You can’t build a better Internet out of red tape

November 14, 2014

A NBN Co worker arranges fibre-optic cables used in the National Broadband Network in west Sydney

If the latest installment in the long-running net neutrality debate has rendered you mentally exhausted, allow me to approach the future-of-the-Internet argument from a less draining direction. You needn’t worry about mastering such tech and regulatory topics as Title II regulations, peering, and fast lanes.

The net neutrality crowd’s fundamental worries can be boiled down to this: They believe that if the Federal Communications Commission leaves the Internet largely unregulated, the leading Internet service providers like Comcast and Verizon will take advantage of their growing powers to 1) fleece customers and websites (and services) with new charges and fees; 2) reduce commercial innovation and competition by ghettoizing new sites and services that won’t pay their new tolls; and 3) censor content that doesn’t serve their corporate masters. The wild, wonderful Web that we’ve roamed for the past two decades will be subdivided by the cruel, corporate gatekeepers into millions and millions of tiny veal stalls. And the great Internet dream will die.

Few who have held an account with Comcast, Time Warner, or other major Internet service providers would be surprised if these companies behaved in dictatorial and choice-limiting ways. They entered the Internet business to make money, not build a techno-utopia for you. They’re as ruthless as you when you buy a house.

Although the Internet service providers have yet to string the Web pasture with barbed-wire veal stalls or price competing Web sites and services off the Internet, the worry remains that they might if unimpeded. The worry is not irrational: Big Internet service providers have potential leverage over their customers, other Web economy businesses, and the market for ideas simply because there is little competition. If you don’t like Comcast’s terms, you usually can’t turn to another broadband provider in your market, because there isn’t one.

And whose fault is that? Well, that would be the government’s fault. It regulated the cable TV business with a heavy hand since its infancy, giving monopoly rights to operators to string cities with coaxial cable. Those policies have been relaxed, so now it’s easier for a new provider — like telephone companies or fiber-upstarts like Google — to create broadband competition. But the market power of entrenched cable operators and the remaining regulatory hurdles still deter new entrants, suppressing the sort of competition that would make broadband companies more mindful of the needs of customers.

The most ardent net-neutrality advocates (President Barack Obama is in the process of becoming one), believe that broadband is so vital to life, politics, and commerce that it must be regulated as vigorously as public utilities like water, electric power, and natural gas, with regulators determining price and terms of service. But as Berin Szoka writes, “utility regulation is a self-fulfilling prophecy: It assumes competition is impossible—and keeps it that way.”

Noting that the technology behind broadband service is nowhere near as static as that for water and electric power, Szoka suggests that policies that encourage competition between Internet service providers instead of carving out monopoly rules will produce the best results. I’m lucky enough to live in one such market, where Verizon pits its Fios service against Comcast, giving me both price and service leverage.

An unspoken premise behind so much of the net-neutrality debate is instead of allowing the market to distribute bandwidth – an unusually scarce resource — the government must intervene to make sure that it is allocated “fairly.” The fallacy here is that available bandwidth is a function of technological progress and built-out infrastructure, and we haven’t even begun to approach the technological limits of how much bandwidth we can produce and distribute. To pinch a phrase from an old column of mine, more capitalism—not less—charts the path to abundance. Bandwidth abundance will help reduce the chances of Comcast censoring the Web or blocking the next Facebook from happening.

The fact that Comcast is currently shaking down big customers like Netflix to prioritize the transmission of terabyte-after-terabyte of movies to viewers is a good sign. It signals to the market that bandwidth is a valuable commodity, and that money is to be made in producing more of it. That’s not a bad thing! FedEx and the U.S. Postal Service charge a premium for expedited delivery, so why should it be evil for Comcast to charge the same to move Netflix’s goods? If the FCC insists on butting in to allocate bandwidth more “fairly,” the market will logically read this intervention as a signal that politics and not cash determine how bandwidth is distributed, and the growth of broadband will stall. In fact, it already has. Obama’s saber-rattling this week caused AT&T to postpone investment in high-speed Internet projects in 100 U.S. cities.

Instead of erecting new barriers to investment and competition, policymakers would be wiser to eliminate them by encouraging new Internet service providers to string cable on utility poles. And don’t forget the over-the-air Internet. My friend Thomas W. Hazlett, former chief economist for the FCC, proposes that we use auctions to reallocate underused frequencies, now controlled by TV stations, to mobile operators and thereby increase phone and Internet competition.

Because my crystal ball has gone missing, I don’t know with any certainty what the Internet will look like in 10 years if we encourage new Internet entrants and more competition instead of giving the FCC the powers that President Obama desires. But I would guess that with proper economic incentives and the continued application of a light regulatory touch, engineers will devise new technologies that will make our current Internet bandwidth look as pathetic as our old dial-up services.

Let’s not fight over the pieces of pie. Let’s make the pie bigger.

******

The pie is on me. BYO coffee. Send pie recipes to Shafer.Reuters@gmail.com. I would love to charge a fee to readers of my Twitter feed, but who would pay? Sign up for email notifications of new Shafer columns (and other occasional announcements). Subscribe to this RSS feed for new Shafer columns.

 

PHOTO: A NBN Co worker arranges fibre-optic cables used in the National Broadband Network in west Sydney July 11, 2013. REUTERS/Daniel Munoz

17 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Boy, have you got this right. Thanks, Jack. We needed this.

Posted by BenMC | Report as abusive

What’s to keep Comcast or other carriers from shaking down Reuters? Or FOX News, or our Government Archives, or Archive.org?

Net Neutrality is not applied to the content, it’s applied to the carrier so that the carrier can not arbitrarily determine which content gets priority and which content is treated as best effort.

All content should be treated as best effort and carriers should not be allowed to apply their priority rules to the consumer’s request for information. Even if it is just LOLCATS.

Applying arbitrary prioritization to some content but not others will actually help carriers HIDE congestion points on their backbone networks and REDUCE incentive to add capacity.

You have it exactly backwards and I don’t think you understand the technology at play here.

Posted by DanTomkinson | Report as abusive

You are an idiot, I live in Santa Barbara and Google if prohibited from laying fiber optics here because AT&T and Cox forbid ANY Competition. We have to pay almost $50.00 a month for the lowest bandwidth, about 25 Mg sec. If Government controlled it we might get over 3 Gigs a sec for the same price. GO TO HELL WITH YOUR F’ed UP Capitalism.

Posted by obadiah | Report as abusive

President Hoover’s advisers, during the great stock market crash, said that the hemorrhaging going on in the markets is a good thing and working as a self-correcting action. That self-correction did happen, meaning the markets punished all the over trading and put the horrible businesses with bad practices out of business. However, the reality of that action put millions of people out on the street with no job, no means of getting a job, no food and it took out some good businesses as well. So, did that corrective action drive the market and business innovation? No, it did not.

The argument you’re making about Comcast prioritizing the network by “shaking down” companies like Netflix is a kin to the arguments made by the capitalists of the 1920’s. Gatekeepers, like Comcast, are not interested in driving innovation, or in competing with other businesses for your money, for that matter. They are interested in making money and working on data packages that punish you for streaming too much Netflix into your house. Let’s face it; Cable TV is dying. As they raise their prices, more people decide they can’t afford it, so they drop the TV portion, which causes further price increases, which causes more people to cancel, so on and so forth. As an internet gatekeeper, Comcast wants to encourage you to buy their TV products and steer away from companies like Netflix. How is that going to expand the internet and drive innovation?

President Obama’s choices for heading up the FCC, I believe, is a terrible choice for regulating the markets and enforcing net neutrality, but I don’t trust business in making decisions for the betterment of all. Whether I agree with the decisions of government or not, their job is to do what they think is best in terms of the collective good of us all. If we’re to keep expanding our electronics frontier and keep internet expansion growing, then yes, we need to rethink some of our current regulations that have been engineered by the industries to benefit them and the financiers who profit off of the profits of these regulations.

So, should the internet be treated as a utility and regulated accordingly? Hands down, I answer that with a resounding yes. However, the question is how to do it? There are many internet gatekeepers along the way towards accessing the internet, all of which have their own purpose, agenda and ideas for what they want transmitted over their network. It is a slippery slope that I would not want to navigate. Yet, doing nothing is not going to drive internet usage or expansion. While at the same time, too much regulation will have the same effects as not enough. As a side note, have you noticed that since the deregulation of the electric utilities, that outage areas have been getting larger and larger over the last decade? Less regulation has ensured higher prices with less infrastructure planning and maintenance, so if we allow these telecom giants to make the same kinds of arguments as the electric companies have successfully done, then history shows that they will more than likely not drive innovation, or expand our broadband capabilities and capacities? In conclusion, I appreciate your thoughtfulness regarding this topic, but respectfully disagree with your conclusions. Business needs to be able to compete in a free market environment and the internet, left to their own means, will twist it to their own ends and will not be the same utility that it is today.

Posted by Scott0110 | Report as abusive

I see you drink incumbent kool-aid.

You also have a very poor understanding of the issue, and how the Internet works. Comcast isn;t slowing down netflix’ connection to the Internet, they are slowing down their subscribers connection to Netflix. even though they are paying for it. They are artificially creating a bottleneck when there isn’t one.

Everybody pays to connect to the Internet. You’re only supposed to pay one time, for your connection, but some ISPs have serious entitlement issues, and believe they should get paid twice for every connection.

If you think ATT has postponed their investment in fiber, you’re a sucker. They haven’t been investing in fiber, their promised fiber rollout hasn’t been happening. Both ATT and VZ have abandoned plans to expand their fiber footprint, because they are greedy and naive enough to believe that LTE can be a replacement for wired broadband.

I know you’re a cynic, but your ignorance on internet technology makes you look like you belong to the tea party.

Posted by KenG_CA | Report as abusive

I find it repulsive that President Obama is ‘urging’ the FCC to maintain a free and open internet.

Tom Wheeler is an OBAMA APPOINTEE, and Obama can FIRE him any time he wants.

Wheeler is nothing more than a shill for Comcast, Verizon and the rest of the greedy bastards who want to turn the internet into their personal money machine.

This is all created by Wheeler, the revolving-door monkey.

He should be prosecuted to the fullest extent of the law, as he’s trying to sell off the property of the people.

Posted by Celebrindan | Report as abusive

This is a joke, right?

You’re not serious about the ‘heavy hand of regulation’, right?

When in fact those ‘regulations’ were written by telecoms and providers for their benefit and profit.

Why else is there ‘no one else to turn to’?

They created monopolies for themselves, no competition and captive markets, and you have the fucking nerve to call that heavy handed regulation?

Fuck you.

Posted by Celebrindan | Report as abusive

This is the horribly misinformed and tragically concluded viewpoint that has been posted to Reuters, maybe ever. And I don’t even need to explain why because there are at least 10,000 people who have already made my argument for me here. https://www.facebook.com/coffeeparty/pos ts/10153362326668327 The death of Net Neutrally will be nothing less than another nail in the coffee of the death of the United States of America.

Posted by LetsGoFlyers | Report as abusive

Slippery slope argument at best. The competition is already built in. Netflix has to pay for the bandwidth it uses. Everything having a site on the net, in one way or form, has to have its bandwidth paid for. Expansion of bandwidth, etc. will not be stifled by the requirement that all bandwidth be treated equally. So long as people demand more services, more movies, more phone interconnection, companies will continue to expand bandwidth. They may delay it because they didn’t get their way, and can’t squeeze as much money out of it at the expense of some, but they won’t for long, because they will quickly lose market share.
The competition is already there. The need for greater bandwidth is already there, with plenty of money to be made. I agree that policies should be set that prevent monopolies from forming, but selling different tiers of bandwidth is unnecessary. The competition is already there, and has plenty of drive, without creating another level of complexity, and allowing companies potential control over what can be seen, and at what speeds. I imagine if this goes through, I’ll have to pay extra to have non-premium content uploaded to my computer at a speed that isn’t mind-numbing. More complexity that is unnecessary, and in my opinion, detrimental. Agreed. Promote competition, but what you are suggesting gives a far greater aid to ATT, and those who can quickly add lines.

Posted by Brazzle | Report as abusive

Fine…if you start with real competition in broadband access. Get everybody 3 or 4 good (and truly independent) choices for their ISP, and monopoly regulation as a common carrier is probably unnecessary. But in today’s real world, give Comcast the ability to shakedown content providers with premium charges and you let that huge monopoly build out its content business even further, making life impossible for any competitor to any part of its wide-ranging business. If you call that an efficient market (Comcast content beats Netflix or HBO streaming because it holds the keys to user access) you don’t understand the term.

Posted by xanthoptica | Report as abusive

Increase competition – best way to keep prices down. Too many monopolies in too many areas of our lives – utilities, for example.

Question for Reuters – why no comment sections on many of the pages? We know you are slanted toward the US administration, as are many other media, but cutting comments is only making it worse for those who want different aspects of thought.

Posted by AZreb | Report as abusive

You’re a moron, how much did they pay you to write this?

Posted by Oligarchsownus | Report as abusive

Very compelling piece sir. It’s a shame that we can’t stop the bad without install “other” bad things. I guess it’s just human nature.

Posted by tmc | Report as abusive

This editorial is confusing the concepts of capacity and velocity as the same thing, which they are not. If someone downloads Netflix all day, they increase their velocity, but the effect on the capacity is tenuous at best. Throttling back their velocity creates an artificial bottleneck, but does nothing to improve capacity.

So to put this back into economic terms, if your ISP can cut back your velocity (or make you pay more for it), what economic benefit would they get for adding capacity? They are just making more profit for manipulating the exisiting service that they already provide.

Your theory that (in the longer term), with ISPs are now making more profit, other companies will jump in to make the investment due to the higher profit margin. However, (assuming that the regulatory environment changes to allow new entrants) the risk is too great. The exisiting ISPs could temporarily reduce prices to a point that makes entry to the market marginal at best, all the while maximizing profit at the expense of the consumer. The underserved consumer at the periphery will see even less service, or even greater price gouging. In addition, Netfix is not in the business of installing broadband. They will not enter the fray as a competitor and start adding miles of fiber. So where will these competitiors materialize from?

This is not like FedEx or the USPS, which charge more to give you greater velocity (your package gets there faster). It costs them more to move your package faster. It does not cost an ISP more to increase velocity; data travels the same speed no matter who uses it. Adding capacity to FedEx is an arithmetic increase (you need more delivery trucks); adding bandwidth is actually a DECREASE in cost per MB.

And please don’t say that it’s the government ‘erecting new barriers to investment and competition’. It’s the ISP asking to raise barriers for access to the internet infrastructure that you and I have already paid for (and that same government built). If the government can’t allocate broadband ‘fairly’, do you really expect a profit-driven monopoly from distributing velocity fairly?

Posted by Mike_s1 | Report as abusive

Excellent article, from the headline on. I’m amused by the number of commenters who disagree: all of them start their response with an insult: “You’re an idiot.” “You’re a moron.” To all you commenters, I’d like to offer a gentle hint: when you open with an ad hominem, you’re shouting out to the world that you have nothing to offer but a frightened, closed-minded, mentally deficient response.

Posted by YKLWEF | Report as abusive

wow – this topic stirs a lot of emotion.

I don’t think people understand the issues or the proposed legislation.

Cisco is a company that has been a primary driver of the technology that makes the internet do what it does so well.

Cisco is not a carrier or ISP – but they OPPOSE Net Neutrality. See

http://www.cisco.com/web/about/gov/issue s/net_neutrality.html

Seems to me – Net Neutrality could be regulation that could strangle the goose.

Posted by michaelryan | Report as abusive

The Cicso viewpoint comes back to one key phrase: “within the bandwidth limits and quality of service of their service plan.” This is neutral-there are no limits to what you can do with your share of bandwidth.

What the ISPs are proposing is the ability to monitor, on the content side, who is transmitting more data—but it is the consumer(s) who are demanding it. If we all want to watch a new movie on Netflix, we should be able to, without your ISP effectively taxing Netflix data to keep it on the fast track and reducing other data to the slow lane. Should posting to Reuters be relegated to the slow lane since they won’t pay for the ‘service upgrade’? You have the ISPs determining who gets on to their new toll roads, instead of the consumer getting to choose how to allocate their bandwidth.

So some smart Silicon Valley type will invent a new technology that ships everything from continuously changing anonymous servers, so that the ISP can’t tell who sent it (data is data, after all), effectively rendering any attempts by the ISP to differentiate data obsolete. That would ultimately ensure Net Neutrality–any venture capitalists out there who want to get in on the ground floor, email me on the currently open network I’m posting from.

Posted by Mike_s1 | Report as abusive