TechHui

Hawaiʻi's Technology Community

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.

Views: 220

Comment

You need to be a member of TechHui to add comments!

Join TechHui

Comment by Barry Weinman on December 28, 2010 at 12:41pm

David....I know you have forgotten more about this than the rest of us know....but I worked for AT&T before Judge Greene broke it up into a lot of little Bells. The FCC regulated At&T. At that time you could get a phone in 10 working days and have any color as long as it was black. AT&T employed 750,000 switchboard operators so customers weren't burdened making long distance calls---the operators did it for you and often listened in to make sure the content was politically correct. Sure it was expensive but the service!!!

It took the courts ( Judge Greene should have a statue on the D.C. Mall next to Lincoln) to run roughshod over the political appointees at the FCC who were easily swayed by the K street lobbyists. I think the point Peter is making is its the FCC---what can possibly go wrong? No good can come from their meddling in the net.

Comment by Peter Kay on December 28, 2010 at 9:57am

I was hoping, David, that you would chime into this. You've got many, many more cycles invested in this topic than probably just about anyone in Hawaii.  As I've stated earlier, anything that increases competition and enables free market principles is something I would wholeheartedly support. Yes, it's good to separate the monopolistic infrastructure (i.e. roads, powerlines, cable lines) from the content (or energy) providers. It's good because it reduces monopolies and encourages competition.  

 

People many times confuse free market principles with pro-business principles.  They are not. Established companies do not want free, competitive markets.  As you stated, the Telecom Act in '96 attempted to increase competition but got twisted around to reduce it. I'm not in favor of that. 

 

Had the FCC made changes in the market structure to enable competition and provide a structural disincentive to anti-competitive practices (e.g. Comcast restricting Netflix, regardless of the reason), I would be singing its praises.

 

But instead what we have is a camel's nose under the tent with regulations that nearly everyone is unhappy about and in the end will do nothing to encourage competition and innovation.

Comment by David Lassner on December 28, 2010 at 9:04am

My $.02.  Your dollar value of my opinions may vary.  I'll use Comcast for examples since they're not active in Hawaii.

Examples of what I hope we can avoid would be situations like the Comcast ISP service interfering with BitTorrent (which has substantial legal content) at a deep packet level, and the current set of issues that may make Netflix access problematic for Comcast ISP customers.

Comcast argues that's it's just "network management," but both cases represent ways in which a cable modem ISP can manage its Internet service in a manner that protects their companion legacy Cable TV business from emerging Internet-based video innovators.  This is not evil -- it's the job of Comcast to maximize value to their owners/shareholders within the extant legal and regulatory framework.  And it's also the American Way for them to influence that framework to enable them to maximize their economic benefit.  So that's also not evil. But it's certainly reasonable for those served almost exclusively by Comcast's to consider whether Comcast's actions to maximize their owners' economic benefits, and the regulatory frameworks that enable such actions, align 100% with broader community interests.

In Hawaii this is a little more abstract since we (mostly) have both DSL and cable modem service available in much of the State (check out the new maps at http://www.hibroadbandmap.org/map).  So if Oceanic decided to block Netflix, most folks in Hawaii who care could shift to HT DSL.  But this isn't true in much of the country where facilities-based competition isn't a reality.

The "unbundling" approach of the 1996 Telecom Act, which was intended to leverage the utility infrastructure of the time to increase competition, was successfully thwarted by the Telcos and the Cablecos, each of which successfully protected their ability to almost exclusive exploit their embedded infrastructures that had been built for other purposes (voice and video respectively).   Many of you will remember when DSL-based ISP services were competitive in Hawaii -- now that's a sideshow.  So for all practical purposes, in the U.S. the owner of the infrastructure is now the only ISP that can meaningfully use that infrastructure to provide broadband services.  This is a major shift from when the telephone network was the access mechanism and could be used to access any dialup ISP of your choice -- either local or national (through 800- numbers).  

And while a history of perfect competion in telecommunicationsin might have led us to a different place, in our real world the Telcos built much altho not all of their market positions as monopolies under guaranteed rate-of-return regulatory regimes.  And the Cablecos flourished under mostly non-competitive altho not necessarily exclusive franchises.  Right or wrong, that's where we are today.

Net Neutrality tends to be less of an issue in countries that have leapfrogged the U.S. in broadband speed/cost, often using structural separation so that customers have a choice of ISP over a utility high-speed infrastructure.  In that scenario, if a customer doesn't like Comcast's ISP policy s/he could simply subscribe to another ISP.

It's easy to assert that if service is bad then someone will just build a new ISP service.  But if we're talking about high speed (wired) services, then what first comes into play is one of the concepts of a natural monopoly (as distinguished from a market monopoly): the high barrier of entry posed by the capital costs of building a complete network that extends to the home.  And even if you believe wireless will be competitive, don't forget that companies like Clearwire/Sprint, AT&T and Verizon have purchased literally billions of dollars of spectrum (yes, from the Govt:-) and must still jump through a variety of permitting barriers to build out services using that spectrum.  So it's far more daunting than just setting up a modem bank or hoping a new teacher will move to town.

Making substantial investments just to try to compete against an entrenched player with immense market share is generally not considered a good bet for the "impatient capital" that drives this kind of infrastructure in the U.S. today.  Rather, capital likes to cherry pick the markets where return is greatest.  As one example, Verizon has made it pretty clear they won't be rolling out FIOS in new locations where they would have to compete against a robust DOCSIS3 service.  (It's no surprise that they divested from Hawaii, where any attempt to grow significant new revenue would have faced off against a formidable Oceanic TW franchise.)

The economies of scale associated with natural monopolies for infrastructure, as opposed to market monopolies, are a major reason we have one set of fully interconnected roads, one water system, one sewer system, one power grid (more below), etc.  

And there's another set of issues around the public rights of way that are involved in certain utilities like these -- and I believe broadband infrastructure.  If you've ever been somewhere like Hanoi you have seen what it looks like when anyone can put up a pole and run wires anywhere they want, e.g. http://www.polyphonic.org/images/articles/Vietnam/2-Wiring.jpg.  Compound that with the "costs" of having anyone dig up the roads to lay conduit, using pole ownership to keep competitors out (read some of the FCC filings on the HT bankruptcy), and it becomes apparent, at least to me, that there are certain areas where just asserting "the free market will take care of things" raises at least as many questions as it answers.  

A few more thoughts:

I think there's probably a useful way to think about elements of broadband infrastructure (conduits, poles, and more controversially in the U.S., fiber) as a utility platform on which entrepreneurs can compete for services based on quality, price and innovation.  Just as Tim Berners-Lee, Amazon and Skype didn't need to build their own Internet to do something new, it seems like we'd want to make sure we can empower new entrepreneurs without requiring separate networks so they can compete against legacy services owned by legacy network operators who control substantial last mile access.

Without belaboring it, I think of the road system in a similar way: we encourage competition in cars, trucks, taxis, gas, electric vehicles, Fedex/UPS -- all on the utility infrastructure of roads and highways.  And in my view, broadband may be for this century what transportation was for the last one.

I think there may be lessons to be learned from and for the forthcoming shift in how we think about the power grid, a shift that seems to have more traction than broadband.  We seem to understand that we need to move from a monolithic power generation and delivery utility to a new model in which power generation and power transmission are distinct businesses that utilize a "smart" grid to support distributed competitive generation by entities other than the utility that operates the grid.  

I don't think there's only one way forward or that any sensible way forward will be easy.  It's a huge challenge to try to change anything that involves so much money, legacy and inertia.  So it's great to see this kind of discussion flourish!

Comment by Daniel Leuck on December 28, 2010 at 1:27am

Dan, so you're saying that if there is a condition where a market is so small that only one provider serves the market at a sufficient but somehow substandard level, that provider should be subject to some type of quality assurance regulation?

I am not. I'm posing the question of whether a monopoly provider (and there are many in small markets) should be required to provide a degree of net neutrality. I'm not talking about quality assurance.

Note that my question wasn't rhetorical. I was soliciting an opinion.

Lets even assume this condition even exists (though I would challenge that to be demonstrated in reality).

Lets nip this one in the bud. This condition is extremely common. Tens of millions of Americans live in areas with only one broadband provider (source). Around 20 million don't have access to any broadband provider. Have you ever spent time in a town with less than 5,000 people? There is generally only one provider of everything. Its not because people think every provider is giving them "incredible value and amazing prices". Its generally because those providers are good enough and there aren't people tripping over themselves to provide an alternative for pizza/shoe repair/broadband in Zwingle, Iowa or Catalina island. For islands with small populations its even worse because the barrier to entry for what is already a small market is even higher.

Do we somehow believe that regulations would only apply to this extraordinary rare condition and never further expand into other markets with multiple providers?

This is a slippery slope argument - an informal fallacy. You could use it to argue against any sort of regulation of any behavior.

There's just no way truly profitable opportunities in open markets are not exploited by enterprising investments.

I agree, but tens of millions of Americans live in areas that are not highly profitable to service with existing infrastructure and technology. When WiMax is cheaper and more prevalent things will change, but for now the single vendor scenario is very real.

On an unrelated note, I find it amusing that while I believe our economic beliefs are fairly similar we always end up arguing in forums :-)

Comment by Peter Kay on December 28, 2010 at 12:11am

Dan: here's a simple case study for you to examine on the benefits of government regulation for small monopolies serving small towns where no competition wants to enter:

 

Young Brothers. 

Comment by Peter Kay on December 28, 2010 at 12:03am

Paul, 

75% of your last post advocates free markets. No argument from at all. If the recent legislation was to further encourage open markets and reduce monopoly power, I'd be jumping and cheering.  The solution is not more regulation. It's free markets.

 

On the profitable municipality issue. Show me the financials. I will guarantee you that government "profitability" is manufactured. I will guarantee numerous costs (i.e. utilities, rent, payroll) are buried or not accounted for. They are playing shell games, as they so often do, to count something as profitable when in fact it's not. 

 

There's just no way truly profitable opportunities in open markets are not exploited by enterprising investments.

 

Finally, on your "when did your Internet get cheaper?", the answer is "every year".  The retail price for Road Runner has been $44/mo since day one, about 1998 or so. Adjusted for inflation, that was $58.91. At the time, the speeds were 1mb at best. Today, we're around 10mb for the same retail price (not even allowing for bundled discounts).  We went from $58.91 to $4.4 per 1mb or a 93% reduction in cost.

Comment by Peter Kay on December 27, 2010 at 11:52pm

Dan, so you're saying that if there is a condition where a market is so small that only one provider serves the market at a sufficient but somehow substandard level, that provider should be subject to some type of quality assurance regulation? 

 

Lets even assume this condition even exists (though I would challenge that to be demonstrated in reality). Do we somehow believe that regulations would only apply to this extraordinary rare condition and never further expand into other markets with multiple providers?

 

But lets even accept that, for the purpose of discussion. 

 

Do we believe that somehow the result of this regulation would be more services at lower cost from this substandard provider? That, of course, is impossible. Costs will and must go up. You can't tell me that a company providing substandard service X for cost Y that is now subject to regulation will somehow deliver service X+B for cost Y-A.  

 

The result? You have a market which was previously satisfied at the current service and cost levels (as defined by not buying from competitors offering better services at lower cost) will now pay higher costs for services that, by definition, they don't want.

 

I cannot see, by applying the science of economics, how government-imposed regulations result in more innovation, lower cost, and better service. Regardless of scale.  

 

 

Comment by Paul Graydon on December 27, 2010 at 2:01pm

"I don't disagree that many companies don't want a free market. They do want protected ones, and that's what government regulations give the larger ones that can invest in lobbying efforts. "

 

A truly free market is one that involves active development and work, both of which cost money.  In an ideal world for most companies the market would never change, they could just become better and better and more efficient about what they do.

 

With telecoms the longer they can go without increasing provided speeds, the cheaper it is to operate infrastructure.  Bandwidth gets cheaper year on year, but when was the last time your internet connection became cheaper?

Time Warners upcoming bandwidth boost is the first time in a number of years where our per Mbps connection cost will have gone down instead of up, but the bandwidth is still way behind other countries in the world.  How is this so?  If you look at the markets there are two key factors.  One is population density, something that can't be legislated.  The other is how open the market is.  In the US it just isn't, and the telecoms companies are actively working to ensure the status quo remains in place.  Each area is a "Local Access and Transport Area", that came from the fallout from the break up of Ma Bell.  Instead of one large national monopoly we ended up with a bunch of smaller more localised monopolies.  Whilst the initial break up resulted in lots of smaller areas and more competition there was no restriction on re-organising and merging.  The final result is that just 3 companies control access to most of the continental states, nicely compartmentalised with no competition.  Isn't that just swell?  With no need competition there is no real drive to increase connectivity speeds beyond the possibility of business focussed applications and eventual consumer demand, and they don't need to move fast on that.  It's not a free market.  It never has been in the US, and unless something drastic gets done in government it never will be.

 

Congress took steps back 15 years ago to make the internet connectivity market free, but screwed it up, badly.  DSL, the mainstay of broadband in most of the world, wasn't classified as an information service, unlike cable, and so the pro-competition, red-tape reducing framework wasn't in place for it.  The result was a proliferation of cheap cable, on a very closed infrastructure, and expensive DSL on a potentially more open infrastructure.  By the time Congress woke up it was too late.

 

I have to strongly disagree with the classification of municipal services as being non-profitable ones.  Some are, some aren't.  In the telecoms case even a quick cursory dig around online reveals a number of of them are making a profit already.  The ones that aren't are generally immature municipalities that are making good progress towards profitability just like any other company that has to splash out a large amount of money on initial infrastructure costs. e.g. EPB in Chattanooga, Tenn. rolled out 1Gb services to customers this year.  They hit profitability 4 years ago after 7 years in operation.  Greenlight in North Carolina offers 100Mb services to all Wilson, NC residents.  It hit profitability this year after only being in operation 2 years, and still maintaining both prices significantly cheaper than Time Warner (the main cable service provider for the area) and faster.   Time Warners response?  Not competition, but legislation.  It's cheaper to bribe a senator than actually compete in an open market: http://www.dailytech.com/article.aspx?newsid=14934   In Greenlight's case the city had approached the telcos about getting faster service and were told there was no market.  Similar has been heard in a number of municipalities cases.

Both examples are non-profits so I guess "surplus" is the appropriate term, but it means they're now making enough money from selling services that they're able to finance infrastructure growth and development.  If the municipalities can make a profit from faster and better services, why can't the other telcos?  Why do we keep hearing over and over again "It's too expensive" and "There is no market for it"?

Comment by Daniel Leuck on December 27, 2010 at 12:52pm

Peter, free market dynamics are in play at any scale but they are far more efficient in larger markets. In a small market there is less incentive, so the degree of dissatisfaction with a vendor needs to be much higher before competition springs. Your assertion that any monopoly must be providing "incredible value and amazing prices" is simply not true in small markets. Anyone who has lived in a small town knows this. In small markets simply not pissing people off is often more than sufficient.

 

The idea of the FCC's role expanding concerns me because I'm a small government kind of guy, but I'm currently undecided on net neutrality. Its a complex issue. I certainly agree with your assertion that the rah rah net neutrality folks are often big on hype and short on facts.

Comment by Peter Kay on December 27, 2010 at 12:29pm

Dan, free markets don't not work [sic] at small scale. They work whether you're buying an apple (fruit) or an airplane. My point is that if you take government out of the equation, a monopoly can only exist because it completely satisfies its customers with such value that its competitors can't even come close. Hence the screwed customers comment (you can't have a natural monopoly while screwing your customers at the same time).

 

If your Japanese teacher did a terrible job, I'm certain another one would come along, sooner or later, to satisfy an unmet need.

 

 

Sponsors

web design, web development, localization

© 2024   Created by Daniel Leuck.   Powered by

Badges  |  Report an Issue  |  Terms of Service