A Net Neutrality Parable

I have been frustrated trying to explain to folks why net neutrality is anything but neutral, in fact tilting the playing to the advantage of large content providers.  I thought I would take a lesson from Don Boudreaux, who has spent a lot of time thinking about economics education.  He often works by analogy -- sometimes these analogies work for me and sometimes they don't, but they seem a good way to reach people perhaps when traditional arguments have not worked.

Let's consider two cities we will call Gotham and Metropolis.   One day a private road builder proposes the first major highway between the two cities.  The citizens cheer, but the government places one caveat on them -- the builders must be neutral to all traffic.  Every entity (individuals, corporations, public agencies) should each pay the same fixed amount each year for use of the road and everyone should get equal access to the road, no matter how much they use it.

Things start out pretty much as expected.  The company sets the access charge at $10 a year, and lots of entities pay to put their one or two vehicles on the road from time to time.  The road is a great time saver and the capacity of two lanes in each direction is more than enough for easy, fast travel.

This new road and the faster transportation it allows spawns a number of entrepreneurs who find new uses for the road.  In particular, two companies create new logistics services that cause at first dozens, then hundreds, and then thousands of their trucks to hit the road between the two cities.  Soon, more than half the vehicles on the road are from these two companies, and another 25% of the vehicles on the road are from perhaps a dozen smaller imitators.  But each of these companies, despite using orders of magnitude more of the road's capacity than any other individual, still pay the same flat $10 for access to all their vehicles.   These trucking companies continue to add new services -- such as high demand logistics (HD for short) -- that put more and more trucks on the highway. Traffic explodes.  It turns out that these trucking companies have ways to compress their loads into fewer trucks with little loss to their quality of service, but why bother?  They are not paying for the capacity they are using, so why conserve?

But the resulting congestion from these few companies' trucks is slowing everyone else down.  Congestion reigns.  Instead of blaming the trucking companies, everyone demands the road company add more capacity, which they do.  They spend huge amounts of money to accommodate the traffic from these few companies, but due to neutrality rules the costs get paid by everyone, and the annual fee goes up to $15, $20, then $25.  Finally, a few people begin to observe that their access fees have doubled and tripled all to support vehicles from just a few entities.  Proposals come forward:  Can't these trucks be limited to certain lanes to keep them out of the way of other traffic?  Can't they be limited at certain times of day?  Can't the road company charge them per vehicle, rather than a flat fee, so they pay their fair share of the expansion costs?  Can't the road company give them incentives to compress their loads into fewer trucks?  Can't the trucking companies make a contribution to the capital fund to expand the road?

But nothing happens, because of road neutrality.  The trucking companies repeatedly shout "road neutrality" and conduct a successful campaign to convince everyone else that road neutrality is really in their interest.  They try to scare individuals by saying that an end to road neutrality will cause certain drivers to be excluded just because the road company does not like them, when in fact no such proposal or issue has ever existed. Just to be sure, the trucking companies pack the regulatory boards with their cronies. 

I hope the analogy is, while not perfect, at least clear.  Google (via Youtube), Netflix, and Facebook account for over half the bandwidth used on the Internet.  They claim they are worried about ISP's filtering traffic based on political views, but no one has ever provided the smallest shred of evidence that this occurs (and it is incredibly hypocritical since Facebook and Google do exactly this within their platforms).  What they are really worried about is that someone might un-bundle your local Internet service, specifically splitting the high bandwidth using sites from the low.  An ISP might very rationally offer a much lower monthly rate to someone who accepted a plan that did not allow streaming video or which compressed streaming video to conserve bandwidth (oddly, while the Left supports net neutrality, they favor the opposite in cable TV, trying to force unbundling of sites that are cheap for cable companies to provide from those that are expensive (e.g. ESPN).  This is likely Google and Netflix's nightmare.

One way to think about this is a classic vertical supply chain fight.  Suppliers and their channel fight all the time to see who will reap the lion's share of the profits available from selling to the end consumer.  There is a certain amount to be made from selling an incremental streaming movie -- Netflix and your ISP both want a piece, Netflix for the content and the ISP for building the pipe.  In a free market, they would fight it out, and the accommodations between them would likely ebb and flow over time.  What net neutrality does is attempt to impose a resolution of this such that Google and Netflix get 100% of the revenue and the ISP is saddled with 100% of the cost to build the pipe.  Hardly "neutral".

Postscript:  Google is also worried than an ISP might hook up with, say, Netflix and offer Netflix for free to their low-bandwidth products sort of as a preferred provider.  Sort of exactly like what Google does with every one of its own services, given them preferred position in their search engine.  Hypocrites all.

  • Dustin Barnard

    I've been incredibly frustrated by the whole 'net neutrality' debate. That analogy presents an argument for why pure actual net neutrality might not be a good thing. I think it's a decent argument, but I think an intelligent discussion could be had. But what we're talking about is not even true network neutrality. We're talking about whether or the internet should be regulated under title II. I'm not an expert on what exactly that means, but at very least it gives the FCC broad powers to regulate internet service providers. It boggles my mind that people were all up in arms about SOPA and various related pieces of legislation that were trying to give the government more power over the internet, but call it 'network neutrality' and people are basically demanding that government increase it's own regulatory power.

  • Jamie

    Your hypothetical doesn't quite work bc no content provider would get a flat fee under common carrier rules. The question is whether the trucking companies that account for half the traffic should pay the same price *per car* as the trucks that only drive on the road once a month.

  • Tom Donahue

    The road analogy doesn't cover the the desire of the receiver for the truck to show up in the first place. If we extend your analogy, the owner of the road gets to decide which goods show up by charging different prices to different shippers. I can get all the Facebook I want, but Amazon Prime is priced out of business.

    A potentially better analogy, and a basis for some form of neutrality, is an interstate with multiple exits, rather than a single point to point road. My house is one exit from that interstate, and my ISP gets to charge me a toll/service fee for traffic that takes that exit, but it shouldn't get to vary the toll or the speed of of the exit based upon the type of traffic. It can also charge a fee for entrance onto the highway, but similarly shouldn't be able to vary the fee simply to favor one form of traffic or another. At least, then, the customer of both service providers (road and the traffic on that road) can control the service that he gets. Maybe he pays the ISP more, for the big fat pipe, maybe the cost of the traffic goes up because of the cost of getting onto the pipe, but the market then has a chance to decide.

  • Joshua

    Net neutrality is stupid unless you have a bunch of (local/ municipal) monopolies and consumers don't have any real choice for broadband provider. Actually it's still stupid in that case, but at least it makes some sense. The better thing to do would be to lift any and all government aid/monopoly licenses to the dominant ISPs. Unfortunately, when most people see a government caused problem, all they can think of for a solution is more government.

  • steamboatlion

    The analogy doesn't work. It's not the equivalent of the trucking companies paying for the road, it's the people having stuff delivered.

    Now they'll argue that Netflix is causing congestion at peak times, driving infrastructure costs. In a rational world ISPs would then charge customers more for data downloaded during those peaks. Have you seen any ISPs in the US proposing that (it's not uncommon in other places I've lived)? If I pay Comcast or whoever X dollars per month to access the internet, what business is it of theirs whether 100% of my traffic comes from Netflix, or 1% comes from each of a hundred different places?

    A foundational design principle of the internet, one that underpins its enormous capacity to drive innovation, is that a packet is a packet is a packet. Once you start letting ISPs mess with that, you risk breaking the internet. Natural monopoly of last mile infrastructure is almost a textbook case of market failure. The current net neutrality rules are not be the optimal solution, but until the majority of consumers have real choice in the ISP market, there's a strong case to do something.

  • irandom419

    Net Neutrality = Netflix Neutrality

  • Mr. Generic

    One packet is not the same as another packet. Streaming services and real-time audio and visual services need constant, consistent and steady bandwidth to operate properly. Other services like email, text chat, and downloading static files do not.

    Your right that it makes no difference if 100% or 1% of your network traffic comes from one particular site. But it does matter for a site like Netflix that all the packets for the video traffic arrive in the order that they were sent. Which means they all need to travel the same network path across the internet. Which means you are requiring a dedicated network path over a network that is designed reroute packets depending on the whim of the router.

    So, going back to the analogy, it is 100% about the trucks on the road, not the actually arrival at the end point. Because, you must have the first truck arrive first and the tenth truck arrive tenth, because having the trucks arrive out of order means you don't actually get the item you want (high definition video).

  • Monsyne Dragon

    Ok, I posted a fairly lengthy (footnoted) comment on this issue in reply to one of Coyote's other postings about three weeks ago, but alas, it looks like Disqus's spamfilter ate it. (probably didn't like my footnotes or somesuch)

    So, to recap in short, the whole Net Neutrality hullabaloo is yet another attempted government solution to a govenment-created problem.
    It worries me because there is great opportunity for government meddling, and cronyist regulatory capture.

    The notable thing of it being it's an attempted (federal) government solution to a (local) government created problem. (specifically access to the 'last mile' rights-of-way to people's homes. Running fiber/cable to residences is expensive enough, but the bureaucratic roadblocks each and every locality throws in the way (each one different, of course) makes it nearly impossible, and drastically limits local ISP selection. )

    That said, there is a fundamental flaw in the analogy Coyote is using here. In the spirit of helping someone you agree with make a better argument by correcting a false statement, here is the flaw: To use the analogy in the post, the "trucking lines" (i.e. Google and Netflix) *are* already paying "per truck". They already pay for their bandwidth, per gigabyte (at the wholesale level, there's some statistical averaging, but that's a minor detail). A better version of the analogy would be delivery companies, already paying tolls per truck on the highway, getting to people's neighborhoods to make the delivery, and the local HOA, which residents already pay to maintain the streets in front of their houses, doesn't want to upgrade the streets to handle the delivery traffic. The "local HOA" in this case would be the last-mile ISPs, mostly cable companies. The part where the analogy falls apart a bit is that the local streets are more of a 'natural monopoly', whereas, you can run a lot of cable/fiber from network providers in the space of the existing rights-of-way to homes. If it weren't for the local bureaucratic roadblocks, folks would likely have more competition for local ISPs and you wouldn't have quasi-monopoly local ISPs trying to get paid twice (by the customer, and by the content provider) for the same service, which is what started this uproar to begin with.

  • marque2

    True regarding QoS but then I wonder womder what difference it makes to me. I pay netix $9 a month and cable $45 a month. If my cable were allowed to charge Netflix an access fee then I might pay $ 16 to Netflix and $39 to cable or worse cable would just pocket the money becaue the cable company has limited competition. Even though I am against net neutrality in concept I don't see it helping me as a consumer all that much.

  • rst1317

    Hypocrites all.

  • rst1317

    It helps Netflix a lot though. They save tens if not hundreds of millions on bandwidth every year.

  • Granja

    How does the analogy change if the company who owns the road also has its own fleet of trucks? And the road owner's trucks are provided favorable road access compared to all the other vehicles?

  • roystgnr

    "An ISP might very rationally offer a much lower monthly rate to someone
    who accepted a plan that did not allow streaming video or which
    compressed streaming video to conserve bandwidth"

    Your belief is that Net Neutrality bans ISPs from offering low-bandwidth plans? Is there any basis for this belief, at all?

  • marque2

    Netflix would just pass those costs on to me. One way or another I will still be paying whether I pay my endpoint provider or if I Netflix.

  • Max Bnb

    Net Neutrality = Price Controls

    It is really quite easy to understand what net neutrality is all about.
    It is Obama’s plan to bring the Internet under the control of the federal government.

    This time, it wants to impose price controls. It wants to keep all prices paid by media companies the same.
    What if an Internet Service Provider wants to charge Comcast or Netflix more money, because it’s hogging the available bandwidth?

    This is the fundamental law of economics: “At zero price, there is more demand than supply.” The FCC denies that this law exists.

    So, it wants to slow everyone down by making sure that the big boys don’t get charged more.

    Obama and the FCC want a legal precedent: control over the Internet.

    The free market response is simple: “No price controls. Let the market decide.”

    Simple, isn’t it?

    If you like rationing, you’ll love net neutrality. If you like bureaucratic control over market pricing, you’ll love net neutrality.

    http://teapartyeconomist.com/2015/02/10/net-neutrality-price-controls/

  • Matthew Slyfield

    No, it wouldn't ban ISPs from offering low-bandwidth plans. However, it likely does ban them from blocking customers on those low bandwidth plans from accessing video streaming services and trying to stream video, which defeats the whole point of the low bandwidth plans from the ISPs perspective.

  • jhertzli

    According to net-neutrality advocates, we had net neutrality laws up to 2002.

    In other words, net neutrality is not a matter of "You need to fill out this form for your Internet connection" or "You need permission from Occupy Wall Street to start an ISP." It's a matter of "ding ding ding ding khkhkhkhkh..."

  • roystgnr

    From the ISP's cost perspective, bandwidth is bandwidth. Neither law nor technology requires them to respect QoS headers, and if they don't do that, then there's no difference between a Linux ISO download and a streaming movie download.

    From a revenue perspective, the guy uploading the Linux ISO doesn't have deep pockets like Netflix, so they definitely want to target their shakedown at the latter, but the difference here is "deep pockets" and "can be targeted with a protection racket", not "streaming" nor "video".

  • mx

    The other side of the "In a free market, they would fight it out, and the accommodations between them would likely ebb and flow over time" situation is that the same market allows ISPs, who are often media companies in their own right, to pick winners and losers in the internet application space.

    Where the road analogy breaks down is that everybody is already supposedly paying for the bandwidth they use. Those trucking companies didn't swoop in and suddenly start sending more and more trucks out of nowhere; everyone already paid to buy a road usage plan that offered more capacity first (they upgraded the number of trucks/hour in their plan). If the road is congested, that's because everyone is using the allocations of road they paid for. Your beef in that case is with the road company, because they overbooked the road (which is great and fine; that keeps costs down for everyone because nobody uses their allocations 100% of the time) and now must deliver more.

    The second problem with the road analogy is that it assumes the road builder is a neutral dispassionate entity just trying to have the best road they can. In reality, the road company also owns a trucking company, and they happen to make some of the goods shipped in those trucks too. So when the road company proposes ideas like making other people's trucks use certain lanes only or charging per-truck, there's always the question of whether the road company has identified a legitimate traffic problem and is earnestly looking out for everyone, or whether they're privileging their own trucks or the trucks carrying their goods over competing truck companies. Suppose a customer pays for a rate of 35 trucks/hour and the road company later comes along and says "starting today, we're adding an additional limit to your account of 2,000 trucks/month." When you complain that you can't possibly use the service you paid for this way, they say "don't worry; just put your goods in our trucks. We don't count those toward the limit." Is that a free market?

    I've worked for a number of tech startups in the media space. We purchase internet connectivity from our ISPs to run our servers. Our customers purchase internet connectivity from their ISPs to access our servers. Why should we be subject to the "ebb and flow" of "accommodations" with Comcast and friends to decide whether we go out of business or not? Net Neutrality isn't simply about Google and Netflix; it's about the next Netflix and whether it can be invented if ISPs can pick winners and losers.

  • mx

    I would agree that there's a lot that can be done to have more competition in the last mile, and would love to see that. Some of that is absolutely a regulatory problem, especially at the local level, and some innovative small ISPs in dense areas are doing point-to-multipoint wireless and other fun tricks to build up quickly and cheaply.

    But at the end of the day, physical internet infrastructure is expensive, especially in a large and sprawling country like ours. Running cable out to many homes is only profitable if you're a monopoly (sometimes not even then, hence the whole rural broadband subsidy regime). I think there can and should be more last mile competition, but it's reasonable to think that isn't going to happen for plenty of households. As long as local ISP selection is so limited, ISPs will want to exploit their monopoly control of the last mile.

  • mx

    Ok, but nothing prevents the ISP from providing only low bandwidth to someone on a low-bandwidth plan. Maybe that amount of bandwidth is insufficient for video streaming (or only sufficient for SD video streaming), and that's fine. The point is that the limitation is based on the rate of usage, not the type of content being accessed.

    If the ISP wants to sell a plan too slow to stream video, they're welcome to do so.

  • mx

    I mean, you're not entirely wrong, but we're kind of stuck in this position because nothing else worked. The DC Circuit ended local loop unbundling, so that ended prospects for last mile competition over the telephone network. The FCC tried to regulate Comcast for its BitTorrent throttling, and the DC Circuit said it didn't have the authority to do that. Then the Open Internet Order got thrown out. Congress wasn't going to act, which could have resolved this cleanly by providing the FCC with authority just for net neutrality, because Congress can't figure out how to keep from defaulting on the national debt right now, so you really think they can handle this stuff? So Title II was really it.

    I don't think most net neutrality advocates are enthusiastic about Title II, but we've also had Title II since 2015 now and the sky hasn't fallen. If the concern is that the FCC could use Title II to enact more control over the internet, isn't that a danger either way? Even without Title II, there was always the danger that the FCC would wake up one day, enact Title II regulations, and go do something damaging. It would have been more concerning if Congress had to grant the FCC more authority, but they always had authority under Title II all along. The grizzly bear has been living in your cabin all along; why are you only complaining about his presence when he wants to do the dishes for you?

    Now, if someone wants to come along and craft a well-written bill that would limit the FCC's Title II authority over the internet such that it would be less subject to abuse in the future, that could be a good thing. The devil, of course, is in the details: what some members of Congress would call abuse is what I would call a good idea, and vice versa.

  • Keith Turnbull

    Tom,
    The problem with your analogy is that on limited access highways (at least the Ohio Turnpike) they do exactly that. The number of axels your vehicle has (I believe is the determiner) determines the cost of your toll. The short ride I typically take costs me .50 the highest fee for the same distance is over $4. The turnpike commission determined that larger vehicles impact the roads more (which they do) and thus pay a higher fee.
    I'm not sure if ISPs should or shouldn't have that power as well, but it does in fact happen in 'the real world' today and we haven't descended into a Mad Max Thunderdome reboot just yet.

  • slocum

    " Streaming services and real-time audio and visual services need constant, consistent and steady bandwidth to operate properly. "

    There's always a bigger buffer. VOIP and skype need consistent, predictable performance, but streaming services are much more tolerant.

    "But it does matter for a site like Netflix that all the packets for the video traffic arrive in the order that they were sent."

    Reliability is built into the TCP protocol. But, in fact, theoretically Netflix could step down to UDP and handle lost and out-of-order packets much more easily than file download (which can't tolerate that at all -- a program file with missing sectors is corrupt and useless, while a netflix stream with some dropped frames is just a hiccup).

  • Net Neutrality is also an indirect subsidy for infrastructure manufacturers.

    If you can't discriminate packets, and if you can't regulate who uses the road, and when --- then you need more "road."

    In this case, Cisco and other makers of switches and relays and fiber reap a huge windfall, because demand for their products just went up.

  • Tom Donahue

    The truck weighs more and takes up more space, so why shouldn't it pay more? I just don't want the turnpike to favor one trucking company over another.

  • bobby_b

    If we paid for electricity, not by metered usage, but by the number of connections we have to the system - IOW, if a factory with one electric feed paid the same monthly charge as I pay to power my house - the electric system would have the same problems as our current internet delivery.

  • marque2

    As long as the low bandwidth is equal. If Netflix were allowed 1 megabit per second and everything else 10 mb per second - that would probably violate laws.

    I have to say though, that most ISPs grossly oversell plans. People don't need 100 mb per second to stream HD TV as they will claim. The 10 mb per second "light email use" plan is enough for 2 high def streams.

    Cell phones too - those V gets 40 mbs while T gets only 38 claims are just silly - what do you do on your phone in general that requires half that bandwidth?

  • Correct, but others won't be paying if they don't use Netflix. And you wouldn't be paying for those who use Hulu, or other services.

  • One thing the Pro-Net Neutrality folks never really mention is how much control Title II grants the FCC to regulate the internet. "Oh sure, we won't use that power (now..)"

  • Exactly. Using Title II is a HUGE threat to the free and open internet.

  • Correct, the solution is a new law, not an old law that doesn't actually apply and has terrible provisions.

  • mx

    Yep. Another chapter in the book of "Congress's dysfunction is messing up the entire government."

  • Matthew Slyfield

    The problem is the bandwidth the user is paying for on is on the last mile. If that user tries to stream high def video, it will work for crap because it backs up at the last mile connection, but all that data is still running across the backbones at full spread. Any attempt to throttle high bandwidth data on the backbone network segments even if limited to just data going to low bandwidth connections could violate the net neutrality rules.

  • mx

    But that's not how streaming video works. If the last mile can only support 2mbps or something, that's the limit on bandwidth the stream is going to use. There's no massive flood of packets all backed up waiting to go the last mile. The streaming provider can lower the bitrate, use a larger buffer, and/or give up and display an error message, but they can't somehow flood the backbone in excess of the last mile capacity.

  • marque2

    But my neighbor the video gamer who chews up 300 gigs a month on Warcraft and Halo, don't have to pay so I am subsidizing them. I don't think there will ever be a system that is quite fair to everyone. And I suspect for most people because of various uses of Internet it comes out to be a somewhat neutral proposition regardless if they subscribe to one of the major streaming services.

  • Suemarkp

    The road analogy is interesting but not the same as others pointed out. I think something more accurate would be charging ambulances more because their lights and sirens make everyone get out of the way (high QoS for the ambulance). Or perhaps a weight fee since the weight does more road damage. I despise road tolls, but yet that is a method used here (Seattle) to give people a lane with more bandwidth (HOV tolling lanes that let single and dual occupants pay to use the lane, 3 or more go for free). They call them "Lexus Lanes", and maybe I'd be less bitter if those were new lanes instead of taking existing lanes and deciding to toll them. I might be willing to pay for an autobahn lane with no or much higher speed limits though. But unfortunately, highway lanes don't get more bandwidth because of increased speed, as safe following distance must be increased as speed increases.

    Finally, I don't see how the delivery truck or some other car has any more right to the road than I do if it is congested. Paying more for speed or damage (weight) seems fair, but lack of bandwidth seems to always be a problem that people don't want to pay for (or seem to have to pay too much for because of government inefficiencies).

  • Heresiarch

    I am not convinced. The road analogy fails because trucking is a commodity. The benefit of those roads does not go to a fatter return on equity for the trucking companies, but falls through to the customer in the form of lower prices. In the case of streaming video, the benefit to the consumer is even more direct, and consumers have responded by demanding large amounts of streaming video. Since it is ultimately the customer who pays for internet service, and since customers have voted with their browsers to use large amounts of bandwidth for video, I can't say I have any problem with this state of affairs.

  • Christopher Schollar

    The FCC had the option to force Title II, but they hadn't yet done it. Now they have, the individual bureaucrats were not even thinking of using those powers until the institution decided they are fair game. Using your analogy, the grizzly bear was outside the cabin, now the board of the FCC has opened the door, which was always an option, just a bad one.

    I also don't like the argument that it was too politically difficult to pass "my legislative bugbear", so lets use a regulatory back door. If it cannot be passed legislatively because it is not popular, craft better laws and win support. The point of Congress is to not act if they cannot pass something, congress not acting is a feature of the system. Just because you think it is against something right (TM), you are prepared to bypass a real check on government power. This sets a precedent which will be used again for things that you believe are wrong. I suppose at this point the cat is out of the bag, but it doesn't mean it is a good argument. Allowing congress to abdicate their responsibility to regulatory boards does not help make congress functional because it relieves them of political pressure to actually do their jobs.