Net Neutrality, Again Posted by: Dale Franks
on Thursday, June 08, 2006
Lawrence Lessig and Robert McChesney have an op-ed piece on Net Neutrality in the Washington Post today.
Net neutrality means simply that all like Internet content must be treated alike and move at the same speed over the network. The owners of the Internet's wires cannot discriminate. This is the simple but brilliant "end-to-end" design of the Internet that has made it such a powerful force for economic and social good: All of the intelligence and control is held by producers and users, not the networks that connect them.
This is something that the authors pass over lightly here, but it is an important point. The only thing we are talking about here, despite the brayings of the disingenuous or ignorant that Net Neutrality means "regulating the Internet", is setting up a bright-line rule that says that all network traffic has to be treated the same. In other words, the network should simply be a roadway for information, where all traffic is treated under the same rules. I'll get back to this roadway analogy in due course, so keep it in mind.
It is important to remember that by "Net Neutrality", we aren't referring to implementing a new set of rules for the Internet that will interfere with its operation. Instead, we would be reverting to the original rules under which the internet was created and flourished.
The protections that guaranteed network neutrality have been law since the birth of the Internet — right up until last year, when the Federal Communications Commission eliminated the rules that kept cable and phone companies from discriminating against content providers. This triggered a wave of announcements from phone company chief executives that they plan to do exactly that.
The reason the internet has grown so exponentially, is that it allowed content providers to enter a global electronic market, without competitors or others extorting them to seek rent, or impose artifical barriers to enter the content provision business.
And make no mistake. It is the provision of content that is the impetus of growth for the Internet. No matter how sophisticated or technologically efficient the network may be, if there are no content providers, the Internet becomes a superhighway to nowhere. No one cruises the Internet for the sheer pleasure of sending and receiving data packets, and go "Oooh! Aaah!" at the amazing sight of your data traveling to Africa and back in 220 milliseconds. You cruise the internet to consume content. And it is that easy, and increasing ability to access content that has made the Internet grow.
This is not to say the network isn't valuable. But the network is the means, not the end. We don't use the interstate freeway system to enjoy the road. We do so to enjoy the destination. Content, in Internet terms, is the destination. The network is merely the road. Conflating one with the other is a serious mistake.
The implications of permanently losing network neutrality could not be more serious. The current legislation, backed by companies such as AT&T, Verizon and Comcast, would allow the firms to create different tiers of online service. They would be able to sell access to the express lane to deep-pocketed corporations and relegate everyone else to the digital equivalent of a winding dirt road. Worse still, these gatekeepers would determine who gets premium treatment and who doesn't.
Imagine if the Interstate highway system was organized on those lines. The road builder could say, "Hmm. You use interstate highways to go to work every day. We've decided we must charge you an extra $100 per month to use the I-15. If you don't like it, well, take the surface streets." Or to use another analogy, imagine if the Telephone networks worked the same way. If you were an SBC customer, you might be forbidden to make a telephone call to a GTE customer who lived a few miles away.
It's what Timothy Wu, an Internet policy expert at Columbia University, calls "the Tony Soprano business model": By extorting protection money from every Web site — from the smallest blogger to Google — network owners would earn huge profits. Meanwhile, they could slow or even block the Web sites and services of their competitors or those who refuse to pay up. They'd like Congress to "trust them" to behave.
The fundamental problem is this: The network providers are already highly regulated. The result of that regulation has been to create a fairly small group of network providers, all of whom have monopolistic or oligopolistic power. The previous rules on Net Neutrality prevented network providers from using that power to extort money from content providers. Network providers were governed as "common carriers" just like telephone companies.
Just as telephone companies aren't allowed to use their monopoly power to extort extra money from telephone users, or prevent users from making phone calls to customers of competing companies, network providers were similarly restricted from using their monopoly power to extort money from users or content providers.
Users and content providers were, of course, charged for the bandwidth they used. So, at, say $1 per GB, If google used 1,000 GB per day, they paid $1,000 per day for their bandwidth. What the network providers want to do now is charge Google an extra buck or two per GB. and if Google won't pay, then they get stuck in the slow lane, which would make Google essentially unusable by restricting its access to bandwidth.
Again, to use a road analogy, this is essentially the same as a road builder saying to a grocery store, "Hey, pay us an extra $10,000 a month, or we'll just close access to the street that runs by your store.
Unless we're willing to completely deregulate network providers, then we have to ensure that they can't use their government-supported monopoly power to restrict competition. eliminating Net Neutrality, while at the same time allowing the network providers' government-supported monopoly power to remain intact, would be a disaster for the Internet's continued growth.
Remember, a basic rule of economics is that people respond to incentives. Under Net Neutrality, the low cost of entry to the Internet has been incentivize a massive increase in content provision, as well as the plethora of technologies that have grown up around content presentation.
By the same token, increasing the barrier to entry by allowing network providers to charge a premium for network use, inevitably means that the Internet's growth will slow, as companies find that doing business on the Internet becomes less economic.
Most of the great innovators in the history of the Internet started out in their garages with great ideas and little capital. This is no accident. Network neutrality protections minimized control by the network owners, maximized competition and invited outsiders in to innovate. Net neutrality guaranteed a free and competitive market for Internet content. The benefits are extraordinary and undeniable.
Eliminating net neutrality makes the network provider a gatekeeper for Internet content. Those who are unable or unwilling to pay the price demanded by the network providers simply won't have the opportunity to use the Internet to provide their goods and services.
In a deregulated environment, this would eventually mean that new network providers would arise to compete with the rent-seeking providers. But the environment isn't deregulated. Currently, however, the government itself—in addition to the high cost of entry in creating a network—creates a very high, oftem impossibly high, legal barrier to entry. This massively complicates the ability of rival network providers to enter the market and create alternatives to the rent-seekers.
It's easy to see what the network providers want: they want it both ways. They want to keep regulation in place that prevents new competition, while, at the same time, they want a lessening of regulation that allows the to use their monopoly power to extort rent from content providers.
That's a good deal if you can get it, but it's not a good deal for the users of the Internet. It's only a good deal for the people who can use their protected position to control the network.
Again, imagine what you'd think if the government licensed a very small number of companies to build roads, then gave those companies the power to determine who gets to drive on the roads, or prevent drivers from travelling more than 10 miles a day, because excessive road use increases maintenance costs.
Network providers already make their money off of Internet use through the imposition of bandwidth charges. That isn't enough for them, apparently. They want their bandwidth charges, and they also want whatever extra premium they feel the market will bear. And they are comfortable in demanding it because they know that no realistic alternative will arise for years, because they hold a protected position, thanks to the government.
If we're not gonna deregulate the whole shooting match, then we must prevent the network providers from using their favored position to eliminate competition for content provision.
Network Neutrality does not exist in a vacuum. It exists in a pre-existing regulatory paradigm that has to be considered when discussing it. Network providers make the argument "Don't regulate the Internet!" But that is a deeply disingenuous position. What they don't want regulated is their ability to seek rent. And that's the only deregulation they are interested in.
Some have argued that if some network providers start to act in a discriminatory fashion, then others will step in and seek less rent, in order to attract more customers.
No. They won't.
First, for many network providers, there's simply no reason for them to do so, since they don't face a competitive environment. in most cases, if you live in an area where Cox Cable is your broadband provider, then your choice is pretty much limited to Cox, perhaps the local telephone company for DSL, and...nothing. Cox doesn't have to worry about you looking for a competing network provider, because, for the most part, there isn't one.
Second, there isn't likely to be one, because the barrier to entry in the network provision market is so high. Positing that some mythical competitive environment will spring up is a pipe dream. It certainly didn't happen after the cable industry deregulation in 1996. All that allowed was for the cable companies to compete with phone companies for phone and internet services, whil maintaining the bar against phone companies from creating rival cable services.
As a result, cable rates increased by 50%, while service levels declined, and consolidation—and less competition—occured in the cable industry.
You can't apply free-market reasoning to a market that isn't free. Market forces don't provide solutions in markets where they aren't allowed to operate,
To repeat, if we're not willing to toss out the whole regulatory scheme that provides high—indeed, legally impermeable—barriers to entry, then eliminating Net Neutrality is simply a non-starter.
Network providers can't have it both ways. They can't operate in a government-protected oligopolistic market, and also restrict access to their network. If they want to restrict such access, then they need to have a completely unregulated, competitive market. If we can't have that, then they can't be allowed to use their privileged position to seek rent.
Speaking as someone who spent a few years in the telecom industry, this is spot on. The folks who run those companies see it as their natural right to rent-seek. It’s the way they’ve done business their whole career.
Those who would argue that allowing more flexibility will lead to more innovation by the carriers are smoking crack. Cable companies didn’t do squat on TV innovation until the satellite disk folks started challenging them. The telephone companies have had over twenty years to figure out how to do network access over telephone lines (starting with ISDN In the mid eighties, and they still have not gotten it right according to folks I know who have tried DSL recently.
The cable folks got rather lucky in having a huge pipe into houses at the time one became very necessary, so their efforts as ISPs have not been quite as bad as their TV efforts. But I’m still not impressed with their level of service - what good is 6 megabit when the latency is so high that you wait twenty seconds for the web page transfer to begin? Broadband in parts of the Far East show what’s possible, and puts us to shame.
The telephone folks are still smarting from the fact that the world evolved right out from under them, and you can bet they’re ready to do some serious rent-seeking on whatever they sell next to shore up their financials. The cable folks mostly got their start with monoploy franchises and shoddy service. Why in the world would we want to give those semi-monopolists the benefit of the doubt?
What I don’t get is why we need another regulatory regime to deal with this supposed problem. First, we have antitrust laws that impose restrictions on parties with monopoly power. for example, there is the "essential facilities" doctrine — where a monopolist must provide access to its essential facilities on reasonable terms to competitors.
one thing we can be sure of is that if there is "net neutrality" there will not be a competitive network. On your highway analogy — what you are saying is that it should be illegal to build a toll road to compete with the surface streets. If that rule were chosen, there would obviously be no toll road; consumers it would seem would be worse off. If a toll road is built, the toll will be at a price at which people who value it at the toll OR ABOVE will take it. So if there is a $1.00 toll, and it’s worth $10.00 to you to take the road, you get a $9.00 benefit (that’s called consumer surplus).
There is already competition in cable to the home and competition for the backbone. If you’re right that content is king, then consumers will swtich providers if their favorite content is faster or cheaper on a different network. In other words, let’s not assume that markets can’t work to establish the right price for carriage. Don’t forget that in cable, the network is a monopolist, but still PAYS the content for the right to carry, not the other way around.
What I don’t get is why we need another regulatory regime to deal with this supposed problem.
We don’t need ANOTHER regulatory regime. we simply need the regulatory regime we had until a few months ago. Or, no regulatory regime at all. What we don’t need is a requlatory regime that allows network providers to leverage their government-sponsored monopoly power into rent-seeking.
Don’t forget that in cable, the network is a monopolist, but still PAYS the content for the right to carry, not the other way around.
Have you even been paying attention to this issue? The netowrk providers aren’t asking to pay for content. they are asking for content providers to pay them.
If you’re right that content is king, then consumers will swtich providers if their favorite content is faster or cheaper on a different network. In other words, let’s not assume that markets can’t work to establish the right price for carriage.
Yes. In a free market. That isn’t what we have now. Did you even read what I wrote?
Pixelm’s post above is exactly what every Republican spouts verbatim when talking about anything dealing with regulating telecom.
They seem to live in an ideological dream world instead of looking at what’s actually happening right now, in the real world.
As far as the Internet is concerned, there is only one pipe into the vast majority of homes in the US. This is a monopoly - and the situation is not changing.
Why is this reality so difficult for Republicans to understand?
Without Net Neutrality, the Internet is going to turn into a "pay to play" system like cable tv is now for cable content providers.
What’s worse is all the deals that will take place behind closed doors for what Shopping Sites we’ll be able to visit. I may not be able to shop around the entire Internet to find the cheapest price. How’s that good for the consumer?
Without Net Neutrality, choice is taken away from the consumer in the end, and prices will increase. And innovation is stifled.
The thing I find so remarkable about the net neutrality issue, is how dishonest the telcos seem to be in representing their case. Some of the claims that they repeatedly make are absolutely astounding.
"If big companies like Google don’t pay us to deliver their content, we will have to pass the costs onto our customers"
What exactly do they think that their customers are paying them for every month? They already are paying for the infrastructure, that is kind of the point.
"Content distributors should have to pay for the bandwidth that they use."
They do. Do you think all of those OC24 lines that Google is leasing come cheap? They are no doubt spending millions upon millions of dollars for that bandwidth.
Consumers pay for the connectivity at their end. Content providers pay for the connectivity at their end. Nuff said.