Against Net Neutrality

Day of Action

This week — on the 12^th of July, 2017, a number of tech companies and other organizations are going to “slow down” their services to protest a proposed rule change by the FCC regarding Net Neutrality¹. Battle for the Net is a representation of this collective position against the proposed rule change.

It’s one in which I will be participating as an opponent. I’ve written about this before (at StackExchange) and have been quoted by the BBC in a position against Net Neutrality. The point of this post is to expound on those thoughts in a more coherent way (and some of this is rehashed from my earlier content).

The issue can be very complicated — and most people don’t have the time or inclination to dive into it deeply. This post is a decent foray into some of those details, although it leaves out some important details.

Instead, I think the issue can be dealt with at a somewhat higher level. Consider the claim made by Battle for the Net:

Comcast & Verizon want to end net neutrality so they can control what we see & do online

and

Net neutrality is the principle that Internet providers like Comcast & Verizon should not control what we see and do online [and] …prohibit Internet providers from blocking, throttling, and paid prioritization for sites that pay, and slow lanes for everyone else.

and

Cable companies are famous for high prices and poor service. Several rank as the most hated companies in America. Now, they’re lobbying the FCC and Congress to end net neutrality. Why? It’s simple: if they win the power to slow sites down, they can bully any site into paying millions to escape the “slow lane.” This would amount to a tax on every sector of the American economy. Every site would cost more, since they’d all have to pay big cable. Worse, it would extinguish the startups and independent voices who can’t afford to pay. If we lose net neutrality, the Internet will never be the same.

In my view, this is blatantly hyperbolic. And histrionic, too:

They’re bad because they’re red, you see?

But let’s give a moment’s thought to these statements. ISPs have always been in control of what you can see and do online, and it’s not clear to me that regulatory neutrality would actually do anything about that. If an ISP decided to block pornography, for example, would Net Neutrality prevent them from doing so? It’s hard to know for sure, but I don’t think so.

But what about slow lanes? First, take note of the way that the wording makes it sound as if an ISP would have done something to you if they were to have prioritized access channels. Does the existence of a toll road mean that everyone else on non-toll highways are now in “slow lanes”? The objection that I anticipate at this point is that ISPs would, in fact, throttle traffic they wanted to “shakedown” for paid access, ergo creating an actual slow lane. The incident between Netflix and Comcast is often used as the case-in-point for this argument, but I think that particular example actually shows where Net Neutrality is confused about how the internet works.

Comcast and Netflix

Netflix likes to paint what happened as a shakedown - and indeed, Net Neutrality would be a legal regime of protection for them against having to pay for access. But the real issue was that Netflix (and its provider, Cogent and/or Level3) was quietly trying to take advantage of the way that peering works. Peering (and similarly, “transit”) is a commercial arrangement whereby the big carriers (and some larger ISPs) agree to carry one another’s traffic in a kind of quid pro quo arrangement². However, for content providers like Netflix who generate a lot of traffic, this quid pro quo doesn’t work: their traffic was overwhelming the peering arrangements³, causing congestion, and degrading service to Netflix customers. Now, here are the real interests at stake behind Net Neutrality: Netflix, Cogent, and Level 3 contend that ISPs (e.g., Comcast) should pay to upgrade their infrastructure to handle the load, and Comcast contend that they should pay. This is the conflict: who will pay for infrastructure improvements.

It seems clear to me that the ISPs have the upper ground. Comcast has a responsibility to its customers to provide the best service they can. If customers request so much of a particular kind of content (video streaming, for example) to the point that it degrades the ISPs ability to deliver other kinds of content effectively, should the ISP allow that to happen? I don’t think so. The poor guy who wants to play video games instead of watching Netflix would be shut out - or worse, the hapless individual trying to work professionally in a remote environment (like me) would be shut out. The ISP has to be able to manage their network so that they can deliver reasonable performance to all their customers - not just cater to a mob wanting something in particular. That means they might have to throttle certain kinds of content to keep it from overwelming peering connections (and/or transit) or their internal infrastructure. That’s hardly a shakedown; it’s being responsible.

It makes sense to me, then, for the ISP and content providers that might be affected by this (and their own uplink providers like Cogent and Level3) to come up with mutually beneficial arrangements, which may involve payments of some kind. In fact, this is exactly how the Netflix/Comcast issue was settled in the end. And despite Netflix’s public protestations and pleading for special government protection, they have been pursuing these kinds of arrangements all along because it’s good for them.

Lack of need

One of the big takeaways for me from the Netflix/Comcast incident is that free enterprise actually works. No government agency had to make the two sides come to an agreement - but they did, and they found a settlement that was mutually beneficial enough for the both of them. This is how the internet has always worked. This is one of the main reasons it has worked as well as it has. The Telecommunications Act of 1996, among other things, was a sort of formal recognition by Congress that an unregulated internet market was superior to the alternatives. That act passed Congress in a manner of bipartisanship that is hardly recognizable today: it passed 81-18 in the Senate, the House didn’t even take a vote (passed without objection)!

So why do we need this? The primary argument is purely hypothetical: “they [could] bully any site into paying millions to escape the ‘slow lane.’” The arguments used to prop this up are specious at best (I think).

They have a monopoly

So say Net Neutrality proponents. But the available data doesn’t actually bear this out. At broadband.gov, the available data (which is from 2014) suggests that the vast majority of Americans actually have access to no fewer than 2 wireline providers, and no fewer than 4 total providers when wireless is considered (and I think it should be - speed, reliability, and caps are all tradeoffs that consumers can evaluate for themselves).

I’ve presented this data before, and the usual complaint is “but I only have one provider available to me.” I can only respond that this is the best data we have (to my knowledge), and that the plural of anecdotes is not “data”. Also, I think it’s important to look at this through the lens of the providers rather than consumers. Comcast, Verizon, AT&T, Time Warner, and the many more providers have to compete in almost every market in which they have access. You might not have a better option than, say, Verizon. But Verizon generally has to concern themselves with whether or not consumers have another choice. In most markets, the data suggest that they do.

Another common objection is “but wireless doesn’t count as competition”. Why not? There are now wireless providers who have “unlimited data” products that would be suitable for a variety of uses. Even if they didn’t, I don’t see why they shouldn’t be considered competition: it’s entirely plausible for a consumer to decide they would be better off with a wireless service if it suits their needs.

They might engage in anti-competitive behaviors

They might indeed - just like any company, anywhere, in any market, might do. That’s why Congress passed what are called “antitrust” laws⁴. They’ve been on the books since roughly 1900 (give or take a decade) and they are already enforced by two powerful federal agencies: the Department of Justice and the Federal Trade Commission. They are also the reason why today’s internet doesn’t look anything like the legitimate monopoly that AT&T held on the nation’s telecommunications infrastructure in the early 20^th century. If a company engages in practices that enable them to promote their own products and services by excluding other products and services to the detriment of customers, they can be prosecuted. Anyone remember United States v Microsoft Corp in the 1990s? Even Those cases can then be settled in (or out) of court, where there is a long case history and the rules are relatively well understood. Why, then, do we need another giant (and arguably hopelessly bureaucratic and out-of-date in some ways) federal agency to create new, abritrary, and capricious rules to ostensibly achieve the same thing?

Bob Goodlatte makes the argument succinctly on The Hill:

Antitrust law and the standards applied by courts have been developed and refined over decades. In comparison, new regulations contain untested definitions and standards, which would be interpreted and enforced by constantly rotating commission. Antitrust law governs the conduct of all participants in the internet marketplace uniformly, and prosecutes conduct once it occurs on a case-by-case basis and determines whether parties actually engaged in improper conduct. Regulation would only apply to a select group of entities, and is a one-size-fits-all approach that creates a burden on everyone regardless of whether they are acting unlawfully. And consumers often ultimately bear the cost of this regulation. [some paraphrasing]

Incentives

If you accept my argument about competitive pressures (both from the market and from existing regulatory structure), then I have another argument that follows from that: there is no business case for the kind of shakedown that Battle for the Net envisions. I’ve already established the reasons why I don’t think the Netflix/Comcast incident was an example of this. But consider the two scenarios: a highly popular content provider (i.e., generates significant traffic on an ISPs network) and all other providers. If they throttle an unpopular provider, what is there for them to gain? It’s unlikely that most providers would pay for access, and the ISP loses - it’s not gaining anything from a network engineering standpoint (almost nobody generates the kind of traffic that Netflix does), and they’re not getting money. They also risk losing customers to one of the other 3+ providers in the area. Similarly, if they impede access to a popular content provider (and it’s only different if it’s popular enough to have an effect on the network infrastructure of the ISP - which means almost no provider actually falls into this category), what’s in it for the ISP? They would merely wind up with a Netflix/Comcast situation, which is not a business model. It worked out amicably bewteen Netflix and Comcast because they both had something to gain by working it out. There’s every reason to expect other similar situations to be similarly resolved.

ISPs are businesses just like any other: they have investors, boards, and expectations of generating a profit. That means they have to work to keep their customers. They might not work as hard as you might like them to, but they will work as hard as the market forces them to, and it’s enough to rule out incentives for this kind of stuff.

Major downsides

Regulatory Burden

Not only is there a lack of need for this kind of regulation, but there are enormous downsides. Broadly speaking, government entities that have the power to do something eventually do it (not incidentally, this is the reason why the US has a system of limited government - i.e., the government is not empowered to do anything it wants, in principle). The FCC promises in the published 2015 rules⁵ that they will

…forbear from 30 statutory provisions and render over 700 codified rules inapplicable, to establish a light-touch regulatory framework tailored to preserving those provisions that advance our goals of more, better, and open broadband. We thus forbear from the vast majority of rules adopted under Title II. ⁶

I see no reason to rely on this. This does nothing at all to prevent the FCC from simply deciding at some point to no longer forbear. Are Net Neutrality proponents aware that Title II authority includes rate fixing? Under the 2015 rules, the FCC can simply decide to fix rates of ISPs. I’m sure that Mr. Wheeler (the FCC chairman as of 2015) meant forbearance earnestly, and it appears that he and the rest of the commission abided by that promise up to this point. Good for them. But the specter of such arbitrary, capricious, and unbounded power over such an important part of the national infrastructure seems like a major negative to me.

Brent Skorup extends this argument further with a helpful example in National Affairs:

The FCC’s tendencies, in the words of economist and judge Richard Posner, result in “unprincipled compromises of Rube Goldberg complexity among contending interest groups viewed merely as clamoring suppliants who have somehow to be conciliated.” The discretion it reserves for itself undermines its work because its approval processes are frequently sidetracked by powerful interests in and outside of government. For example, one wireless company, LightSquared, spent billions of dollars converting satellite spectrum for use as mobile broadband, in the hopes of competing with AT&T and Verizon. The FCC tentatively encouraged that costly process for a few years before rescinding crucial permissions under intense political pressure. The bureaucratic shift immediately bankrupted LightSquared and deprived Americans of the benefits of another major wireless operator.

Under the current Net Neutrality regime, I think it’s likely that ISPs will lobby to have content providers regulated as well because in some respects they compete (say, Xfinity vs Netflix - or even Google⁷ vs Bing - or how about CDNs, which are effectively fast lanes already, with whom the ISPs would want to have equal footing) and they’re going to work to negate competitive advantages that are held over them. The coiner of the term Net Neutrality also “argued in congressional testimoney that the FCC shoould be charged with ‘protecting an open society,’ ‘safeguarding the political process,’ and prohibiting media companies from silencing political viewpoints.” Another way to put that is: tell media companies and publishers what they are and are not allowed to publish on their distribution networks. I’m not for that at all (and would probably be unconstitutional anyway).

Even Lawrence Lessig (hardly a proponent of deregulation for its own sake) came out against the FCC.

[In 2008, he] penned a piece for Newsweek titled, “It’s Time to Demolish the FCC,” in which he bemoaned the problems of industry capture and the FCC’s increased politicization. Echoing many conservative complaints, he concluded that, when it comes to technology, there’s an urgent need to “remove the government fromt he mix as much as possible.” – Skorup

Barriers to Investment

David Clark⁸ amusingly pointed out that a legal regime of Net Neutrality is profoundly anti-investment.

Investors don’t want to pour money into “this open-platform crap” — a competitive commodity business with high up-front costs and little control over the network.

This shouldn’t be too hard to intuit. Imagine that you pour large amounts of your own money into some project in the hopes that it will generate a return of 20-40% or more (less than 20% would barely be better than a good mutual fund and therefore not worth the risk). If the government says that some project X cannot do the things it needs to do in order to generate that return, you simply won’t invest in it. You will find something else. That’s really a major problem that applies here, and is a big part of the objection of ISPs to Net Neutrality. They don’t want to be commodities, they want to thrive, expand, and generate a good return for their investors.

A better approach

My view is that the prior regime of antitrust enforcement coupled with a free market figuring things out on its own is the superior approach.

Kayne and Layton very interestingly note in US News that Denmark, consistently a leader in connectivity and telecom services to consumers, doesn’t have a centralized regulator like the FCC. They dismantled their centralized telecom regulator in 2011. “That Denmark’s broadband market has flourished without centralized government regulation should be instructive to the United States. Clearly, top-down rules are not the only way to produce consumer-friendly outcomes.”

To me, Net Neutrality is a solution in search of a problem.

But there are real problems:

• lack of deeper broadband penetration
• lack of consumer choice

There are probably others, but these are the first to come to mind. Net Neutrality isn’t going to help these problems, and I think it’s fairly straightforward to make the case that it would make them worse (via regulatory capture, for instance). Another thing to remember is that the United States is geographically vast. Most people don’t instinctively understand how big this country is. We are bigger in land mass than both China and India, but with a third the population. That has economic implications! It simply isn’t helpful to say “well, look at South Korea” or other advanced nations who are not only tiny by comparison, but with more concentrated populations (to continue using South Korea as an example, a single metro area — Seoul — accounts for approximately 46% of their entire population). That doesn’t mean the US shouldn’t overcome our geographical challenges, but it’s instructive to put them into perspective. Indeed, the US has a very strong incentive to lead the way with new innovations in wireless because of this: SpaceX is going to try to build a low-latency, broadband satellite network. Also see below about FCC auctions of wireless spectrum leading to new products and expansions of existing ones.

There are more useful things we can do to improve our situation than granting the federal government enormous powers and calling it Net Neutrality.

More spectrum

Get the FCC to auction off more spectrum that is currently reserved for television broadcasting and goes unused. Check it out: The US government’s latest sale of radio airwaves could mean stronger competitors in the wireless field. Even Microsoft has a pilot program to get better wireless coverage to more rural areas

Community networks

Encourage municipalities and other local governments to build last-mile infrastructure to make it easier for there to be more competition among proviers. These are sometimes called Community Networks. Local loop unbundling is already required for certain telecommunications providers⁹, but we could take the concept futher and enable localities to build more utility-oriented infrastructure that would be available to any number of service providers. Last-mile access is the part of our internet infrastructure that does the most to discourage competition and is the best-suited to utility-style regulation, so I’m disposed to support this idea.

I’m sure there are more things that could be done that would incrementally improve our situation. These are better approaches to the actual problems, and would have a more positive outcome - they just take more work.

Not doomsday, either way

I think it’s also worthwhile say: whichever way this goes, it’s not the end of the world. Life will largely proceed apace, and internet service will go on. It will improve (probably more slowly if Net Neutrality obtains) over time. Rural access will get better. There’s little to be gained by insisting that one side is Evil™. Neither side is evil, and the more we can do to recognize that there are merely various interests at stake, the better the debate can be.