Net Neutrality is Not Neutrality, It is Actually the Opposite. It's Corporate Welfare for Netflix and Google
Net Neutrality is one of those Orwellian words that mean exactly the opposite of what they sound like. There is a battle that goes on in the marketplace in virtually every communication medium between content creators and content deliverers. We can certainly see this in cable TV, as media companies and the cable companies that deliver their product occasionally have battles that break out in public. But one could argue similar things go on even in, say, shipping, where magazine publishers push for special postal rates and Amazon negotiates special bulk UPS rates.
In fact, this fight for rents across a vertical supply chain exists in virtually every industry. Consumers will pay so much for a finished product. Any vertical supply chain is constantly battling over how much each step in the chain gets of the final consumer price.
What "net neutrality" actually means is that certain people, including apparently the President, want to tip the balance in this negotiation towards the content creators (no surprise given Hollywood's support for Democrats). Netflix, for example, takes a huge amount of bandwidth that costs ISP's a lot of money to provide. But Netflix doesn't want the ISP's to be be able to charge for this extra bandwidth Netflix uses - Netflix wants to get all the benefit of taking up the lion's share of ISP bandwidth investments without having to pay for it. Net Neutrality is corporate welfare for content creators.
Check this out: Two companies (Netflix and Google) use half the total downstream US bandwidth. They use orders and orders of magnitude more bandwidth than any other content creators, but don't want to pay for it (source)
Why should you care? Well, the tilting of this balance has real implications for innovation. It creates incentives for content creators to devise new bandwidth-heavy services. On the other hand, it pretty much wipes out any incentive for ISP's (cable companies, phone companies, etc) to invest in bandwidth infrastructure (cell phone companies, to my understand, are typically exempted from net neutrality proposals). Why bother investing in more bandwidth infrastrcture if the government is so obviously intent on tilting the rewards of such investments towards content creators? Expect to see continued lamentations from folks (ironically mostly on the Left, who support net neutrality) that the US trails in providing high-speed Internet infrastructure.
Don't believe me? Well, AT&T and Verizon have halted their fiber rollout. Google has not, but Google is really increasingly on the content creation side. And that is one strategy for dealing with this problem of the government tilting the power balance in a vertical supply chain: vertical integration.
Postscript: There are folks out there who always feel better as a consumer if their services are heavily regulated by the Government. Well, the Internet is currently largely unregulated, but the cable TV industry is heavily regulated. Which one are you more satisfied with?
Update: OK, after a lot of comments and emails, I am willing to admit I am conflating multiple issues, some of which fit the strict definition of net neutrality (e.g. ISP A can't block Planned Parenthood sites because its CEO is anti-abortion) with other potential ISP-content provider conflicts. I am working on some updates as I study more, but I will say in response that
- President Obama is essentially doing the same thing, trying to ram through a regulatory power grab (shifting ISPs to Title II oversight) that actually has vanishly little to do with the strict definition of net neutrality. Net neutrality supporters should be forewarned that the number of content and privacy restrictions that will pour forth from regulators will dwarf the essentially non-existent cases of net neutrality violation we have seen so far in the unregulated market.
- I am still pretty sure the net effect of these regulations, whether they really affect net neutrality or not, will be to disarm ISP's in favor of content providers in the typical supply chain vertical wars that occur in a free market. At the end of the day, an ISP's last resort in negotiating with a content provider is to shut them out for a time, just as the content provider can do the same in reverse to the ISP's customers. Banning an ISP from doing so is like banning a union from striking. And for those who keep telling me that this sort of behavior is different and won't be illegal under net neutrality, then please explain to me how in practice one defines a ban based on a supply chain rent-division arguments and a ban based on nefarious non neutrality.