Sunday, December 05, 2010

Net Neutrality is a Ruse

I've been following the debate concerning Net Neutrality and I've noticed something. The original decision (which you can find here) to classify ISPs as "information services" rather than as "telecommunications services" is missing something really important. Before I go on, I also want to point out that while I might use Comcast as an example here, the concepts I detail below can be applied to any ISP and/or common carrier.

First, in classifying cable modem services as information services rather than as telecommunications services the FCC attempts to ignore the behavior of the cable companies. The decision ignores the fact that companies like Comcast are common carriers because Comcast is acting like a telecommunications company rather than an information service. Comcast owns the lines, and is agnostic about the content it carries. Or at least it was until it realized that it could favor it's own content.

Second, just because the FCC bestows a service with the classification of an information service dosen't necessarily mean that it is. Anyone here remember Compuserve? How about GEnie from GE? I’m sure some of you old-timers out there remember the humble Bulletin Board Services with your 14.4k modems. I used to use the 0x0 Republic BBS for my first venture onto the Internet - that is where I got my first email address. All of the BBSs, Genie and Compuserve needed a phone line for a connection. And all of them were information services. They didn't own the lines, they were simply carried by the telecoms.

It should also be noted that here in Utah, we have a service called the Utah Open Infrastructure Agency (UTOPIA). UTOPIA is a municipal broadband service and as such, acts as a common carrier. They resell their service to Internet Service Providers (really more properly labeled as “Information services”) such as Xmission, Connected Lyfe and Prime Time Communications. They all compete to provide access to the same network on an open access network (more on this below). The UTOPIA resellers are indeed “information services” rather than telecommunications services to the extent that they do not own the infrastructure. All they’re doing is reselling service on a network they don’t own, but they manage the service they provide with billing and customer service. That’s what makes them an information service. UTOPIA is the ISP.

Comcast on the other hand acts like a common carrier as an Internet Service Provider. Comcast simply carries the bits from the public network across their own network to their own customers. The fact that they connect to the public network, such as their connection to Level 3 Networks, makes them a common carrier. Level 3 is a common carrier, too. Why? If L3 carries *none* of it’s own data, then it carries data for others.

I also want to put the lie to the claim that Comcast has a private network. As long as they connect to the public network and carry bits to their customers from the public network, they are part of the public network. That creates a public interest in their service. Unless and until they completely cut themselves off from all public networks and provide their own content to their own customers, they will remain a common carrier. While they may be tempted to do that given their resources, they would have to overcome the blowback from their customers. They would also have to pay back all the goodwill they received with cheap or free easements across property all over the country that they received along the way to becoming the largest ISP. That might be in the form of rent they pay the landowners, or they might lose the easements altogether.

Comcast is different from L3 in another major respect: it has an incentive to favor it’s own data sources. Even it’s partners’ data sources provide an incentive to favor its own traffic over others. In fact, the latest conflict between the two is about L3’s contract with Netflix to carry traffic to Netflix customers many of which subscribe to Comcast. Comcast, it seems, would prefer to run a toll booth rather than to play fair. They seem to have forgotten that their customers are already paying for Netflix traffic as Comcast subscribers. Implicit in their actions is the goal of making their own product more competitive with Netflix by making Netflix more expensive. Comcast doesn’t seem to mind that their customers are paying for Netflix content *twice*. And they certainly don’t want to mention that their costs per byte for connecting to L3 have gone down while the rates they charge to their customers continue to increase at a rate higher than inflation.

The original decision to brand cable modem service providers as information services also had the effect of forcing the phone companies to share their lines while the cable companies did not have to. This created an uneven playing field that allowed an enormous consolidation of resources by the cable companies. During this time, cable companies were allowed to bundle their TV services with their ISP services and eventually they were providing voice services to compete with the phone companies. Phone companies didn’t have content to bundle, so they were at a definite disadvantage with the cable companies to compete.

Line sharing, as the phone companies had to do, is also know as “open access” and has, with the exception of the United States, proved to be wildly successful wherever it has been implemented. Japan is probably the best known source of empirical evidence for the success of Open Access rules for distribution of internet service. In Japan, the government bankrolled the financing of the infrastructure in a partnership with NTT. NTT builds the infrastructure and is required to resell the use of that network at wholesale to it’s competitors. As a consequence there are thousands of ISPs all competing in the same market. In Japan, you can get a 60 mbs connection for around $35 a month. Of course, Comcast would prefer to have none of that since their business model is centered on creating scarcity in the market rather than abundance. And they want the entire market to themselves if they could get it. I guess to them, a private monopoly is much better than a public one.

So now we come to Net Neutrality. Net Neutrality is a ruse, pure and simple. Why? Because it assumes that the ISPs have rights that they really don’t have. Even ISPs like Comcast don’t have the right to favor traffic, shape traffic or to discriminate against traffic by charging a higher price based on the source of the traffic. The term Net Neutrality assumes that the ISPs have those rights, when they don’t. If they weren’t common carriers, they would have those rights, but they are most definitely common carriers. No matter how the FCC classifies them, they still act and walk like common carriers. Comcast and AT&T are common carriers, by their action rather than their classification.

I’m actually surprised that no one has sued the FCC to reclassify the cable companies as telecommunications companies by now. It’s important to reiterate here that telecommunications companies (the common carriers) are distinct from information services as they have *no content* to offer their customers. They are only carriers, and as such, must remain agnostic about the content they carry.

It should be plainly obvious by now that Comcast (and other content providers who own the pipes like them) have a conflict of interest to resolve. They cannot remain agnostic about content while acting as common carriers at the same time as the temptation to favor their own content is too great to resist. This is true for any company that offers Internet access and their own content at the same time. That makes it nearly impossible to separate the incentive to provide access to content from everyone else and their own.

This conflict of interest requires that any company that offers Internet access and content to be split. In the case of Comcast, the Internet access service must be separated from the entertainment content service. The best way to separate these services is to require the company to be split into two entities: one for carriage and one for content. That is the best way we can be sure that they will act as common carriers. As we have seen by recent examples of their behavior, we cannot trust them to do so.

The solution I offer is simple to state, but is rather difficult to implement without a big fight. Unfortunately, this is what I think we will need to do in order to remain competitive in world markets.

First, we need to separate content from carriage. To avoid the conflict of interest as shown above, we need to make sure that carriers and content providers are separate. This will ensure that common carriers act like common carriers with no incentive to discriminate against traffic of any kind.

Second, we need to ensure proper classification. A common carrier owns the pipes, content providers do not. We can’t even allow a member of the board of directors for the content company to sit on the board of directors for a carriage company. Separation of interests and duties is very important to remove any conflict of interest.

Third, we need to enforce the open access rules of common carriers. Common carriers own a resource that is the network. It makes no sense to dig up the streets to build a duplicate network and wait years for the deployment to happen - you know, like with power transmission and water service, right? Better to create one really fast network for everyone and let the content providers share the network. This will improve network maintenance and upgrades as well. I think in the long run, this will have to be a strictly regulated utility, like the power company is. UTOPIA promotes this idea as many municipalities around the country and around the world have done. Even Google, which is becoming the 2nd biggest ISP by it’s consolidation of networks and the sheer volume that it moves, is promoting the idea of open access networks.

While this is a long post with lofty ideals, we know that the devil will be in the details, and we can be sure that the incumbent service providers would rather have a captive audience than to have to deal with competition. They are going to throw up blocks at the legislature, in the courts and in the press to show what angels they really think they are and how they’re doing us such a big favor by fighting for the status quo.

The last ten years of the status quo have lost us our lead in Internet access, provided consolidation in the industry that eliminated much of the competition, left us with media giants snarling over their turfs and helped to expand or maintain the digital divide. That leaves us with very little power over a resource that started out as a source of entertainment and has grown into an irreplaceable utility: the Internet. If we fail to act now, the power of the incumbent service providers will only grow until we are left with nothing more than a walled garden that leads only to their coffers.

Now is the time to reclassify the ISPs as common carriers and secure our future in a competitive global economy by recognizing Internet access as utility that we can all use. I urge you to discuss this issue with your local, state and federal representatives to preserve our freedoms on the Internet.

1 comment:

Tom J. Maggio said...

Excellent post Scott. Well thought out, compelling...lucid. Great work.