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Net Neutrality: regulations looking for a problem that doesn't exist

[crossposted from my fledgling weekly live call-in show at PeterKay.Com]

 

I've been loosely following the Net Neutrality (NN) issue for some time now and when I first heard about the general concept (which was that ISPs cannot discriminate IP traffic, i.e. packets are packets regardless of their payload) I was in favor of it. However, as I "matured" and learned more about the general ideas of free markets and government regulation, I grew increasingly against Net Neutrality (NN).

The recent FCC actions to regulate the Internet have driven me to come out AGAINST Net Neutrality. I'm not sure how much interest there is so I'll start with only a few bullets outlining my position and if this heats up I'll continue the dialog. Here's why I'm against it:

  • What's the problem? NN is a regulation looking for a problem that currently does not exist.
  • FCC's authority is dubious. FCC legitimized its oversight of the Internet by classifying it as a "telecommunications" infrastructure thereby falling under its regulatory authority over telecom carriers, something that goes back to the '30s.
  • Where's the track record? Show me a single industry that has thrived and innovated at more efficient levels after they have become regulated: you can't. I read through Woz's bizarre post to "Keep the Internet Free"; he laments about the past where the telecommunication regulation made it illegal for you to own your own phone instrument (if you were alive in the '60s, you'll note that the phone company charged you extra to have multiple working outlets in your home). So what does Woz ask for? Government regulation!
  • No more camel noses! There is no doubt in my mind that the FCC's regulation of the Internet is just the start. More regulations will inevitably come down the road, many of them fraught with political gamesmanship.

That's it for now. I await your responses. I also recorded a CinchCast for more of a stream-of-consciousness audio post for those that want to hear it instead of read it

 

update: this article from the Wall Street Journal echoes my opinion and has some of what feel is disturbing background.

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Comment by Peter Kay on February 1, 2011 at 11:02pm
Thanks Paul for taking the time to put that forth.
Comment by Cameron Souza on February 1, 2011 at 2:01pm
What a great discussion. Peter - Thank you for posting this and Paul, thank you for your detailed explanation of how the ISP side of things works.
Comment by Paul Graydon on February 1, 2011 at 1:50pm

Hmm.. it cut off half of my reply.

 

From a website perspective, youtube et al. it's really not that dissimilar to service providers.  Once you get above a certain size, instead of paying your hosting company, you'll pay for upload bandwidth with a transit provider (or 2), or maybe use a CDN.  Akamai are one of the biggest, currently they're charging between $0.02-$0.06 per GB for commitments of 500TB.

 

To make things additionally fun there are peering exchanges all over the place between ISPs.  In the UK the primary one is LINX and a large majority of traffic between content hosted in the UK uses it.  With peering exchanges you typically just have a fixed cost, e.g. for LINX it's currently £516 per month for a 1 GBps port, with no data charges on top, and a 10 GBps port is just £1588.

 

So up until now your ISPs revenue stream has been based around what you as an end user pays them for service, and a content providers cost has been their upload bandwidth cost.

What the non-network-neutral ISPs are starting to push for is to charge content providers based on the destination of their traffic too, charging them for using the ISPs infrastructure.  It's quite a fundamental shift in the way the market works.  All of a sudden Youtube, Netflix, Vimeo, Apple et all might face large bills from ISPs because that ISPs users chose to go fetch media from that company.

I wonder if the response from the content providers might be to withdraw their content entirely from that provider, which is relatively trivial to do.

Comment by Paul Graydon on February 1, 2011 at 1:12pm

There is no straight-forward answer, but I'll do my best to explain what I understand from my days working on infrastructure for an ISP, though my knowledge is about 3 years out of date.

 

From a purely network perspective there are two costs for an ISP:  Infrastructure to your home, and transit bandwidth.

Infrastructure to the home is fairly straight forward and the largest single cost, just cost of equipment at each stage, fiber to termination points, copper to the homes etc.  Those are one off investment fees mostly.

Transit is a juggling act with pricing based on ratios.  It rather depends on the transit provider what the best ratio is.  It's been a while since I had any direct insight into this aspect of business but a few years back the general rule is that if all you do is download from a transit, they'll charge you.  At the simplest, the closer to a 1:1 upload/download ratio you get, the cheaper it is.  The idea being that you've gone from just sucking their capacity to actually providing content of value to other providers.

That ratio is increasingly skewed towards the download side rather than upload for service providers, and vice versa for content providers (netflix, youtube).  Transit providers want you to use their services, naturally, and there are enough of them that the market is reasonably competitive.  It's like a cable TV package "Get transit with us and you get all these content providers at low latency, which your customers will love."  The difference being that even if you don't choose to use a particular provider, you'll still be able to get at the data through one of your other providers but it'll probably be more expensive and with more hops between you and it as your transit provider will still be getting it from that provider, unless the content provider has signed up with multiple transit companies.

Comment by Peter Kay on February 1, 2011 at 8:33am

Paul there's too much anti-corporate vitriol in your post to allow me to carry a civil conversation.

I've got a just a simple question: who pays for YouTube's bits to come to my PC? YouTube? Me?  If it's both, do we somehow split the cost? I really would like to understand the fundamental economics behind ISP pricing. 

 

Comment by Paul Graydon on February 1, 2011 at 12:33am

What you're paying for is exactly what they advertise : Upload and Download bandwidth.  You're paying for the cost of the infrastructure involved in providing you that data connection at the advertised rates (with variation allowed on speeds due to technology and contention ratios, e.g. DSL lines are slower the further you are from the exchange).  Most of us are on un-metered connections, so you should be able to upload and download at maximum speed, 24x7x365 and what you're charged should cover that.  Of course no one ever does.  Like with any service the provider essentially gambles on how much people will actually use.  On the scale most ISPs operate on, the actual end to end cost of a Gb of data is fairly low, but ISPs have been making very fat profits on overselling their infrastructure for a number of years now.  As we start to use our connections more and more they're faced with having to eat into those large profits to actually provide the service we've been paying for all along, and they (and their shareholders) really don't like that.  Usage based billing is a great way to start charging us more for less service than we were paying for before, and save them from having to upgrade their infrastructure.

 

The ISPs are wanting to have their cake and eat it too.  They not only want to charge us for bandwidth, and well over the odds compared to the cost of providing it, they also want to charge major content providers for using the network our money is paying for.  Any such operating costs should entirely be covered by those people using the service.  E.g. I'm paying for a 10Mb line, my money should cover the cost of serving me 10Mb of whatever data I choose.  As Netflix recently pointed out the actual end user cost is barely 1c per GB, but the ISPs are pushing for charging.  Canada's enforced charges are ridiculous, approaching 200x the actual cost of delivering data.

 

This is one of the clear targets of Network Neutrality regulation.  Bits are bits, no matter who supplies them, n matter what they're for.  Why should Youtube be charge, but Vimeo not?  Why should Netflix be charged, but news.bbc.co.uk not?  Data is data, it's not like packets carrying video data require any more work than that containing HTML, it's all just packets.  If their infrastructure is unable to cope with what they've been selling us for years, they ought to be shelling out of their earnings for better infrastructure, and if necessary raising the prices of our connections (and given the sheer lack of competition in the market they'd be able to get away with it to)

 

Worse still, most major streaming providers like Netflix, Youtube and the like use Content Delivery Networks (CDN).  Microsoft uses one for it's patching services called Akamai.  These CDNs keep black boxes inside the networks of most major ISPs in various locations across the world.  When you download a patch from Microsoft, you're actually usually just connecting to a black box inside your ISPs own infrastructure rather than from Microsoft direct.  Both the ISP and the provider benefit from it.  From Microsoft's perspective they're saved part of a bandwidth bill, plus customers get the files quicker and with less latency.  ISPs traditionally have liked this too as it will save them money on any peering connections they have with transit providers (how they get to the internet backbone) as the only cost to them of you downloading patches is purely internal bandwidth.

 

Comcast and similar are now griping about the "cost" of providing the traffic.  Particular targets for complaints are services like Netflix which can see anything up to a Gigabyte/hr per user, but that's still rarely fully utilising the bandwidth of an individuals connection.  Comcast specifically complains that it's skewing the upload/download ratios on their Level3 transit connections, and warning of how that will end up costing them more, but that's just not the case, and even if it were the case they have other providers they can re-route traffic through.  Every ISP juggles their transit providers to maintain the most optimal ratios, it's standard practice.  At a previous company we actually maintained our old and basically useless newsgroup servers because the bandwidth of all those binary newsgroups being downloaded through one of our transit providers made sure our ratio was more favorable for upload costs, meaning we saved money overall.  Comcast has been deliberately skewing traffic to use Level3 over other providers so that they'd choke out their Level3 connection and make Netflix unusable (evidence has been leaked direct.)

Comment by Peter Kay on January 31, 2011 at 10:26pm

I would really love to have the economics of the industry explained to me.  Here's an example for me:  If I own YouTube, I have to pay my ISPs for all the bandwidth I use. Doesn't that mean that I'm essentially paying to get my bits to the consumer's home?  So if that's the case, what bandwidth is the consumer paying for?  

 

My limited brain wants to say that the servers are paying for the bandwidth that the clients are consuming. So does that mean that the only bandwidth cost I-the-consumer am actually incurring on my ISP is my upload bandwidth?

 

Will be very interesting to see how this issue pans out. I don't think it will be a problem in competitive markets but those those with single ISPs will be very interesting to watch.  If that single-isp market is due to government regulation that will definitely be a problem.  But if that market is single-isp because it's too small and they start pissing people off, it should open the door for a competitor using a different rate scheme.

Comment by Paul Graydon on January 31, 2011 at 12:29pm
http://arstechnica.com/tech-policy/news/2011/01/huge-isps-want-per-...

Here we go.. if you track the way these things go normally, something like this comes out in Europe and you'll see the major US ISPs follow suit.

Also certain major ISPs (primarily Bell, based on money flows apparently) in Canada have 'encouraged' regulation to make the market 'fair'. Now all ISPs in Canada have to start doing usage based charging with stupid caps on bandwidth (25Gb), like Bell is doing. They had a previously competitive market in some cities, but not any more.

Note that Bell has a vested interest in bandwidth caps, they own CTV and services like Netflix and the like have been eating into their viewers. It's also worth pointing out that that is the exact situation we now have on the mainland with Comcast/NBC merger, a company with a lot of influential money that has a vested interest in keeping people off the 'net and watching TV. TV ad revenue revenue is approximately 10x higher per viewer than online media, according to SyFy's senior exec Craig Engler (http://blastr.com/2011/01/the-truth-about-tv-ratings-online-viewing...)
Comment by Peter Kay on January 30, 2011 at 8:39pm

Kevin,

 

There's a world of difference between pointing out a potentially beneficial individual regulation (like no toxic crap in the water) versus demonstrating how an industry has "thrived and innovated at more efficient levels". 

 

That has yet to be refuted.   

 

I'm a firm believer in discussions with the opposition as an efficient method to get to balanced policy and understanding. But lets at least stick to some facts.  So far the majority of responses to the original topic have been what-if scenarios mixed in with a little anti-corporate ramblings. 

 

I'm all for that discussion too. There's a part of me that enjoys it, in fact.  It's a good exercise. 

Comment by Kevin Luttrell on January 28, 2011 at 6:07pm

Quote from Peter's original post:

"Where's the track record? Show me a single industry that has thrived and innovated at more efficient levels after they have become regulated: you can't."

 

Well Peter, we are pointing out that many industries actually benefit and improve with regulations (anti-trust, don't dump toxic crap in water, credit default swapping, and on and on and on), with specific examples.

In fact, this quote above, among others in the original and subsequent posts, become the basis of the current discussion because there appears to be an ideological aversion to any regulation in the post itself, despite assertions to the contrary. The "I never said that" argument( when it's in writing) and "don't confuse me with facts because my mind is made up" attitude only add fuel to this discussion board.

 

Simply put, these aren't straw man arguments. We are discussing your post. Whether it's true or not, the central theme of your post regarding Net Neutrality reads like an ideology of an anti-regulatory mindset rather than a rhetorical, open-ended question from a neutral position.

Don't make the mistake of:

 

A. Not realizing that the conclusion in your quote above is painted with too wide of a paintbrush and is fundamentally flawed. We are pointing these things out. No straw man arguments, just what it is.

 

B.Not realizing that some of us are going to disagree with the declarative statements in your original post, and say so.

 

C. Dismissing a contrary opinion because it doesn't fit neatly in the little box of a narrow topic won't make it go away.

 

Besides, everyone forgot about Net Neutrality already. We have amnesia as a society. Case closed.

 

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