Net Neutrality - cutting through the bullshit

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Over the last few years there's been an increasing amount of noisediscussion about net neutrality, particularly in the US. This post is written from the perspective of an impartial (IMO) observer in Australia, distilling the core US problem, and considers the importance of this issue to Australians.

The TL;DR version of this saga is that there are essentially two sides battling out commercials.

On one side there is the content providers. These are services such as YouTube, Netflix, etc who host the content that typical Internet users wish to consume.

On the other side are the last-mile providers - aka ISPs. These are the companies that provide connectivity to end users.

Both parties need each other to satisfy their respective customers. The ISP provides connectivity to end users but doesn't directly host the vast majority of content users want. Content providers each have little pieces of what consumers want but need the ISP to deliver it to their end users.

So at various points around the globe content providers & ISPs come together -- physically -- to interconnect their networks. The issue in question right now is whether the two should simply pay their respective costs to meet, or should one party pay a further tariff to the other? This is a classic negotiation power scenario. Who has more to lose, or more to win?

Right now, in the US at least, the ISPs hold power. They're the ones demanding that content providers pay a tariff for the right to connect. We'll get to why in a second but first here are both sides' views.

If you take the content provider's POV then ISPs are double dipping because the ISP has already charged their end user (i.e. you and me) a monthly subscription fee to deliver Internet, and now they're also trying to charge the content providers another fee for delivering that same data.

If you take the ISP's POV then content providers like Netflix are simply trying to shift their own costs onto ISPs. As users use more data (because of services like Netflix) ISPs have to pay to upgrade their infrastructure and therefore Netflix should contribute towards these upgrades.

They both sound like reasonable arguments but the problem actually goes deeper.

The core problem is that US ISPs have a monopoly on the last-mile. In many areas your only choice for an ISP is an AT&T, a Comcast, or a Verizon. This leads to the situation where an ISP can extract interconnection tariffs from content providers such as Netflix because the end user has no other ISP to switch to.

Picture the average Netflix subscriber on Comcast who is having a sub-par streaming experience due to the interconnection between Netflix and Comcast being saturated. She complains to Netflix that the service is crap, Netflix goes to Comcast to increase capacity, and Comcast says "hey, you should pay us $X for that". Netflix says no, the subscriber can't leave Comcast as there is no other ISP in her area, so either she puts up with a crap Netflix experience, or she cancels her subscription with Netflix.

The second problem is that for various reasons US ISPs have typically sold their Internet to end users on an unlimited usage basis. This creates some rather questionable incentives as highlighted by Geoff Huston in his post RIP Network Neutrality:

... the internet access industry appears to have adopted a retail offering that achieves its greatest reward to the service provider when the consumer does not use the service at all [emphasis mine]. In this case increased use implies greater cost without any increase in revenue. To deter increased use of their service the service provider is, somewhat perversely, incented to decrease the quality of the service. How strange.

The real problem is not Netflix or Comcast. Both are behaving as you would expect them to. It's that the market ended up in this position in the first place - with monopoly ISPs offering unlimited usage of finite resources for a fixed price. It's not clear how this will or should pan out in the US but Australians should be aware of these issues, especially in the context of the NBN.

Aussies may or may not be aware that without the intervention of legislation, competitive ISPs such as Optus, iiNet, Internode, TPG, and competitive infrastructure companies such as Nextgen, PIPE, Amcom and the like we would be looking at our own monopoly ISP situation with Telstra as your only choice. Despite all this effort, and although there is competition at the retail level, Telstra's copper phone lines are still the only way for any ISP to provide ADSL Internet to many users around the country. We've been lucky in some respects that access to these phone lines is "declared" by the ACCC which means access & pricing is somewhat controlled. But let's not harp on the past.

The NBN is building a new, national, monopoly last-mile infrastructure. That is, for many Australians the NBN will become the new, only choice of ISP. Currently owned by the Australian Government but intended to be privatised in future. Given the situation in the US we may want to consider the outcomes of privatising monopoly infrastructure. At the very least, if we do privatise the NBN, there needs to be appropriate legislation to control its market power.

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This page contains a single entry by goosmurf published on May 6, 2014 12:39 PM.

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