I know I’ve written ad nauseam about Network Neutrality, and the fight against bogeymen that aren’t even there. But a couple of people at the Freedom to Connect conference here wanted me to post my speech up online. And as I’m losing my voice, it’s much easier to type than talk, so I can point anyone who approaches me right here. This covers ground I’ve covered before, although never in one coherent argument.
This isn’t a verbatim version of my speech; I just spoke from condensed notes, and I didn’t manage to cover every point in my allotted time, so this is the full text.
Within the current funding and construction approach to networks, I believe a network neutrality law is a tactical, practical, strategic and philosophical error. It takes us further away from Freedom to Connect.
A tactical error
As a tactical proposition, it supposedly is to solve a problem. So what’s the problem it might be solving?
Well, we certainly have a consumer protection and disclosure issue. Consumers are buying a product that has ‘broadband internet’ on the tin can, but they don’t really know what’s inside. The terms are often too obscure, hidden in obtuse language in the terms and conditions. That means we need disclosure along the lines that exist (in the US) for credit cards, where the key terms must be presented in a standard format. Furthermore, I’d suggest that there be regulated terms like “full internet access” and “partial internet access” to make it crystal clear.
Then there’s the issue of monopoly and unfair competition. But there already are laws to deal with this. Sherman Act, RICO, and so on. The problem is process and organisation; getting the FTC, not the FCC, to enforce them.
The unbundling regime in the US has failed. “We need to stop the monopoly rents”, they exclaim. But all network neutrality does is take the pain away. But morphine doesn’t cure cancer. Price discrimination in competitive markets is, on average, beneficial to consumers. This is well established economic fact. By eliminating price discrimination, you’re throwing out the baby with the bathwater.
Is there a “moral right” to neutrality and traditional common carriage rules, given that the networks were (supposedly) built using public money? Sorry, no. The elected representatives in the US made a bunch of terrible deals on behalf of the public. Telcos got great deals in exchange for empty, unenforceable promises. The capital has all been transferred into into private hands. Gone!
There’s a frequent complaint that “the Net needs us”, and is under attack. But it’s never been healthier. We’ve never had so many people so well connected. It’s an emergent outcome of individual actors expressing their preferences via voluntary exchange. And they, by and large, demand an open connection! It’s not sacred, an object of worship. We can think of better Internetwork architectures.
A practical error
Network neutrality can’t be made to stick. Telcos will evade whatever definition you put up; it’s easier than fighting UNE-P unbundling rules. It’s easy to create atilted playing field.
There are so many blocking options, ways of setting aside reserved capacity, creating gateways, proxies, and private subnets. How about special peering agreements, unusual terms of service, locked-down edge devices supplied by the telco, different price policies, router queueing algorithms, topologies, hard-to-change defaults and settings, varying network symmetry and private IP address ranges. Good business for consultants like me in helping them evade the rules, but bad for the public.
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And when to ‘design-in’ neutrality? Do you really want courts involved in network design? Won’t new entrants need to set aside as much money for lawyers as for network engineers?
A strategic error
Network neutrality makes competition and consumer welfare dependent on law and lobbying, not natural competition. So you’ve chosen the area in which the telcos are strongest on which to fight!
It creates great uncertainty for new entrants. Remember the CLECs? Well, I wouldn’t want to be building infrastructure based on neutrality rules. It inhibits the very price discrimination that makes new access networks more economically feasible, particularly wireless ones.
We actively want un-neutral nets. For example, we’d all benefit if there were local peer-to-peer networks, where local traffic was free, reflecting the low cost of exchanging local traffic. Perhaps we’d benefit if Google could subsidise connectivity, so the person with the 2 Mbit/s connection gets their video at 10 Mbit/s, because the video is subsidised by ads.
A philosophical error
As noted by others, the Internet isn’t a thing, it’s a tangle of agreements to pass packets based on a standard interface. Those agreements are contracts that were freely enetered into. You have to interpose yourself into millions of those agreements. This is a bad precedent, whereby the certainty of contract is overturned.
It also surprises me the number of people who violently object to the use of eminent domain to apropriate private property in the Kelo decision are also the same people who would happily see private capital being partially appropriated for quasi-public use.
And where does it stop? Should any networked industry involved in any form of carriage be subject to such rules?
But there’s a deeper reason to be suspicious of neutrality rules that re-inforce the status quo. The Internet is not “neutral”; it’s baked in with all sorts of assumptions. It chose to ignore national boundaries, for example, in the structure of IP addresses. It chose to make IP addresses reverse traceable to ISP, but not to individual users, cramping the network’s identity infrastructure by making anonymity the default. Good or bad? Doesn’t matter; the existence of alternatives means we shouldn’t prevent other internetworks emerging by assuming the one we have is the only way of doing it.
I will concede that there’s a free speech issue. But to speak you need access at affordable prices, just like before to write you needed to have access to a printing press. If Yahoo! wanted to do a $10/month bundle deal with SBC where you could only access Yahoo! content, and consumers buy it, where’s the problem? Outlawing it hurts the most price-sensitive (read: poorest) customers.
A better approach
I started off by listing the problems for which network neutrality is a purported solution, and hinted that there was a framing problem. So it falls to me to not just throw stones at network neutrality, but to suggest a better way.
The fundamental problem in networks is “less is more”; stupid transport has more option value than smart transport. The conduit of information goods has unique properties. Ownership of a network is a kind of Tolkein’s ring, where the temptation to capture the value of the bits slowly corrupts and drives mad the owner.
We need models that better align the interests of network owners and users. This involves moving away from the feudal model of telecom and move to a new funding model that captures the positive externalities from a broader pool of beneficiaries. We need a “third way” other than monopoly and crypto-nationalisation via unbundling and price controls.
The focus of telecom will move to innovation in pricing, financing, ownership and purchasing of networks. We already see the initial steps, where the first hop may be over a wi-fi connection. In future, we’ll see user-owned mesh networks. There are plenty of other models, be they local utilities, OPLANs, clawback of property price increases, muni networks, etc.
We have a co-ordination problem. We can’t easily collectively get together to commission connectivity over which we have local control (as opposed to the feudal overlord). If necessary localities should be able to seceed from the telcos by buying back the infrastrucure at a reasonable replacement cost.
Most importantly of all, the natural unit of purchase of connectivity isn’t necessarily the individual or hosuehold. The marketing and billing costs come to dominate the actual underlying service costs. Look at the US long-distance network, where the players all lost money bribing people to switch by using frequent flyer miles.
Look at what the Wikipedia technology and constitution did for collective information gathering. We need same community mechanisms for networks.
Other progressive actions are “abundance” policies: spectrum liberalisation, “layer 0” rights of way, eliminating franchising rules, opening up phone numbers to new services via ENUM, etc.
Summary
An open, free net is an emergent outcome, not an a-priori input to be legislated into existence. We need to capture and accellerate the experiments in how networks are built, financed and sold; and protect those experiments from incumbent wrath until the results are in.
But most critically, don’t fossilize the network in 2006 by adopting network neutrality.
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I apologize for not responding to your comment earlier, but here is a link to the Stifel/Nicolaus report.
http://www.democraticmedia.org/issues/netneutrality.html
Bravo. Very well put and compelling. You have won my vote. Less regulation and more competition. Ex-ante regulation has been invented to protect us from unhealthy monopolies. You remind us of the fact that regulation is a medicin with a high cost in side-effects only to be administered when the patient is very ill. More or less like chemo-treatment. Only use it when the alternative is worse.
To get more competition so the patient recovers and does not need as much chemo anymore we should focus on the access networks. If we have enough competition in acces networks we will recover a lot.
Somewhere somehow someone has introduced the idea of “facilities based competition” aka “infrastructure based competition”. A seductive policy that conveniently combined concepts from economics (only partly and out-of-context) with the status quo of pre-IP telephone and cable networks. It has been a pragmatic policy as it has spurred (if the regulator was willing to show its teeth) development of Internet access. Only look at the statistics in the USA, EU and Asia. But at best it has strengthened the existing duopoly with wireless as an interesting bypass, still to deliver its promise.
Now that IP/Internet is no longer seen as the loss-leader bundled with the cashcows of telephony and/or TV but the future cashcow itself this policy is long past it due date. At least for acces networks.
Wireless is very usefull but not an alternative for fixed acces networks in densely populated areas. Recently we passed the point where more than 50 % of the world population resides in cities and the trend accelerates. The economic output is concentrated in cities, so lets focus on them first.
The barriers for entry in fixed access networks are very high. There is only one potential customer at the end of the fixed line: the person or family living in the house or apartment where the acces network originates. The network owner cannot reallocate resources/investments to other potential customers so he will try to capture and monopolize that customer for the duration of the depreciation period of the infrastructure: 20 years or more.
The fallacy of competition between infrastructure suggest that we will have and must have multiple access networks all capable of delivering all services so the customer can choose. Wake up. You only can sleep in one bed at a time. The overbuild capacity to this one customer will not be used but the cost must be recovered, making the investment for the second entrant very risky, let alone the third. So the monopoly or duopoly remains in place.
No, to get the level of competition required so that we do not need to worry about network neutrality we will have to adopt a new policy.
Seperate “level 0” in acces networks and create fierce competition ON “level 0” infrastructure in acces networks. If need be, as a community buy back “level 0” or build a new “level 0” that is not used as a lever to monopolize “level 1 to 6”. A tough job, but the alternative is worse as you have shown us.
> That means we need disclosure along the lines that exist (in
> the US) for credit cards, where the key terms must be
> presented in a standard format. Furthermore, I’d suggest that
> there be regulated terms like “full internet access” and
> “partial internet access” to make it crystal clear.
see RfC 4048 for a start
Well put!
Could you elaborate on "clawback of property price increases" as a possible innovation in financing/ownership of local networks?
Thanks,
- rbt
It's something that's already done for physical transport projects like the Jubilee Line extension in London.
When you build infrastructure, it has positive externalities. One is that it often increases the property prices of nearby homes and businesses. The simplest approach is to just send them a bill to recover some of that windfall to fund the project itself. A more sophisticated approach takes a lien against the property to reflect part of the gain. The lien is only redeemed when the property is sold, and you can securitise it to fund the project.
Posted by: at April 4, 2006 01:48 PMMartin,
Another tour de force. The whole NN thing has had a bad stink of "grass roots/anti-libertarian/power to the people" about it from the start. As you point out, the goals are good but the method leads only to madness. I've been struggling with ways to get that message across to people, but as usual you've done it.
The one good thing that's (finally) going on is better marketing by the NN crowd. Getting the word out will help mobilize people to effectively fight the incumbents in those critical local/micro battles over the things that matter: rights of way (pole, ground, airwaves) and the ability for municipalities and others to create their own access networks. They can't defeat the Washington lobby but can chip away one town (or a rare state) at a time.
The noose around our necks is access, and that's the only fight that matters to me. If all people do is listen to regurgitated FCC reports and astroturf propaganda, nothing happens. But when they recognize how little competition there really is in access (more easily noticed on a local level) they get religion.
I wish I had time to write a more closely reasoned response. This a good and nuanced run at the problem. A really useful contribution to the discussion.
I just love the point that one way to attack the problem is via "label on the tin." That's certainly true and definately under appreciated; that kind of market regulatory intervention was very popular during the consumer protection era and has good underutilized since the general shift to the right in US and Britian.
There is a strategic choice about where to fight the battles - political v.s. technological, and actions that are geographically local v.s. global. But it is not an either-or question. In fact the talent that would fight on one field is totally disjoint from the talent that would fight on the others. There are huge standards battles in the middle grounds as well.
The key point I would add though is that it is just plain dumb to forgo the political battle. If you step away from that, say because it doesn't appeal to your talents, then you assure that the other guy will capture all the benefits of that fight. That's is, in fact, a common way to win political battles - get the other side to walk away because they don't want to get dirty.
Even small contributions to the political regulatory battles can bear significant fruit. You can raise the cost for the other side to fight that by an order of magnitude at very low cost. You can do a lot by shinning a light on the process. All processes are subject to capture by bad actors when they lights are turned down.
The question of what problem we are trying to solve is entirely central to this issue? As of now, there is no problem, and the Internet is thriving. However, the problems inherent in governmental intervention could be calamitous. What if members of Congress suddenly decide that they wish to craft legislation that favors the interests of companies in their own state. Where does the regulatory train stop? I say let's stop it before it begins.
Posted by: at April 9, 2006 12:09 AMI felt the need to comment about the first point you make, that is, the question of what problem. I must say, you are exactly right. It's so obvious, but is easily overlooked. Why would any rational person try to solve a problem that does not exist by asking for government intervention? I just don't understand. Thanks for the great post.
Posted by: at April 10, 2006 08:54 PMCould you explain to me why you failed to include any dissenting opinions in your comment listing?
Sounds like your site is part of the tru "astroturf" movement.
Posted by: at April 25, 2006 06:16 PMMay I respectfully suggest the easiest way to get a dissenting comment published is to make the effort to write one.
Posted by: at April 25, 2006 08:36 PMI think the driving force behind net neutrality is consumers' real experience with competitive markets and publicly regulated utilities.
Commercial markets thrive on complex, differentiated levels of service. Unfortunately, companies don't know how to make the internet better, so to create differentiation, they will try to find some way to make it worse for most of us. I know; according to economic theory, they should not succeed. But why take that risk when another model will deliver exactly what people want? People will be quite happy to have the level of service provided by the public road system and the heavily regulated public utilities they have years of experience with. That is the force behind net neutrality -- consumers *want* the kind of service provided by public utilities. They do not want to deal with private companies bent on providing something else entirely.
Martin,
I appreciate your clarity of thought on NN. Thank you. NN is a multi-layered problem; where intervention in one part can have many unforeseen and unintended consequences elsewhere. The hubris of net neutrality is that it attempts to micro-manage literally millions of different market outcomes, much like the Hundt FCC thought that "competition" was much too important to be left to market forces.
Not only is NN unnecessary -- the complexity involved makes it completely unimplementable and unenforcable. NN is a vision of a "Socialized-Internet" from the same thinking that gave us socialized-medicine. If you have not seen my site on NN please visit at netcompetition.org.
Posted by: at June 13, 2006 07:33 PMMartin
I buy the "No network neutrality" proposal for different reasons and that is the problem will just go upstream. Large online entities like Yahoo, Google and others might become the gatekeeper. What is unclear to me is how will the country "force", encourage or promote competition when big companies fight by buying off the lawmakers at every level? The current consolidation going on in the telco world just proves my point. Do we need another couple of decades of this before another Judge Harold Greene comes along?
Posted by: at June 20, 2006 09:40 PMMartin,
A very interesting read, and I think you make some good points.
There are some things I'd like to respond to however.
> Is there a “moral right” to neutrality and traditional common carriage rules, given that the networks were (supposedly) built using public money? Sorry, no. The elected representatives in the US made a bunch of terrible deals on behalf of the public. Telcos got great deals in exchange for empty, unenforceable promises. The capital has all been transferred into into private hands. Gone!
I think it is not that simple. First of all, those telcos have been acting in 'bad faith' here, keeping to the letter of the deal, but not to its spirit. Consequentely, I don't think it is wrong to change things such that they do in fact have to keep to the spirit of it, in other words, I don't see why it is wrong to make their promises enforcable.
Common carrier status comes with a very interesting condition for telcos, it makes that they aren't normally responsible for what happens on their network. I believe it is quite fair to argue that in exchange for that they are also not allowed to meddle with what passes on their network. Its both or neither.
Not to mention that I find it ironic to argue that consumers should stand a better chance then the government when dealing with those telcos.
> Network neutrality makes competition and consumer welfare dependent on law and lobbying, not natural competition. So you’ve chosen the area in which the telcos are strongest on which to fight!
As you argued before, telcos have done very well at making extremely good deals for themselves. If there is one thing the telco world knows how to deal with it is competition. Their way of dealing is to either absorb or eliminate it. While they can influence and according to some buy the law, they cannot yet eliminate it.
> It creates great uncertainty for new entrants. Remember the CLECs? Well, I wouldn’t want to be building infrastructure based on neutrality rules. It inhibits the very price discrimination that makes new access networks more economically feasible, particularly wireless ones.
Network neutrality should not affect what you can charge your direct customers for your services, nor should it prevent you from making special peering agreements or letting a company subsidize bandwidth on top of what your customer already payed for. It should merely mean that you cannot actively interfer with traffic from others by delaying it or limiting it. With that in mind I fail to see your objection.
> I will concede that there’s a free speech issue. But to speak you need access at affordable prices, just like before to write you needed to have access to a printing press. If Yahoo! wanted to do a $10/month bundle deal with SBC where you could only access Yahoo! content, and consumers buy it, where’s the problem? Outlawing it hurts the most price-sensitive (read: poorest) customers.
I do not see how network neutrality does prevent this, as long as yahoo is trying to sell access to the 'yahoo service' and not 'the internet'. As a matter of fact, this idea has been tried repeatedly, and has failed about as many times.
Then, we have something 'new' that removes many of the barriers for publication, including cost. To me that is a very desirable development. I run quite a few websites for people, and quite know that as you use more bandwidth, you get to pay more. I'm sure you know this as well. Publication on the internet is not exactly free, and becomes more expensive when you get more readers. The barrier to entry however is extremely low. This will no longer be the case when the 'millions of contracts' as you called them that I have implicitly with all those transporting packets to/from my servers are changed into explicit contracts that require action and more payments on my side. Not only does this create a financial barrier to entry, it also creates an administrative nightmare beyond belief.
Last but not least, network neutrality is not something new that is going to be introduced, it has implicitly been there for quite some time. The question is more if it should be prolongued or not. Seeing the open nature of the internet today I'd rather think it did a good job so far.
All this said, you make a very strong argument about providing clarity to consumers and about access competition. Ensuring competition and informed consumers make it a lot more likely that the free market will actually work.