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Wednesday, April 19, 2006

The Case for Net Neutrality -- Part 2

Opponents of net neutrality had their arguments aired in my last post.

Now net neutrality supporters answer back ...

Part 2: Arguments for Net Neutrality

Let us be clear: The Internet will change profoundly without network neutrality. The question is: Will these changes be better or worse for consumers and innovation?

1. Money: Yes, companies have invested huge money in broadband infrastructure. No, net neutrality is not "internet socialism." Nor does it require a government taking of private property. We should treat the internet as basic public infrastructure and invest public funds in it, in this case to pay for the ability of all users to access any website on a non-discriminatory basis. This argument was made recently by Reed Hundt, former Chairman of the FCC (who also suggested to me that the FCC is best-placed to address net neutrality, if Congress will only let it).

Also, it is pure farce that the builders of the infrastructure are investing money without any return. The telcos and cable companies get paid every month by users of their broadband services. This will not change when new broadband is built. Users will still pay to use fast pipes, and they should still receive equally fast access to all websites on a non-discriminatory basis (even if monthly charges for broadband service rises). These companies simply want to take more money out of consumers' (and everyone else's) pockets. Oh, and those rights-of-way that the telcos and cable companies use to build their lines, they didn't pay for those. They were given to them free.

2. Market and Choice: It would nice if broadband were a truly competitive market. But it isn't. Choices are often limited to one or two providers, making it less free market and more oligopoly, characterized by intentionally complicated, opaque pricing. These companies are simply looking to migrate their oligopoly practices and profits to the Internet which is now killing the old telephone business and threatening cable's grip on video delivery.

When this happens, the current open, user-centric internet becomes a class system. Consumers will be hostages to access providers and their hidden prices. Innovators and young companies will also suffer. Premium fees for broadband will surely be a larger burden on them than incumbant companies.

Ask yourself this: could Google have grown its search services so quickly without equal access to customers? Would google be a verb if it had faced a world of tiered pricing from the beginning?

3. "Not Worth the Paper...": Verbal pledges by telcos and cable companies to avoid blocking or impairing competing services are not worth the paper they are printed on. It is comments by AT&T's Chairman, Ed Whitacre or those by Verizon CEO Ivan Seidenberg, that clearly show true intentions -- to make companies pay extra for faster broadband service. They fully intend to turn the Internet into a multi-tiered world, and their "wait and see" attitude (backed by an army of lawyers and lobbyists) is only a tactic to buy more time before forcing tiered pricing onto consumers and companies.

4. Control: Eliminating net neutrality by definition puts more power over the Internet in the hands of telecom and cable companies. They own the infrastructure. They will have greater control over the "chokepoints" -- the pipes that deliver content and access to users. Telcos and cable companies will decide what standards should be used and how services (and content) are bundled. They will create complicated pricing options, forcing users and content companies to wrestle with decisions about content and prices.

"Pay one price" and the open Internet will be gone. Consumers will have to figure out what websites will be available with fast delivery and what will be accessed by the "slow lane." You want cheap access? Fine, but you only get content by Yahoo (thanks to some content deal between Yahoo and your cable company). Or only content on the slow lane. You want fast access to AOL content? Fine, pay more. And also Disney content? Fine, pay more. It will be a mess, unless you buy the full package (which won't be cheap).

Telcos and cable companies will control all options, and complicated business arrangements among telco/cable and content providers will dictate what's available, how fast and how much. Unless you are a small content company, in which case you may not be able to afford the price for fast delivery of your content to users. You and interested consumers will ride in the slow lane.

5. Innovation: Making the Internet more like cable TV is hardly the formula for innovation. How much has cable innovated in the last 20 years? Which has produced more innovation -- the last 10 years of the Internet or the last 20 years of cable TV? Innovation is best served by open access and the fewest market barriers (in price, technical standards, distribution, etc). Don't expect an increasingly consolidated telecom/cable industry to leave market barriers low for the internet.

Oligopolies love tollbooths and complex pricing schemes. And that's what will come for the Internet without net neutrality.

Level playing fields maximize competition and value for consumers. This is how the Internet has grown. This is how startups and upstarts have brought innovation to the Web and the world. And that is how the Internet should remain --- open and non-discriminatory.


lessgov said...

Thank you for this analysis. I would raise a couple of points. First, the majority of markets(and overwhleming majority of consumers) have more than two options for broadband access, not to mention the ability to choose between levels of service. If consumers walk, the Telcos can't charge companies for quicker service anyway.

Second, the comparison between cable and Internet isn't entirely fair. Cable has been subject to heavy regulations (which have, ironically, kept cable monopolies intact) that have stifled innovation. This is precisely what opponents of net neutrality legislation are looking to avoid.

Jeff Kaplan said...

You're right that cable and internet are, to date, very different industries with different structures.

One question is: as cable companies exert more direct influence over the evolution and business of internet service delivery, what impact will that have on the structure of the Internet (on accessibility of different kinds of content and among different content providers?

It's hard to believe that increasing the leverage of these gov-created monopolies (and their pricing and business models) will not have an effect.

fromage said...

Have the principles of net neutrality been violated? Aren't we really talking about a hypothetical problem that may, or may not, manifest itself in a myriad of ways? Shouldn't legislation wait at least until there is a real problem to solve?

Jeff Kaplan said...

It is true that only one violation of net neutrality has been documented (I think a VoIP company was blocked at one point). And one violation does not necessarily make a big problem.

However, telcos and cable CEOs have been explicit on their intentions to begin tiering Internet access and discriminating (admittedly this is a loaded word) between types of content. So maybe not so hypothetical.

I do favor allowing the FCC to step in when the situation is ripe, and not hamstringing it from the start, as Congress currently proposes to do.

fromage said...

Jeff, Doesn't current FCC authority allow them to step in when the situation is "ripe?"

Jeff Kaplan said...

The status of the FCC's ongoing role in net neutrality is one of the big issues. The telecom bill, as currently formulated, ties the FCC's hand to some extent. It has been able to "adjudicate" when a carrier blocks delivery of service from a provider. The case regarding Vonage's VoIP was one example.

However, as new tiered broadband rolls out, the FCC will be prevented from considering any policy changes to ensure net neutrality. And it is not clear that case-by-case adjudication is effective or wise if internet-wide issues arise.

I'll give you one example. Let's say it remains the policy that telecos/cable cannot impair delivery of any content/services (that's an assumption because right now that "policy" rests on the verbal assurances of teleco and cable execuatives -- current FCC does not stop them from degrading someone else's services).

As those companies begin their tiered broadband services, suppose content providers start complaining of impaired delivery of their services.

The FCC may be unable to issue any fines (because no policy exists) and it will be unable to issue a rule providing clarity on what constitutes "impaired" service and what does not. It will be unable to provide a clear rule for all to follow. To fix any such problem, the issue will have to go back to Congress and run through the full legislative process.

In legal terms, it's the equivalent of living entirely under a "common law" system where everything is done case-by-case, and no broadly applied laws/regulations/rules exist. Inefficient and overly rigid for the world to follow.

This is the precisely why Congress gives agencies regulatory powers because they are best-placed to issue more specific rules and respond flexibly as problems arise. And it's exactly why people like Reed Hundt, former FCC Chairman, argue that prohibiting the FCC from performing such a role is a bad idea.

pkp646 said...

Right now the telcos have about a 50% market share (combined) when it comes to broadband access. That means the rest falls to cable, satellite, and wi-fi, all of which would love the telcos to make a mistake on this issue so that they could swoop in and steal that market share from right out underneath them. Competition does exist and will grow given any mistake by the telcos.

Timothy Karr said...

Readers of this comment thread should know that lessgov and pkp646 are part of a tag-team of industry shills who invade blog comments on net neutrality to argue against any government regulation of the telephone companies. Other names who run with this crowd are John Rice, oldhats, AJ Carey and Paulaner01. (Google any of these names in combination and you'll see how their game works).

By tag-teaming the blogs, this small handful of individuals gives the false impression of broad popular support for an industry-friendly position.

What they fail to point out is that Net Neutrality has been the rule that has governed access to the Internet since its inception. It's the reason that the Internet has become such a dynamic force for new ideas, economic innovation and free speech. What they really want is for Congress to radically re-write our telecommunications laws so that companies like AT&T, Verizon and BellSouth can swoop in and become gatekeepers to Internet content -- in a way that benefits no one except the largest ISPs.

I'd like these people to tell us how it is that they appear together (usually one after the other) spouting identical industry talking points.

What gives fellas? Are you being paid to do this? And by whom?

Best I can tell it's Verizon money that's behind this deception.