What is Net Neutrality and Why it Matters

By Jason Scott [CC BY 2.0]
By Jason Scott [CC BY 2.0]
Ask ten people what net neutrality is, you’re liable to get fifteen different answers. They all tend to focus on keeping things the way they have always been. That is that everyone, content providers and consumers, can get to virtually all corners of the Web whenever they want. University of California, Berkley began their definition, saying effectively the same thing.

“Simply put, net neutrality is a network design paradigm that argues for broadband network providers to be completely detached from what information is sent over their networks.  In essence, it argues that no bit of information should be prioritized over another.”

Call that “content agnostic”. Moving all data from where it came from to where it’s going without regard for who sent it and who will receive it.

It worked just fine for Internet 1.0 (dial-up), and 2.0 (broadband) so far. It transformed people’s lives and, most importantly for me, access to information that twenty years ago would have been very hard to acquire. Life has been good in the information age, but is all that going to change? That’s hard to tell. The FCC announced that new regulations are forthcoming. But only the five FCC commissioners and their staff, no one knows what the regulations will be. We know that it has 332 pages and cannot be released to the public without FCC chairman Tom Wheeler’s  authorization. The vote is scheduled for this coming Tuesday, February 24, 2015 so the window for a preview is closing.

Commissioner Ajit Pai, one of two Republicans in the five member group, has been talking about what it will do without actually giving specifics on the new rules. He claims that it gives new power to the federal to control and tax the internet, and what he’s seen in the regulation is worse than he thought it would be. Without the regulation specifics, speculating what might happen would only unleash a geyser of hyperbole that will not be generally constructive. Let’s look at it a different way.

There are three groups that will be effected by what some are calling Internet 3.0 and only two of them have any real say in what will happen. The FCC and Internet Service Providers (ISPs) hold all the cards. Businesses, large and small, and consumers like you and me are relegated to the cheap seats.

So why is this happening? First, some history. Five years ago, amidst much controversy, the FCC decreed that net neutrality would rein over the web with the same definition as Berkley’s, referenced earlier. Nobody noticed anything working differently because nothing much had changed. This was before video streaming services exploded and the volume of internet traffic skyrocketed. Verizon objected to having to transport all this data from YouTube and Netflix and filed suit against the ruling and in January 2014, a three judge U. S. Court of Appeals panel overturned the FCC net neutrality ruling. By tying the FCC’s regulatory hands, the court put ISPs firmly back in the driver’s seat. What would they do?

To understand what might be coming one must understand two important business practices. First, smart businesses constantly look for ways to maximize profits and business models morph over time to take advantage of percieved opportunities. Second, what every company wants to be is a monopoly because competition is the best form of downward pressure on consumer pricing and without it, prices can rise and contribute to bigger bottom lines.

To the first point, in the beginning, Internet 2.0 was pretty simple. ISPs gave consumers “always-on” connections at higher speeds than previously available. As technological innovations allowed for even faster speeds many ISPs offered them but only in exchange for higher monthly fees. An equitable model that exists today. Motor racers have long known that speed costs money. The question is, “how fast do you want to go?”

Early in this decade, Comcast, who has taken umbrage with Netflix for consuming over 31 percent of all internet bandwidth by September 2013 according to the Wall Street Journal. It wanted to charge them for their massive bandwidth requirements. In effect this is tiered pricing for the content deliverers as well as the consumers. More speed in exchange for more money each year. Is that equitable? This is where things get spikey. A case could be made for this argument. The demand for content from Netflix, YouTube, iTunes and the rest has required ISPs to build out additional infrastructure to handle this increased traffic. Really, where would Netflix and the rest be without ISPs to deliver their content. That’s the carrot where everyone wins but there was buzz about a possible scenario involving a stick. What if ISPs throttled the bandwidth from video streamers as a punitive action. There are many anecdotal accounts of that possibly happening with many different ISPs but I’ve seen no proof.

However it started, when Comcast and Netflix inked an agreement in February 2014, net neutrality effectively ended. The New York Times reported that they had,

“announced an agreement Sunday in which Netflix will pay Comcast for faster and more reliable access to Comcast’s subscribers.”

This stands in contrast to an update to a report from USA Today on February 26, 2014 which stated,

“…while Netflix downloads would result in a faster streaming experience for Comcast customers than before, Netflix receives no preferential network treatment under the agreement.”

So which was it? And how much did Netflix pay? The answer to both are still hidden from the public eye.

Let’s now look into monopolies. Dictionary.com gives seven definitions for monopoly. The second one is most on point when discussing ISPs.

“an exclusive privilege to carry on a business, traffic, or service, granted by a government.”

In the broadest context, Apple has a monopoly on IOS, the operating system that runs iPhones and iPads and only Apple manufactures those devices. Google has a monopoly on the android operating system but shares it with manufacturers like Samsung, LG and others for their smart phones and tablets. Competition between these companies translates to generally lower prices for their products than their Apple counterparts. Is Apple a monopoly? No, because people can buy tablets and smart phones from other manufacturers. No one is forcing consumers to buy Apple products.

With Internet 1.0, consumers in most urban and suburban areas had several ISPs from which to choose. Remember Netcom, Earthlink, AOL and the others? As the DSL era emerged, there were even more choices and although the prices went up, there was an increase in value with faster speeds and the constant connection to the web. Then, the industry started to consolidate.

Since the industrial revolution, as industry sectors mature the number of suppliers in each sector decreases. Think of the automobile. Early in the 20th century hundreds of companies were building cars in the U. S. Some, like Crow Elkhart ultimately went into receivership. Others grew. General Motors began in 1908 with Buick, led by William C. Durant. GM acquired Oldsmobile later that year. 1909 saw the addition of Cadillac, Cartercar, Elmore, Ewing and Pontiac (nee: Oakland). By 1918, Chevrolet was added. Today, after further consolidation after the “great recession, what was seven different American nameplates are now down to just Chevy, Cadillac and Buick. Are they a monopoly? Certainly not as they still have many competitors now coming from nearly every corner of the globe.

The internet sector has consolidated too. Terrestrial broadband providers are limited to Comcast, Time-Warner, AT&T, Verizon, Cox, Charter and a few dozen regional companies. What’s important to understand is that today’s ISPs are virtual monopolies with their service areas.  This because each of them started in sectors where they were granted exclusive rights to provide their products to people within specific geographic regions. The same thing happened in both the telephone and cable television spaces. That exclusivity was grandfathered into the internet era, although there is some overlap between the telco and cable companies in certain areas, but if you want what’s considered true high speed broadband the most choices you can have is two. That’s like having just Ford and Chevy.

And the biggest cable company is poised to get even bigger. According to the Huffington Post, if Comcast and Time Warner combine they will have about 30 percent of the cable TV market and a similar chunk of the broadband internet market in the U. S. They will be the largest pay TV provider and ISP in the country. Are Comcast, AT&T, Verizon and the rest monopolies? Yep.

When that much market share and corresponding power in the hands of a monopoly that can do whatever it wants, bad things are bound to happen. Will the FCC come up the best solution? Not likely. There’s a saying a saying about government.

“The government’s approach to everything is, if it ain’t broke, fix it til it is.”

Is there anything we can do? Not really. The FCC is an agency that is not accountable to the citizens. Commissioners are appointed by the president and then approved by the senate. After that, five individuals have the ability to regulate all aspects of electronic communications. It’s their sandbox. All that’s left to do is wait and see what happens on Tuesday.  I hope it works out better than their regulations for AM stereo radio.

What do you think?

Note: If you want to understand the more intricate changes recently happening in the cloud, this from the Washington Post is helpful.


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