Wednesday, March 26, 2014

Net Neutrality, Part 2

Locking the Little Guys Out?

Back on March 5th I blogged about net neutrality basics, in order to provide background to support a discussion of some recent events making news.  Today, I’ll talk about those recent events.

Image Credit: Huffington Post
In the simplest terms, Net Neutrality advocates believe that all Internet traffic should have equal footing when moving through the network, without being blocked or slowed down. A commonly used example is that an ISP should not be permitted to artificially slow down the traffic of one streaming video service in order to make some other streaming video service (perhaps even its own) look better by comparison.

Net Neutrality is surely more complex and nuanced, but that example helps to convey the main idea.

During the first few months of 2014, a few interesting things have developed and Net Neutrality may be a useful lens through which to understand them. The following is my best current understanding of the situation, but I’m not a lawyer or a communications policy wonk! I welcome corrections, arguments, and differing opinions!

Let’s look at each of those things a little more closely, beginning with…

The Weakening of the Open Internet

The January US Court of Appeals ruling on Net Neutrality actually maintained the expectation that ISPs should be transparent regarding their traffic handling and special business arrangements in order to avoid opaque anti-competitive practices. The court ruled, however, in a way that may allow broadband providers to charge for expedited services. Back in 2010, I argued that something like this could be a sensible model. If transparency was maintained, different service levels could reasonably be offered at different price points. In 2014 I find myself a little less persuaded by my 2010 thinking, in part because…

The Broadband Market is Coalescing

The number of viable options for consumer Internet access to the home is small and shrinking. In many markets, it’s a choice between telephone company Internet access (such as Verizon FiOS) and cable television company Internet access (such as Comcast Xfinity Internet). Certainly, more options could be better for consumer choice in terms of features and service offerings, and could also provide more pricing pressure.

A merger of the two largest cable companies in the US to create a behemoth cable TV and broadband Internet company further reduces options. When asked about the impact of this proposed merger, Comcast says that it isn’t anti-competitive because there is virtually no overlap in the current Comcast and Time Warner markets served. I believe them. The fact that they are not in the same markets means that competition for consumer choice is not being directly reduced by this purchase bid. It seems likely that the two companies have intentionally stayed out of each other’s markets – a practice that saved them both money but was not good for consumer choice. Nevertheless, I think a Comcast acquisition of Time Warner Cable could still hurt consumers in a less direct way. The combined company would serve such a large portion of the home broadband market that it would wield disproportionate leverage with companies who provide bandwidth-heavy online services. That could lead to more …

Charging for Special Arrangements

There are many popular streaming video services that get lots of attention, including Apple’s television and movie rental and purchase services through iTunes, Amazon’s Instant Video, Hulu, and several others. But none are as popular, and account for as much prime time network traffic, as Netflix.

When you try to stream an episode of House of Cards from Netflix to your TV using your Comcast broadband Internet access, and the connection seems a little bumpy, do you curse under your breath at Netflix or Comcast? How did you pick?

Comcast and Netflix tell different versions of this story, and I’m sure each has a defensible position. But the “solution” they arrived at together seems to be a new business arrangement in which Netflix agreed to pay Comcast for network traffic handling that assures a better viewing experience for viewers. This particular arrangement seems to be more like a fee-based non-transit network peering arrangement than an expedited service arrangement. But either way, Netflix is paying the bill. At some point, I suspect Netflix customers will pay that bill.

Netflix CEO Reed Hastings does not sound like this was the approach he wanted. In a Netflix blog post on March 20th, Hastings said:

“Without strong net neutrality, big ISPs can demand potentially escalating fees for the interconnection required to deliver high quality service. The big ISPs can make these demands -- driving up costs and prices for everyone else -- because of their market position.” -- Netflix CEO Reed Hastings

Quite recently, rumors have begun to appear that Apple is negotiating a different arrangement with Comcast, but in the same general space. Apple, according to these rumors, wants assured high performance for their video content on the Comcast network. Let's watch this space closely to see if we are witnessing the start of a trend.

Parting thoughts

Comcast is a corporation with capabilities to sell, and the current and changing legal and regulatory environment makes it possible for them to sell preferred access (whether through peering or traffic “management”) to video providers like Netflix (and maybe soon to Apple). They have a responsibility to their shareholders to try to maximize revenue. Comcast is not a villain. Comcast is a for-profit corporation.

The questions that I believe are worth considering are these: Is Net Neutrality hopelessly lost, and if so, what are the implications of life on the Internet in a post Net Neutrality world?

A hypothetical might help: What becomes of the young, upstart company with the fresh new idea and technology? How can they break into the streaming video market? If they can’t pay the top dollar that Netflix and Apple can pay, their service on the Comcast-Warner (probably not their real name!) network might not look so good. Netflix and Apple will pay for fast access to your TV, and the upstart company will look slow by comparison and as a result their business will probably have a hard time succeeding. You might argue that that’s how capitalism works, but I’d argue that a level playing field is a key to preserving a healthy environment that benefits us all. Without it, we all may miss out on the advantages of competition and innovation.

Time for you to weigh in

Is Net Neutrality an important protection? If so, how should we maintain Net Neutrality while recognizing the legitimate business interests of broadband providers? Are broadband providers "information service providers" or "telecommunications carriers?" It turns out that the distinction matters for this debate.

If there are more development, or if this subject turns out to be interesting to enough of the RapidGroove readers, there may be a Part 3 at some point.


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  1. ...but if you drill down a bit further, "these giant companies are vertically integrated, controlling everything from initial production to final distribution." Clearly monopolistic and anti-capitalist.,

    1. I agree that vertical integration is a crucial part of this discussion. Without it, we might be able to argue that broadband providers are telecommunications carriers and not information services and that would in turn have consequences for regulations that apply.

      Thanks for reading and commenting!