I note that the FCC is considering abandoning Obama-era regulations preserving so-called “net neutrality”. According to Wikipedia:
Net neutrality is the principle that Internet service providers and governments regulating most of the Internet must treat all data on the Internet the same, and not discriminate or charge differently by user, content, website, platform, application, type of attached equipment, or method of communication. For instance, under these principles, internet service providers are unable to intentionally block, slow down or charge money for specific websites and online content.
That sounds admirable in principle . . . but there’s a hidden flaw that makes the entire argument specious. The FCC made things worse, not better, for many consumers by enforcing net neutrality under the Obama administration. Its present discussions may reverse that problem.
Karl Denninger explained it in a long submission to the FCC back in 2014. I urge you to read his article in full, but for the sake of brevity, here’s a summary. (He owned and ran an Internet service provider during the 1990’s, and has remained technologically current since then, so he knows whereof he speaks.)
He begins by describing the reality of service provision in almost any sector, including the Internet.
All providers of Internet service, for cost reasons, oversell. That is, a service provider who has 100 Mbps of aggregate capacity in and out of his or her network will sell far more than 100 1Mbps connections to the public. This is very similar to how roads, water, telephone and electrical systems work. There were approximately 7 million people in the Chicago metropolitan area in the 1990s when I was operating my ISP, but all 7 million of them could not possibly travel on the freeways in the area at one time. My home has 200 amp electrical service but there is not sufficient electrical power available from my power company for myself and all of the other people in my neighborhood to each consume all 200 amps of electrical power at once. I have a connection to the water main at the street and nominally there is 40psi of pressure at my tap, but if myself and all of my neighbors open all of our taps at once the pressure will drop to nearly zero, because the main cannot serve every house in my neighborhood using its full capacity to deliver water at one time. And while we all have cell phones in our pocket these days, and used to have a phone on the wall or a desk in our homes, if everyone tried to make a call at the same time the majority of them would not go through as there is insufficient capacity for everyone to make a phone call at once.
. . .
Most Internet access at the consumer level, with the exception today of cellular phone delivery, is unmetered. That is, I pay a flat price no matter how much I use.
. . .
As the Internet has developed there have been people who have sought to try to shift their cost of innovation and content delivery to others. These people often couch their “innovation” in lofty terms, as if they are somehow providing a public service. What they are actually doing is attempting to run a business at a profit. Today’s pet example is Netflix but they are hardly the first. Youtube, back in its early days, created somewhat-similar if less-severe issues of the same character we face today.
Mr. Denninger goes on to point out that Netflix is effectively dumping the cost of delivering its product onto every user of the Internet, whether or not they subscribe to Netflix. Effectively, every subscriber to Netflix is using far more Internet bandwidth than his neighbors who are not, just as if he was using more water, or more electricity. He’s “hogging” the capacity of his area, reducing its availability for other uses and users. This is only possible because net neutrality prevents Internet service providers from charging Netflix for its excessive consumption of Internet bandwidth, relative to other services or consumer demands.
Netflix has developed what many view as a “disruptive technology” through on-demand delivery of movies to the consumer. In order to perform that function they must deliver a multi-megabit/second uninterrupted stream of data to your computer that meets certain specifications. Any failure to deliver this stream, even momentarily, results in your display “stuttering” or stopping entirely.
. . .
The problem Netflix and similar services produce is that the technical requirement to deliver their service on an acceptable performance basis to the end customer is dramatically more-stringent than existing requirements for other Internet services. Netflix purports to sell their service to the end customer for $8 per month.
But this premise, and thus the entire business model Netflix is promoting, is a chimera and unfortunately the common law of business balance (which states that you cannot get something for nothing) has caught up with them.
. . .
If Facebook delivers a sufficiently-large number of video ads such that it begins to impact network performance and thus forces upgrades of the ISP’s infrastructure who should get the bill for that upgrade?
If the bill falls only on those who use Facebook and thus view their ads consumers may (rightfully) reject Facebook since the additional cost imposed on them is not present so they can look at a picture of their friend’s cat, but so companies can advertise to them! It is thus strongly in the interest of Facebook to hide this cost from those users by trying to impose it on everyone across the Internet so it cannot be traced specifically to their commercial, for-profit activity.
The same applies to Netflix. If a sufficient number of people subscribe to Netflix the stringent demands for delivery of Netflix bits to the consumer will force the ISP to upgrade their infrastructure. Who should get the bill for that upgrade?
If the bill falls only on Netflix customers then their bill will likely more than double; suddenly that “$8/month all you can eat” video streaming service might cost $25 or even $50.
If the “Net Neutrality” argument wins the day it will force ISPs to bill all customers at a higher rate to provision that level of service to them whether they want it or not.
Why should a customer who has no interest in having high-bandwidth advertising shoved down his throat pay a higher bill because Facebook has decided to force him to watch those ads in order to use their service?
Why should a customer who doesn’t want to watch Netflix pay a higher connection charge to an ISP because 20 of his neighbors do want to watch Netflix?
. . .
At the end of the day what those arguing for “Net Neutrality” in the context of today’s submissions are demanding is the ability to use government force to compel the subsidization of a private, for-profit business service.
I find it impossible to argue with his conclusions. They’re factually correct. What’s more, they directly impact me, and other Internet users like myself. I don’t watch videos over the Internet very often, and certainly not through services like Netflix or YouTube or Hulu. Nevertheless, almost every evening, I find my Internet access becoming slower and slower (despite paying a premium for fiber-optic, high-speed Internet service) because so many other customers are downloading and playing movies and TV shows over the same service. Why should I be penalized for their pattern of entertainment consumption? In a fair world, they’d be paying a higher price for their Internet service in relation to the amount of shared bandwidth they’re using. I would be paying much less for mine, because I wouldn’t be using nearly the same amount of bandwidth that they are.
This is, in so many words, what’s at stake in the current FCC debate over “net neutrality”. It’s simply, “Who’s going to pay for the infrastructure required to deliver Internet content to the consumer?” I’m firmly on the side of those who say that the user should pay according to his consumption.
I note that we already do precisely that in terms of road maintenance taxes. They’re usually built into the price of gasoline or diesel. Those who travel more, consume more fuel; and therefore, in buying more fuel, they pay a higher road tax than those of us who travel less. No-one objects to that at all – it’s a fair way to distribute the cost burden of road maintenance. Those who use them most, pay the most, and vice versa. Why should the same principle of cost distribution not apply to the consumption of Internet bandwidth?
The problem from Netflix’s point of view, of course, is that if its customers have to pay a lot more to access its services, they may not remain its customers for very much longer. Its survival as a business depends on consumers like me subsidizing the Internet access of its customers. However, I don’t regard that as a feature. It’s a bug – and I want it eliminated, no matter what it may cost Netflix. Why should it – or any other company – get a free ride at my expense?