?

The first step presumably, would be to send an email to the webmaster of each site, informing them that they’d be disconnected if they didn’t cough up the required fee. But it’s likely that most web site owners–especially the smaller ones–would ignore the notices. A lot of sites, such as this one, are run by volunteers and don’t have a lot of money to spend on tolls to Baby Bells. Others would calculate that it’s in their strategic interest not to pony up the cash–especially since they still have plenty of customers from other parts of the country. So then what would the Baby Bells do? Simply blocking access to the sites would be financial suicide. The vast majority of Internet users access at least a handful of small websites on a regular basis. Hence, if you shut off all non-paying websites at once, you’d piss off virtually all of your customers. You’d spend years repairing the financial and PR damage from a stunt like that.

They’d have the same kind of problem if they chose to degrade the performance of non-paying web sites rather than cutting them off entirely. That’s more likely to just make it look like their own Internet service sucks than harm the targetted sites. I would be sad if my TLF readers had to wait longer to read my posts, but not sad enough to cough up money to the company responsible to get them to stop. And you can bet we’d add a banner at the top that says “Verizon customers: is this site loading slowly? Click here to find out why.”

A slightly less draconian plan would be to allow everyone to use the existing bandwidth, but to limit access to additional bandwidth to those that paid a special fee. But even here, it’s hard to imagine them getting very far. I mean, imagine if Verizon approached Apple’s Steve Jobs and told him that they wanted him to cough up some money if he wanted to be allowed to use their new fiber capacity for his iTunes video store. You know what he’d do? First, he’d laugh at them. Then he’d point out that if they don’t give him access to their bandwidth, he can cause every copy of iTunes to pop up a little notification during long downloads that explains that it’s Verizon’s fault the download is slow and explains how to switch to another ISP. I’ll give you three guesses who would run out of the room with their tails between their legs.

In addition to having content consumers want, content providers also have a direct connection with their customers–in many cases much stronger than the connection the customers have with their cable or phone company. If content providers and telcos began engaging in brinkmanship, the outcome would depend crucially on who consumers blamed for the mess. In that kind of PR battle, the telcos wouldn’t have a prayer, given that essentially the whole Internet would be lined up against them, and people increasingly get their news and information from sources on the Internet.

So I don’t see how a Baby Bell would go about extorting money from web site owners without shooting themselves in the foot. I’m having trouble even envisioning a plausible scenario, much less one that is likely to actually happen. The idea of a balkanized Internet sounds ominous in the abstract, but when you try to imagine how it would actually happen, it doesn’t make a lot of sense. Telcos need content providers at least as much as content providers need telcos. Content providers know it.

The telcos are wrong about their ability to charge content providers for the use of their “pipes,” they’re right about one thing: “network neutrality” regulation is a solution in search of a problem.

Update: Although he’s more ambivalent about network neutrality regulation than I am, Ed Felton highlights some of the same problems.

There’s a great conversation going on over at Marginal Revolution about net neutrality. As a card carrying free-marketeer I feel I’m expected to support Verizon, AT&T and the rest when they demand payment for use of their pipes. But I haven’t made up my mind yet. While net neutrality looks like forced access redux, I think it’s actually a much more complicated issue.

I am skeptical of regulation or legislation to enforce neutrality; preemptive regulation hardly ever works out they way it is intended. However, as Tyler Cowen points out, tiering the internet would change the nature of online content:

The beauty of the status quo is that web sites compete on the basis of consumer surplus alone. The bandwidth costs end up as a fixed charge on net access as a whole; I suspect this hits many inelastic demanders, a’la the Ramsey rules for optimal taxation. Admittedly it may be a bad deal for the poor who cannot afford to connect, but the overall arrangement enhances the long-run “competition of ideas” feature of the net.