The forces of net neutrality regulations warn of ISPs discriminating among content providers, but what about content providers demanding payment from ISPs to carry their stuff?
Unlike the theoretical problem that motivates the neuts, this one is very real:
A little more than a week ago I had a Net neutrality debate with Russell Shaw. Russell Shaw speculated that there had to be some sort of Net neutrality violation going on and that the ISPs were locking ESPN out without some sort of special contract. In Russell’s blog, he speculates:
“My guess is that ESPN360 and Comcast did not come to a licensing agreement. It was ESPN360 that refused to pony up.”
But as I dug a little deeper and discussed the issue with some fellow bloggers Matt S and Richard Bennett and looked around on ESPN360, I came to a startling thought: Could this be a case of reverse Net neutrality service blocking? If this is the case then Russell might be right about a neutrality violation, but he may have gotten the role of the perpetrator and victim backwards.
It appears that what’s happening is ESPN demanding payment from ISPs for access to this service. So where are the regulations to prevent this kind of tiering of the Internet? Google? Yahoo? eBay? You folks are awfully quiet all of a sudden.
Somebody give Charlie Gonzalez a call, he’s the hero on this problem.
Oh but the Net neutrality extremists have already jumped in screaming that this is perfectly acceptable of ESPN. I’ve got Mitch Ratcliffe making FREE MARKET arguments in my blog, LOL.
I can see how a free market argument would work here. If there were a true free market, net neutrality wouldn’t even be necessary. Net neutrality is designed to bring about a free market for content providers in a duopoly infrastructure world.
But I also don’t know that the Snowe act wouldn’t apply here, if ESPN were looked at as a network operator,
The devil is in the details. If ESPN is considering this a content license, then the ISP is also a content provider (to its subscribers) and is a downstream licensee on behalf of its subscribers. Therefore, ESPN could turn some people on or off, even under network neutrality, as long as they offered the same licensing agreements to everybody. It gets terribly complex, of course, and maybe this issue needs some fairness guidelines as well. But with network neutrality, one answer is a competing video sports service, which lets free market pressures work naturally.
Snowe isn’t forcing people to provide free content, thats not its intent. Its forcing the duopolies to be fair in the delivery archecture.
The underlying logic of net neutrality is that the Internet is an open communications medium for relationships (commercial or otherwise) between and among endpoints. This is a perfectly reasonable idea, except when you try to turn it into a legal mandate. In which case you quickly find yourself doing insane stuff like imposing prohibitions on the sale of network services (like QoS) or, in the case of ESPN, prohibiting deals between content providers and ISPs because you worry that could have the effect of making the Internet more like cable TV.
Net neutrality fans should have a little more faith in the fact that an open network is hugely more valuable to consumers than a walled garden. Whatever cost advantages cable providers and telephone companies may have over wireless, satellite, BPL, etc., those advantages are just not big enough to cover the difference in value to consumers between an open network and a walled garden. The Internet will continue to be an open communications medium. Over time it will incorporate new capabilities (like QoS). But these will improve and not diminish the experience that consumers enjoy.
I would have a great deal of faith in the value of an open network if it were a free market from endpoint to endpoint. If we want to shift this debate to how we will compel the legacy infrastructure owners to allow competition, we can drop net neutrality like a hot potato.
Many of the deep thinkers who are addressing this say that’s the real end game here, and I agree. In fact, I’d like to see a net neutrality bill with its own sunset provision, with the sunset triggered by real competition in the last mile.
Many of the RBOCs (back when there were RBOCs) were prohibited from entering the long distance market until there was CLEC-style competition. Of course, the big guys gamed the system, but the idea still has merit, and we may have learned to close the loopholes this time.
Net neutrality is not the great ultimate solution, but the lack of competition that is rapidly growing because of today’s telecommunication policy is too big a problem to ignore.
Competition is wonderful. And if the cable companies or telephone companies voluntarily decide to hobble their services by closing them off, you’ll really see some competition.
Assuming the market isn’t sufficiently competitive, why do you think the cable companies and telephone companies would exploit their market power through a convoluted scheme of irrational packet discrimination, rather than simply by charging the profit-maximizing price for broadband access to the open Internet? And don’t say they’ll do both unless you want to have a real debate about the circumstances in which monopoly leveraging is feasible. I don’t think this is one of them given the absence of price regulation and the presence of scale economies across virtually the entire spectrum of demand.
By definition, a “convoluted scheme of irrational packet discrimination,” is not desirable. So that’s a strawman argument equivilent to: “Why would they do something stupid.”
They’d do a convoluted scheme of rational packet distribution, where the rationale was to deliver the packets that they make additional money on, through the content side, and delay or drop the packets where they don’t to nudge the consumer to their preferred content partners.
They may go the price increase route in the short term, but that’s a self-limiting solution because it fuels what little competition exists–wireless and satellite delivery. But that is self-limiting in itself, because there’s not sufficient bandwidth to support wholesale adoption of these alternatives with today’s infrastructure.
Because these are stockholder companies, and because the anaylists see that the growth potential for these companies is limited because the public is embracing new technologies that don’t give the telcos or cable companies any new significant revenue streams, the CEOs have been forced to tell the truth about their plans. They’re on the record, so it makes no sense to try and argue, “Why would they want to do this,” when they’ve already told us they intend to do it, and the analysts have told us why they have to.
The CEO comments that I’ve read are nonsensical. They sound to me like they’re whistling past the graveyard, not getting ready to take over the world.
By irrational, I mean a scheme that does not promote efficiency. It is sometimes in an entity’s self-interest to pursue schemes that are irrational from this perspective. But I just don’t see any scenario where the cable or telephone companies could pursue such a scheme here and get away with it. I might support net neutrality if someone can come up with a net neutrality law that does not do stupid things like making it illegal to sell network services that can clearly enhance consumer welfare (like QoS).
Who said anything about efficiency? Is DSL efficient? I don’t think so, but it uses the copper infrastructure and allows the legacy telcos to bundle it with landline service that many customers would otherwise forego.
Telco schemes aren’t about efficiency, they’re about promoting the bottom line. For years telephone companies charged an additional fee for Touch-Tone service even though it was far more efficient to use DTMF signalling (where ‘0’ took no more time than ‘1’), than pulse dialing (where 0 took 10 times the bandwidth.) They got a legacy tarriff that let them charge more (from the days of the 247B Touchtone Decoder) and stayed with it even when it actually promoted inefficiency. Shouldn’t economic pressures drive efficiency? If there has to be a surcharge, shouldn’t it be for the higher bandwidth protocol?
The CEO’s comments are only nonsensical in the long term. Its like every technological improvement, ultimately the technology will break through. FM conquered AM even though RCA/NBC did so much to thwart it (even though it owned the patents on it) that its inventor jumped out the window (or maybe he was pushed?)
Southwestern Bell tried for years to charge people for hooking up modems. These guys did everything they could to thwart the development of the Internet until they realized they couldn’t stop it. Then they turned their attention to how can they gain control, a gameplan they’re pursuing to this day.
Yes, the comments from the CEOs are crazy. Like a fox.
Actually, the example of charging more for touchtone is quite instructive. In that case, the telephone companies were under price regulation. This meant that they were prevented from charging the profit-maximizing price for telephone service. So they tried to increase prices as close as possible to a profit-maximizing level through bogus charges for things like touchtone.
With broadband, they’re not subject to price regulation. In turn their pricing scheme is much more rational. They charge more for higher maximum download/upload speeds. Otherwise, their prices are flat. I suspect they will, over time, adopt additional charges for things like bandwidth-on-demand, QoS, and flexibility in allocating bandwidth between upstream and downstream uses. But since they are free to charge the profit-maximizing rate for broadband, I don’t expect them to start charging for irrelevant things like whether I use Windows, Mac or Linux. Or what browser I’m using.
Efficient means “welfare-maximizing” given existing constraints. In this sense I think DSL is probably relatively efficient. It’s a good re-use of infrastructure that was deployed to do something else.
Not in all service areas. In Florida, regulators understood that charges like these (another exampe: hunting charges–where calls roll over to the next unseized line in a hunt group) were bogus charges but were included in the calculations for reasonable return on investment.
In these jurisdictions, the “party line” (if you’ll pardon the pun) was that the regulators were manipulating the tarriffs as a public policy matter to reduce the impact on the poor, and increase the impact on business. “Lifeline” service is an example. But that changed when Florida Legislators deregulated the industry in the belief there would be competition. We all know how that turned out.
Yes, DSL is a good repurposing of 110 year old technology. There were also tax incentives to build new networks. We all know how that turned out too. Basically the telcos got free money in one instance, and gamed the system to get the gains and none of the losses in the other.
If you have a highly regulated monopoly, you can use tarriffs to promote good public policy through your regulated companies. If you don’t, then the marketplace decides. When there are only two vendors in the marketplace, we are vulnerable.
My response was that efficiency has little to do with why the CEOs and the telcos act the way they do. Am I right in that your response, while lengthy, and informative, basically agrees with me?
Markets enforce efficiency. Not only markets for communications services, but also capital markets.
Which is a long way of saying I have no idea whether any particular executive or company has plans that will promote or diminish efficiency. I do know that in the market for communications services, a deliberate decision to hobble service by trying to create a walled garden is likely to be punished. And it will also be punished in the capital market because it will diminish the company’s share price by making their services less attractive to consumers.
Conversely, I have little faith in the ability of Congress to write a law that prohibits actions that harm consumer welfare, without at the same time prohibiting services that enhance consumer welfare. Given these views, I tend to prefer letting the markets sort this out. Whatever their shortcomings, they are far superior to the fools in Congress.
Nonetheless, as the saying goes, sometimes even a blind squirrel manages to find an acorn. So in the unlikely event that someone in Washington can come up with legislation that outlaws behavior that will hurt consumers while allowing behavior that may help consumers, I will support it. But I’m not holding my breath.
In a way, we do agree. I want the markets to sort this out too. But we are where we are, mainly because we failed in converting a “regulated monopoly” model into a “market competition” model.
I do resent the astroturf groups who take regulated monopoly money and scream “hands off the internet.” If they really believe that, I’ll go out with a back pocket full of cable ties and lash my fiber to their copper distribution network.
I bet they’ll rediscover the reason they have liked regulation all along.
Look, PBJ, the issue on the table is fundamentally as simple as whether America gets a second choice for Cable TV and related services.
All that crap about regulated monopolies is yesterday’s news.