If You Love Net Neutrality, Then You Can't Complain About Lack of ISP Competition and Investment

Kevin Drum laments that net neutrality seems to be dead, as he puts it:

So Google and Microsoft and Netflix and other large, well-capitalized incumbents will pay for speedy service. Smaller companies that can't—or that ISPs just aren't interested in dealing with—will get whatever plodding service is left for everyone else. ISPs won't be allowed to deliberately slow down traffic from specific sites, but that's about all that's left of net neutrality. Once you've approved the notion of two-tier service, it hardly matters whether you're speeding up some of the sites or slowing down others.

At some level, this statement is silly.   Really, does Netflix and Gmail really need the same connection speed?  And by the way, it makes a lot of difference whether investment is to give more speed to certain websites beyond what the consumer gets now vs. slowing down all the non-payers.  What honest consumer could ever see these options as similar?  Trust a progressive to consider cutting down all the tall trees to be equivalent to raising the short trees.

But here is another thought - Drum is among those who frequently complain about his lack of ISP choices and the slowness of developing speedier service.  But if I am an ISP, do I really want to invest billions in extra bandwidth when the benefits of this investment will accrue 100% to companies like Netflix rather than myself? And don't be confused, studies have shown Netflix using a third of all Internet capacity during peak times.  (updated data here, showing Google and Netflix together using more than half the capacity).  This strikes me as a free rider problem that normally the Left would jump right on.

It's hard to guess how things will play out, but there is a case to be made that Netflix and others paying for the bandwidth they consume will be a huge boon to home ISP access.  A second stream of income to ISP's based on bandwidth and speeds may be just what is needed to revitalize that business.  Of course, monopoly providers could just drop the money to the bottom line without doing anything to their infrastructure, but I trust that Netflix and Google will have every incentive to pound the hell out of ISP's who don't actually invest.  They are not particularly happy about this extra expense, so if they pay it, they are gong to make damn sure they get the speed and bandwidth they promised.  We individual customers have in the past had little power to influence ISP's bandwidth and speed investments, but now we have powerful allies.

  • TD

    I already pay an ISP for service at a particular speed, why should I have to pay twice (once to the ISP and once to the service vendor)?

    Moreover, you get the incentives all wrong. Netflix pays so its content gets through in HD, it will love it if no one else can get through. Netflix could care less if the ISP improves its overall performance.

  • Global Warming

    The free market solution will likely prove problematic. Instead of waiting for the market to fail, the President or appropriate agency-head should speed development through preemptive regulation. All providers could be held to a schedule of constant development. The 1% that can pay for faster download speed and their enablers that want to create a market for antisocial streaming should be taxed to keep the internet egalitarian and - maybe - to close the technology gap. Done right, getting rid of net neutrality in favor of centrally managed growth may even provide a way to decrease the influence of the Koch brothers.

    And, just think of all the growth that will come from government investment in the infrastructure necessary to meet the demand for the technology of the future.

    (Isn't China already doing this? How come we are behind the times? The world is flat!)

  • Mole1

    There is unrest in the forest...

  • Mole1

    For something more substantive:
    1. Yes, obviously video and voice should get priority over text.
    2. The only reason Netflix et al. are being asked to pay is that internet access is sold at a flat fee rather than per GB downloaded. As the evolution in smart phone plans shows, it would be far better to just charge for data. Then, most of the net neutrality arguments just go away.

  • http://siliconvalleyredneck.typepad.com/ Eric Wilner

    One problem here is that the term "net neutrality" has multiple meanings, kind of like "the anthropic principle." I'd observed some time ago that some people were talking about weak net neutrality - ISPs should behave like common carriers, dang it! - and some were talking about strong net neutrality - all customers should get the same service at the same fixed price, even if Alice just checks her e-mail twice a week, while Buster pirates 5 GB of movies a day.
    Now, it seems, there's a third flavor, which seems to demand that ISPs must not offer content hosting, caching, and similar services.

    Trouble with catchy phrases is, you never know what the people using them actually mean by them. And, often, neither do they.

  • Matthew Slyfield

    Because late entrants to a sector get to start with the latest and greatest tech and can readily innovate from there while the early entrants are saddled with a lot of expensive infrastructure that won't support the latest and greatest.

  • John

    Ah yes, the de facto duopopoly for home internet (one cable company, one telephone company), effectively mandated by government regulation, worked so well that you're now willing to let the administration exert more command and control on the infrastructure, even as it accepts anticompetitive rent seeking payments from the likes of Comcast and Verizon.

    Why aren't we do this already? Simple -- government meddling.

    I guess rabid mentions of the Kochs is the new Bush Derangement Syndrome.

  • marque2

    Wait a minute. I pay my ISP $62 a month to deliver internet content I Wang to receive. And in my interest if enough of my neighbors want to see the same web site - the ISP is suppose to threaten and prevent them from delivering a service to me? A service that I paid for?

    What we really need is more competition amonst ISPs then we wouldnt have problems like this.

  • marque2

    It isn't sold as a flat fee to Netflix. Nrletflix already pays some ISP (actually they surprisingly pay Amazon ) to stream a certain level of days over the Internet. If Amazon thinks they aren't being paid enough, they could always try to redo the contract to get more money. To have ISPs artificially restrict service to extort money is really double dipping.

  • marque2

    The problem is there is little free market amongst ISPs. They mostly have monopoly rights granted to them by the city which prevents others from coming in. I have a choice on one ISP - COX. Can't even use the phone company DSL where I live.

    If there were 10 ISPs willing to provide service and one threatened to cut my access to Netflix - I am sure on of the others would give a special Netflix package and provide increased average Netflix speeds.

  • Angry, not stupid

    Comcast has a monopoly where I live. Like all monopolists, Comcast restricts output and raises prices to maximize its profits. I would prefer competition to regulation, but for various complicated reasons* there is no competition in my town or in hundreds of others. Comcast, the legally-buttressed monopolist ("city franchisee") is acting as much as possible like a government-- like Ventura County, California demanding you dig through the asphalt of your parking lot to take a soil sample, Comcast is simply gouging its captive customers.

    Whatever else this may be, it's not an example of a free-rider problem. I PAY COMCAST A BUNCH OF MONEY EVERY MONTH FOR INTERNET SERVICE. I AM PAYING COMCAST TO CARRY IP PACKETS BETWEEN MY HOME AND VARIOUS NAPS AND PEERING POINTS. I AM NOT A FREE-RIDER! Comcast wants to KEEP WHAT I ALREADY PAID, and ALSO to coerce Netflix into BILLING ME A SECOND TIME for the ONE service I'm getting. I pay Netflix for movies... I should not have to pay Netflix to pay Comcast for delivering packets which I already paid Comcast to deliver! In freakin' advance!

    *Including our local telco's urgent desire to shut down the wired
    telephone network in order to force everyone to buy cellular service, in
    pursuit of which goal the telco now intentionally refuses to maintain
    the wires which connect homes and
    businesses to telco switching offices. This is effective at driving people away from wired (buzz, clack, BZZZZ) phone service, but has the side-effect of making DSL not work too. The telco cares more about abolishing wired phone service than it does about selling DSL, so the telco (the only possible competitor) leaves Comcast a near-absolute monopoly!

  • Mole1

    It is sold as a flat fee to consumers. Why?

    ISPs have no incentive to artificially restrict service. That would be stupid; it would leave capital investments underused and other ISPs would take their business. You must mean something different by "artificially restrict service" than I do.

  • marque2

    What other ISP would take their business. Most Americans have access to one maybe two pipes. If Cox decided to stop Netflix altogether I would have nowhere to go.

    Remember I am already paying for "25mbit per second" service and my ISP has three tiers so there is differentiation. What they want to do is artificially restrict Netflix by lowering the bandwidth so Netflix can't show high def movies and artifiicially make the feed jittery so low res will have to pause and buffer frequently. That is extortion and can only be done because there is little or no ISP competition.

    The other issue is that Netflix already pays an ISP for the bandwidth it needs. If Netflix's ISPs feel they aren't getting enough money they can always charge more in a neutral way. What lack of neutrality is about is allowing ISPs who have no contract with Netflix to extort money frombthe company without any contract.

    It would be similar to purchasing oranges from your grocer and later getting a separate additional bill from the shipper who already charged the store.

  • marque2

    BTW I find it sad that "libertarians" seem all convinced that extortion by third party companies is a.good thing. They seem to have developed.a great case of illogic.

    This is the stuff the mob and Union thugs do. I won't unload your truck unless you give us an extra bribe. Or your eggs are in Missouri now - and we transferred them to another hauler. The next hauler wont move them to Texas unless you give him a bribe.

    Could we really work as a society if "neutrality" were stopped in all industries. Why should it be different for the internet?

  • marque2

    If you have a duopoly. AT&T never upgraded my area to more than 750 kilobits per second (yes year 1999 speeds) so I have only one choice. - my cable company. I think more folks have only one choice than you might realize.

  • marque2

    Another good question - what other industry do you legally get to extort the customer for more money once a contract is signed just because the shipping company switches an route ( this happens all the time where one shipper takes an item 90% of the way and another delivers the last 10%)

    Could you imagine getting a call about your perisible product - the end shipper refusesnto deliver as contacted unless you pay him $1000 extra, even though we paid him already.

  • Fredster

    f I can shed a little light on the subject. The issue isn't so much net neutrality (I.e the concept of treating traffic the same, regardless of the source), the issue is peering. The Internet isn't one big uber network, it actually a collection of interconnected smaller networks. It's these connection points (ports) that are causing the problems. They have finite capacity and when Netflix traffic is saturating them, it results in all the traffic through that link slowing down (not just Netflix traffic).

    Traditionally, vendors will establish these connections and upgrade them at no cost, if the amount of traffic going each direction is about equal. If the amount of traffic is grossly disproportionate in one direction, the vendor sending more traffic has to pay the other vendor (because they are causing extra costs, by requiring them to upgrade the rest of the infrastructure, not just the interconnection, to handle the extra traffic).

    In Netflix case, they are putting massive load on Verizon's, Comcast's, and all other home ISP vendors networks. At last estimate, over 30% of evening Internet traffic was Netflix. Verizon et al. are refusing to upgrade the interconnections with the companies Netflix uses to distribute its traffic unless Netflix pays for it (which is reasonable considering that Verizon et al wouldn't have to upgrade these connections otherwise).

    Netflix thinks this is unreasonable since it's Verizon's customers that are requesting this content on the first place. They think the old peering model (based on equal, bidirectional traffic) is outmoded. This too is reasonable as home Internet is largely one direction, which is why Verizon, Comcast offer higher download speeds than upload speeds. The result is an old-style Mexican standoff.

    Net neutrality or not won't fix the peering problem, which is the root cause of the problems.

  • John

    Agreed, and which reinforces my original point -- government interference in the free market leads to inefficiencies and crony capitalism. The childlike reverence for government action exhibited by "Global Warming" is far too prevalent in the US.

  • Eric Hammer

    That's what contracts are for. The shipping contract says "We pick up at location X and deliver to location Y. If it doesn't get there, we are liable." That has been pretty standard for a long time, even with international shipping. Look up "incoterms" for a full list of examples.
    Not screwing over customers and asking for bribes is a pretty strong bargaining point, it turns out.

  • marque2

    Eric you are exactly correct! So why is it different just because it is an Internet? Why is the last shipper in the Internet line allowed to distort extra money for delivery?

    (Oh, and to some extent, in shipping, you still have problems. Like, if you want to have your truck unloaded at a convention center in New York City, the Union folks won't unload, until you pay their Union boss, a little something extra. But this is illegal activity that is tolerated for expedience.)

  • marque2

    Not only do you pay Comcast a bunch of money to receive internet, companies like Netflix pay a lot of money to an ISP to deliver the content as well.

  • marque2

    If there is an imbalance, the sending company has to pay down the chain. Netflix pays Amazon, Amazon, probably pays someone like AT&T - AT&T should be charging Amazon enough to cover the transfer costs, if not AT&T needs to charge Amazon a bit more. It isn't Netflix's issue.

    Like I said in a previous post, it would be like sending a product via shippers (say USPS) and having a subcontractor to USPS decide to charge you directly an extra fee because USPS is giving the subcontractor too much mail, or just because. In Comcast's case, I am sure it is just because.

  • Eric Hammer

    You might be missing the point. It isn't that extortion is a good thing, it is that contracts will evolve to remove it. Either contracts with customers (which is unlikely due to the local monopoly status of most ISPs) or contracts with content providers.
    The simile to shipping is pretty good, but you are forgetting one point: the shipper of the goods chooses the carrier, not the customer generally. The reason is that the shipper has the lever of repeat business and industry reach to bring to bear against bad behavior by the carrier. The customer has leverage with the shipper for reliable service. So the shipper has a very strong incentive to shop around and keep their carriers' responsive, and generally do so with contracts that rule out extortion, or just ceasing to do business once extorted. Those union thugs you mention tend to be the result of government enforcement of labor rules, as without the government backing extortion is a terrible business strategy.
    In this case it seems more likely that companies like Amazon, Netflix and Google have a strong incentive to make sure their subscribers are getting their content, otherwise they lose customers. As a result they are very likely to lean very hard on the ISPs to ensure good bandwidth. The ISPs can push back a bit, but if Netflix tells its customers "Look, your ISP is screwing you, that's why you can't stream nice videos." that ISPs monopoly is going to be in danger. What is more likely is that some new contractual form will develop to ensure that customers get what they paid for, both from the ISP and the content provider. As Coyote mentioned having the ISP customers and the content providers pulling in the same direction should help improve the situation.
    Netflix being dead slow in the evenings already pisses off customers; how much do they stand to lose if things get worse?

  • Angry, not stupid

    What about the additional problem that "cable" Internet providers (e.g., Comcast, TimeWarner) specifically want to coerce their captive customers into buying video entertainment from the cable company, not from Netflix. They are refusing to carry Netflix packets because they compete with Netflix for dollars spent on audiovisual entertainment. It's as if the streets outside your home were owned by Best Buy and Best Buy offered to deliver appliances to your home for $50 each, but if you buy appliances from Costco Wholesale, then Best Buy will charge Costco $100 to drive on the streets near your house, so Costco has to charge you $150 for delivery.

    The cable companies are astonishingly crooked and they've managed to dupe orthodox libertarians like Coyote into supporting them, even though their business model is entirely based on monopoly guaranteed by bribing government officials. This isn't a battle between different free-market participants, it's a battle between consumers and the merchants who want to serve them on the one hand and rent-seekers allied with corrupt government on the other!

  • Anonymous

    Did you just make reference to a Rush song? And the trees will all be kept equal...by hatchet, ax and saw....Im already a fan of this blog....but if what I said is true.....may I say....you cant get something for nothing...you cant have freedom for free...

  • AnObserver

    I have to take issue with declarations of Netflix or Google taking huge swaths of Internet bandwidth. There's millions of individuals at the other ends of those connections pulling data they want and paying their ISPs for the supposed available bandwidth. Looks like the ISPs wanting two bites at the payment apple to me....

  • Fredster

    most of Netflix content is actually distributed through CDNs such as Cogent, not directly by Amazon. The big beef between Verizon or Comcast (I can't remember which) and Netflix was actually over the traffic imbalance between the CDN (Cogent) and the ISP. Netflix got pulled in because 90+% percent of the CDN's traffic was due to Netflix

  • marque2

    http://gigaom.com/2010/05/07/netflix-moves-into-the-cloud-with-amazon-web-services/

    Also note on Amazon's S3 site - mentioning Netflix as a major server.

    http://aws.amazon.com/s3/?sc_channel=PS&sc_campaign=AWS_Free_Tier_2013&sc_country=US&sc_publisher=Google&sc_medium=Brand_Core_AWS_S3_E&sc_content=36369200322&sc_detail=Amazon%20s3&sc_category=storage_CDN&sc_segment=s3&sc_matchtype=e

    Amazon has a huge nationwide network of its own. If you claim that Amazon uses Cogent as well, so be it.

    So if Amazon is distributing the service, why is Netflix being charged by Comcast? Doesn't really make sense does it?

  • Zoran Lazarevic

    Correction: Netflix and Google don't use half the capacity. Their customers who download movies do.

  • http://itsaboutliberty.com/index.php MNHawk

    I wouldn't make it about Netflix. They're just king of the mountain, today. Tomorrow, perhaps Amazon, which just scored HBO content.

    The "problem" is video. Those of us who've tasted TV on demand will never go back.

  • HFB

    I've wondered this myself: Are the major ISPs looking to improve the speeds for those that are willing to pay from the 3rd party side, OR are the ISPs looking to throttle the bandwidth to the likes of Netflix's servers. I would think that the first would be OK but the latter would violate consumer's agreements to the ISP. Though, I've not read all of the terms to my ISP service, I do believe that they sold it to me as XX speed. Right?? Also, weren't the lawsuits on Net Neutrality precisely about the latter? I admit to being not completely informed on this and just reading around the net but it seems that they were looking to throttle unless they paid up but all of us consumers already did.

  • rst1317

    I'm not sure where this "pay twice" claim comes from. I don't agree with it but let's set that aside. If this sort of thing is what constitutes paying twice then we find it all over the place :

    For example, if you have an old twisted pair phone, you pay to have the phone & then "pay again" to place a call outside your LATA ( ? that's what they were called, right? ). We were used to it and called it a long distance phone call.

    I pay for roads when I renew my tabs + buy gas. Yet to get faster, better service on some freeways during rush hour I "pay again" to use the HOT lane.

    etc, etc, etc

  • rst1317

    I agree. We should be more like Europe.

    *sigh*

    If we only had Minitel... ... ...