Re: Net Neutrality and Your Internet Bill

On Fri, Dec 3, 2010 at 4:15 AM, Karl Swenson <[email protected]> wrote:
> "Under net neutrality, he will be charged for a capped amount of data per month, beyond which he will pay extra."
>
> Uh huh.  And this doesn’t surprise me why?  All you online Netflix guys, get out your wallets.

Not only am I completely unsurprised, but this is happening already
and has very little to do with network neutrality.  Most of the
advertising literature will claim "unlimited", but the fine print
gives them a way out by which they can limit anyone who they deem to
be excessive.  They cap the bandwidth speed, overall bandwidth per
month, as well as peak hour traffic.  Comcast will only give me full
speed for the first couple of seconds of any transfer, after which I'm
automatically throttled.  I've had friends who have had their Comcast
or Verizon service shut down to dial-up speeds or completely turned
off because they watched too much Hulu and Netflix, and they ran up
against some unadvertised soft monthly limit (after some vigorous
complaining they were reinstated).

Big web sites already pay between a nickel and a dollar for each and
every GB uploaded and downloaded.  See e.g.
http://aws.amazon.com/rds/pricing/ (Data Transfer).  I'd prefer that.
There are three basic reasons why this is a different situation for
consumers: 1) there's a marketing advantage to "unlimited", and people
like to know how it will hit their budget upfront, 2) the last mile is
much more expensive than a co-lo facility, 3) the last mile is owned
by an oligarchy of greedy politically connected bastards who gladly
took government subsidies to build their local monopolies and are now
overcharging us and want to also stand as a tollbooth to anyone they
can extort money from so they are crying and lobbying that the wires
that were built with public funds over public easements might possibly
come under some sort of public scrutiny.  Yes, I don't like them much.

For point one, I don't think it's a big deal: most people are already
used to budgeting "pay as you go" for their natural gas, electric,
groceries, gasoline (petrol), etc.  Most people are also used to cell
phone plans that offer several packages which will cover what 50%,
80%, or 95% of people actually use in a month, and only nickel and
dime them when they go over that.  My only desire here is some more
"truth in advertising", because it's pretty dishonest and heavy handed
the way it's usually done now.

Points two and three are more difficult.  Companies like Google,
Facebook, Netflix, and Amazon already have connections to, deals with,
and infrastructure supporting most major internet backbones providers
and ISPs.  They can reroute their traffic 100 different ways in order
to reduce latency, handle bandwidth, save money, etc.  At the hosting
level, network connections are plentiful and competitive.  At the
consumer level we are lucky if we have two different providers who
will give us service (and we don't have the ability to choose
whichever is faster or cheaper on a minute by minute basis).  Large
portions of the country basically have only one viable high-speed
provider who is fighting tooth and nail to keep competition out.

If we had competition in the last mile, network neutrality just happen
without legislation, since it is the expected result of a competitive
market free from coercive participants.

From an economic perspective, it would be preferable if I (and nearly
everyone else) owned the last mile of cable/fiber/etc from my house to
a switching station.  It would cost a small fraction of the price of
the house and property it services.  If competitors were all allowed
to enter the switching station, I would be free to choose any
competitor I chose.  This would dramatically open up competition, and
we would suddenly see half a dozen new local entrants in every local
market, because the cost of entry to the market would be dramatically
reduced.  I would not choose the competitor who slows down my Youtube
or Netflix traffic unless they got Google or Netflix's money, and
Google and Netflix would be less inclined to negotiate with them.
Wifi is another way to enable lower barrier to entry for new
competitors.  But wifi has its own technical limitations to deal with
and the useful radio spectrum is not infinite.

So Comcast and Verizon can use their gatekeeper status to extort extra
money from anyone they think can get it from.  They obtained their
gatekeeper status via municipal handouts, contracts, subsidies, and
legislation.  They've protected their status vigorously in the courts
and with their lobbyists.  To address the original post, yes network
neutrality as it is likely to be implemented in America might raise
your internet bill.  But the bill would be much smaller if we actually
had a competitive market.  In as much as any network neutrality
legislation were to enable and encourage competition rather than
merely oversee the oligarchs, we would see price drops.

I'm not saying that I'm supportive of any particular regulations.  I
take a dim view of much of what I've seen.  But I am saying that
Comcast and Verizon are villains in need of policing, that their
refrain of "free market" is manipulative lies as they would not and
could not have risen to power in a free market and they have sought
market distortions from the government at every turn.  The FCC
occasionally attempts to play the part of my enemy's enemy in whatever
regulatory dance they are entertaining us with.

Personally, I predict that if Verizon and Comcast push their hand too
hard, then Google, Facebook, Netflix, Amazon, et cetera will form a
joint venture and start investing heavily in the last-mile; not
because they hope to make the sort of profits that Verizon and Comcast
make, but to prevent Verizon and Comcast from eating into their own
profits.  I hope this happens anyway, even if Verizon and Comcast
don't push their hand too hard, because the lack of real broadband
competition is keeping our prices far higher than any predicted
network neutrality legislation.

Sorry for the rambling rant.  Some of the regulatory history and
resulting business decisions are summarized here:
http://davetroy.com/posts/fiber-economics

-- 
Nick

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