A Not-So-Neutral NetColumnsFeaturedPolicyPolitics

NetNeutrality

Perhaps I am just contrarian by nature.  Last week I defended the universally vilified Donald Sterling, and now will go where few have gone before and actually defend the FCC’s decision against “net neutrality” and in favor of a free internet.

What’s that you say, how can the net be free when internet service providers (ISP’s) can discriminate against certain data?  The answer is that freedom comes from escaping government controls, not desired outcomes.

Net neutrality means more government involvement in the internet, with government agents deciding how ISP’s run their business and control data.  The pro-freedom position demands we reject this intervention into the free market, and advocate for a different net neutrality enforced by market controls, not state controls.

ISP’s control perhaps the most important part of the internet, the part most vulnerable to traffic manipulation.  This “last mile” of the internet, as the saying goes, is the part that goes into your home.  Before the data gets to that point, the net is sufficiently robust that threats to restrict transmission of data are not dire.  The internet’s progenitor, ARPANET was designed so that data would not be dependant on one area of the network – it would use the entire network to transmit and therefore area problems would not defeat the transmission of data.  So, if you want to control how people get data – what types of data and at what speeds they get it, the only practical way to do so is by controlling this last mile.  ISP’s have that control, and the fight over net neutrality is all about trying to make sure they don’t mess with people’s connections for profit or more nefarious motives.

Let us stipulate that those who support net neutrality do so with mostly the purest of motives.  They want to make sure that the access to data over the internet is not corrupted and propose to do so by preventing private ISP’s from discriminating against different types of data.  The other side of the debate is dominated by the ISP’s, and we should further stipulate that they are often not good actors.  Comcast, the largest of them all, has absolutely “monitored the content of its customers’ internet connections and selectively blocked” traffic, and then bald faced lied about it, denying they did so.

Comcast has a number of vested interests in being able to control types and speed of data.  It owns both NBC and online video provider Hulu, so it may well want to slow down competing services, or speed up its own.  The proposition of Comcast playing favorites only intensifies when we look at their aggressive growth.  If their proposed merger with Time-Warner goes through, they will have a 49% market share of the country’s high speed internet subscribers.

But just because the current facts on the ground demonstrate that the main proponents of one argument have good intentions and the opponents are often untrustworthy, this by itself should not in the end be determinative.  The problem is that there may be very good reasons for ISP’s to treat data differently – reasons most consumers would favor, and even if they wouldn’t, good public policy should favor them.  Would you want to limit free speech for those people whose opinions you detest?  Throw out the baby with the bathwater?

You can’t read an article about net neutrality without seeing Netflix mentioned.  The online streaming video service dominates internet traffic with estimates as high as 33% of all data traffic between 5 & 11 p.m.  Netflix management is upset with Comcast because they believe Comcast restricts their data, and refuses to implement the solutions that Netflix has to try and prevent data traffic jams.  Netflix had to pay Comcast a fee in order for them to implement these Content Delivery Networks.  As Consumer Reports describes:

A CDN is basically a network of servers situated at various points at the “edge” of the Internet. That means that instead of everything coming all the way from Netflix, programs can be stored locally at or near the various ISPs. This can greatly speed up the delivery of, say, an episode of “Orange Is the New Black,” since your request is automatically routed to the closest server holding that content.

So, Comcast makes money from its residential customers who pay for access to the internet, and then from the content provider to insure access to the residential customers.  You can see how that has some, including the inventor of the World Wide Web, Tim Berners-Lee, up in arms and supporting net neutrality.

However, companies who use CDN’s (paid or not) are not treating data equally though, are they?  No – they are giving preferences to certain kind of data.  Except in this instance, most consumers prefer that discrimination.  They want the Netflix traffic to move faster.  Companies who offer this kind of discrimination are thus responding to the wants and needs of their customers.

Unless there is a true monopoly, where government has insured that only one company can deliver domestic broadband to a certain location, people should be able to decide for themselves the terms and conditions under which they will subscribe to a given ISP.  If there is a monopoly, then some kind of neutral or “protocol agnostic” approach to network management should be mandated.  For the rest, truth in labeling should rule the day.

It is absolutely unacceptable for companies to sell people internet service the customer believes is neutral, and then manipulate the data behind their backs.  Comcast was rightfully rebuked for this the last time they were caught, and Congress should empower the FCC to deal very harshly with any ISP who does so.  If, however, people want to purchase services from an ISP who manipulates data – the federal government shouldn’t stand in the way.  Consumers should be free to choose who to deal with, and companies who don’t operate with government grants of monopolies should be free to operate as they see fit.

Someone needs to be in charge of how data travels the last mile to our computers/tablets.  Do you want that to be government bureaucrats who are notoriously corrupt, inept and clumsy?  While private companies are not always nimble and trustworthy, in a free market I can always go across the street to deal with another vendor if I choose.  But when government is the decision maker, there is no alternative.

  • Tyler Craddock

    So, what about folks who are served by only one high speed ISP? There are parts of large localities in VA that are only served by one provider. FIOS and/or DSL are not an option. Am I reading it correctly that you think that in those instances the provider should have a “protocol agnostic” approach?

    If so, how (or even can) the provider use differing approaches for consumers in the same area, some of whom may only have one provider and others who may have multiple providers?

    I am not taking sides in the debate — just trying to make sure I understand your perspective.

    • Tim Donner

      Tyler – the answer depends on whether or not there is a true monopoly (government enforced), or merely a single entity that chooses to serve as area. If it is a government monopoly, as I said, then some kind of neutral or “protocol agnostic” approach to network management should be mandated, but it is different if only one ISP chooses to serve a given area. Think about this: if you lived in a town where only one pizza place delivered, would you want their sauce ingredients to be government controlled just because you can’t get delivery somewhere else?

      • Tyler Craddock

        Thanks. That clears that up re your perspective.

      • DJRippert

        That’s not “the answer” and really never has been the answer. Nobody believed that IBM, AT&T or Microsoft ever had a government enforced monopoly. Yet all three were the subject of anti-trust action. Second, the government most certainly enforces a monopoly on cable TV at the county level. There is also an effective monopoly for the wireline telephony market in any given location. At best you can claim that many areas have two competitors offering high speed internet connections over the last mile – the cable company and the telephone company. Two competitors in a market does not constitute effective competition. It constitutes a duopoly or oligopoly.

        Moreover, the very companies who seek to set variable rates for internet access also compete in the market that will be affected by those variable rates. This is reminiscent of the robber barons who couldn’t monopolize steel making so they monopolized the railroads instead and charged their competitors exorbitant rates to ship their steel. I believe it was a freedom loving Republican (recipient of the Congressional Medal of Honor) named Teddy Roosevelt who ultimately put a stop to that heinous business practice.

        Free markets are only free when there is effective competition. Some markets do not have effective competition through no fault of the market participants and through no grant of monopoly by the government. For example, IBM operated under a Justice Department consent decree from 1956 – 1996. When effective competition in a market is missing it is an entirely reasonable function of government to act to restore effective competition or to regulate the market on behalf of consumers.

        Government actions in regulating the last mile are not an example of regulating the free market because there is insufficient competition to consider that market a free market.

        • Samuel E Morrison

          Absolutely. Some sectors of the economy are simply too large and complicated to be subjected to market forces by consumers. The vast majority of ISP users will never know if traffic is being slowed to them and hence cannot make an informed decision with their money about what company to use. Real free market forces, to the extent that everyone dreams about fixing the need for all government regulation, would only occur in a society where every consumer had a perfect situational awareness about both individual products and the market at large. That will never happen and because of that we will always require some level of government regulation.

      • DJRippert

        By the way – the pizza example is deficient. The question is one of consumer substitution. If the sole pizza place were too expensive people would substitute other foods and the pizza place would either lower its prices or go bankrupt. Access to the internet over the last mile has no long list of substitutes. A better example in this case would be the old company towns where the mining company not only employed all the people but also owned the stores and took their own “script” as payment for the products in the stores. No effective consumer substitution existed. In that case government regulation is appropriate even under a reasonable conservative philosophy.

        • Tim Donner

          “Access to the internet over the last mile has no long list of substitutes”

          What you are saying here is that we must either establish a threshold number of “substitutes” or allow the government to mandate the terms of service As I said above, this amounts to a de facto argument that internet service with mandated assets is a right.

          • DJRippert

            I consider access to competitive prices through free markets to be a right in a capitalist society. Government has a role to play in ensuring competitive markets. It is quite debatable whether the last mile is competitive.

          • http://www.southsidecentral.com/ Bruce Hedrick

            I’m proposing a new word. You’ve been “Donnerized” when Tim Donner takes your position that’s contrary to his, then contorts it into something that you never said at all.

  • http://www.southsidecentral.com/ Bruce Hedrick

    Your argument blows up when you see that the majority of American consumers are faced with a monopoly of high-speed internet service because the infrastructure costs to be a high-speed ISP make it prohibitive for a 2nd company to come into the market.

    …The answer is that freedom comes from escaping government controls, not desired outcomes.

    Yay Anarchy!

    • Tim Donner

      Bruce, noting your self-satisfaction at being able to use the term “blows up” in virtually all your glib comments from the peanut gallery, what you are actually saying is the reverse…YAY, government control. And if you think simply leveling the playing field on ISP’s would be the end of the government’s desire for controlling the net, then you haven’t been paying attention. One certainty is that government intervention will raise the cost to consumers, which would then likely trigger price controls and, of course, diminished service.

      Following your line of reasoning, why not increase government controls on, for example, commercial real estate developers in the most expensive cities like New York since the costs of infrastructure development are so high? Why not mandate price controls on gas stations in every rural town since the infrastructure costs are so high? If the market can bear more than one or two ISP providers, it will. In the end, your argument amounts to a de facto claim that affordable and neutral internet service is a right. This is what the government has essentially argued in the field of healthcare with Obamacare. This is a slippery slope, so be careful what you wish for.

      • http://www.southsidecentral.com/ Bruce Hedrick

        “Blowing up” bad things is a good thing in itself. The perfect solution to this dilemma is to let technology evolve and do its inevitable magic to eliminate this problem. In the meantime, we’ve got a real problem trying to apply free market economic principles to a market that’s not free. You’re free to attempt to extrapolate my line of reasoning to other topics, but you’re not speaking for me when you do that. My line of reasoning deals with this (and only this) situation because of the unique circumstances.

        >>>

        … In the end, your argument amounts to a de facto claim that affordable and neutral internet service is a right.

        That’s not anywhere close to my line of thought. But fast internet is somewhat close to a necessity in today’s world and technology is behind the front lines of this battle. My problem with you here is that you are trying to link lots of other issues to this specific problem by yelling “slippery slope”. Let’s work together on this problem… if we can recognize that this problem is 100% specific and not related to health care or real estate.

  • Loudoun GOPer

    The big problem with this argument is that most people live in areas where there may not be a “true” monopoly per se, but there is an effective monopoly. Where I live I have one of two choices. I have Verizon, which provides not only internet, but my phone service, or I can switch to Comcast. Both of these companies are squeezing Netflix and restricting the bandwidth for its service. How do I really have a choice if the only options I have are both restricting access to the content I want to see?

    I don’t pay my ISP for content. I pay my ISP for access to the internet so that I can choose my own content, whatever that may be. I also pay my ISP to provide me with fast, reliable service and I pay a lot of money for it. What this issue boils down to for the ISP is that they are having to spend some money to continue to live up to their end of the bargain they made when they asked for my business. Since they don’t want to spend the money, they decide to blame Netflix for their success and are now trying to extort money from them. If it ends up hurting Netflix’s business and driving more people to the Comcast owned content provider, it’s a win/win.

    Essentially, the ISP’s need to improve their infrastructure to continue to provide the service they promised to provide in the first place due to the dramatic increase in both subscribers and content delivery and they are crying about the cost. They don’t want to cut into their own profits so they want the content providers to pay for it. That’s not capitalism.

  • louexis

    There is an interesting fact about the makeup of the FCC board members that has not been brought up in the discussion. All the members of the board have worked for or lobbied for the ISP industry. It appears the we have a case of the “Fox guarding the Hen house”. It appears to me that the ISP industry wants to increase their private tolls on the government provided internet highway. There is no difference between the government provided roads and highways and and the government provided internet. Through providing the highway exit for the internet the ISP industry wants to increase their profits by controlling the exit tolls without government regulation. What does this do for the public using the internet? For those that can afford it this manipulation mean nothing but for the general public it means paying more for the government provided internet.

  • John Edward McGlothlin

    I admire (and share) your desire to rely on the free market, but it unfortunately does not work here. The natural monopoly which many internet providers have – one which is almost inevitable due to network effects and the economic forces involved – places these private companies in the same singular role as government but *without* any kind of electoral accountability. A duopoly is basically the same. There is no truly free market to rely on and none generally possible in network industries, so regulation such as net neutrality is our best hope for protecting consumers who can’t protect themselves.

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