UPDATED 15:11 EDT / NOVEMBER 15 2010

Net Neutrality – It’s just the old question of “Who Pays”

Should the government ban the “free” shipping service offered through “Amazon Prime?”  What about Wal-Mart’s announcement last week that they would provide free shipping through Christmas on thousands of different items in response to the success Amazon has had?  These are both examples of increased competition for consumers in the retail market. Consumers love it. Instead of making the person who orders the goods pay for delivery, the company selling the goods is paying.  One of the principal arguments of “Net Neutrality” lobbyists comes down to a proposal that the government should prohibit Internet content providers from engaging in the same type of competition. Why? Who wins?image

Let’s remember one of the origins of the call for net neutrality. It was the insistence that the only user of broadband services was  the “consumer,” the person who pays for “last mile” ISP access. Thus, when then AT&T CEO Ed Whitacre suggested that he had to make sure the cost of the infrastructure was actually paid for, and that the content providers might need to share in those costs, the “net neutrality” debate exploded. It’s not surprising that companies like Google and Netflix might not like that idea. Thus they became primary backers of lobbying operations in Washington to push “net neutrality.”

The debate first raged about “fast lanes” and “dirt roads,” and the fear of “blocking” competitive content. The premise being that the big content providers would be able to afford to pay for high-level, fast delivery, or even exclusivity, and everyone else would be relegated, if at all, to the “slow lane.” Shouts of “discrimination” and “digital divide” echoed in the land. The neutrality lobbyists eventually found themselves in the awkward position of insisting that all bits are the same, that all communications are equally important and that no application of digital distribution is any different from any other. Thus, “net neutrality” became a call that broadband distribution become a “dumb pipe.” First in, first out. A non-managed “best efforts” digital melting pot.

Happily, that view of the world is steadily receding. It was a fake argument in any event.

There is general understanding now that broadband Internet distribution and access has always been essentially “open,” and has succeeded, in part, because of network management. That there are, in fact, different needs regarding distribution for different types of data. The “bit” conveying a video conference call or a telemedicine surgical procedure has to be handled differently from a bit conveying email. That congestion has identifiable causes, it does make a difference to various consumers, and the simplistic “solution” of just constantly building more bandwidth is not sustainable.  The debate, as former FCC Chairman Reed Hundt has noted, has moved on. Thankfully, we have emerged from the “bumper-sticker” stage.

A far more sophisticated discussion is now taking place regarding the “open” or “standard” Internet and “specialized” or “managed” services that can better accommodate the many things broadband distribution has made possible. Some would like to define the “Open Internet” and “Specialized or Managed Services” as so different that they be considered separable networks with defined bandwidth. Others look at the long-time engineering success of what we now call the Internet and challenge the notion that it should be bifurcated. Indeed, to do so may be a serious error. Richard Bennett does an excellent job of looking at that definitional debate here. It’s a very valuable read for anyone who wants to seriously discuss these issues.image

But one area of dispute that still seems to hang on, and few choose to explore, is who should pay, and who “wins” if the government decides to invoke an industrial policy that requires that all the “delivery” costs flow in one direction.

The original theory was that only the “end-user” should pay. To do anything else, the “net neutrality” lobbyists said, would hurt the “small” content providers since in theory the “big” ones could pay more and they would then freeze out the new, innovative providers, or maybe even buy exclusive access.  An “open” Internet, was theorized to be the optimum way to promote innovation. I responded to that “hunch,” propounded by Stanford Professor Barbara Van Schewick, here.

The “innovation” theory seems to ignore the fact that most of the “big” guys, for instance Google, or Amazon or Netflix, are already taking advantage of their scale and financial muscle by utilizing or buying far faster access to consumers through their own massive server farms, or the use of premier CDN providers like Akamai or Level 3. As George Ou recently noted, there is no such thing as “server neutrality” or “storage neutrality”. Thus, there has never been such a thing as “network neutrality” from the users perspective, nor can there be.

So why shouldn’t the content provider be allowed to financially support an optimum connection to the user for their product? Clearly, some already do. In the case of Amazon’s Kindle, for instance, the entire connection is paid for and controlled by the content provider. But of course if you are Google, Netflix, Amazon or the like, if you can be assured that your competitors can’t make such a costly offer to customers, then you don’t have to either! This isn’t about helping the consumer in a competitive environment, it’s about the competitors getting together and wanting to agree not to compete.  But they can’t do that openly, the antitrust folks would frown on that, so the next best approach is to have the government do it for them. Thus, net neutrality.  That’s about the only reasoning left for the argument that content providers should be prohibited from competing by offering to pay for optimum delivery. Ban an electronic equivalent of  “Amazon Prime.” Stop Wal-Mart, J C Penny, and the like from competing with them by offering “Free Shipping.” Make Netflix pay for mail delivery, but prohibit them from paying or competing for optimum electronic delivery.  Sounds like a great idea, but for whom?

A “consumer friendly” argument? It sure doesn’t look that way.

 

[Cross-posted at Digital Society]


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