Thoughts on net neutrality

| Comments (3) |
The topic of "net neutrality" has been coming up quite a bit lately (see Ed Felten's excellent posts for important background). The basic principle is that some ISPs would like to treat different types of customer traffic differently, generally in the interest of revenue enhancement. The bottom line is that it's relatively easy for network providers to discriminate against at least some classes of applications. VoIP and other other real-time multimedia apps are particularly relevant here for three reasons:
  • They're easy to disrupt.
  • It's very difficult to describe exactly what forms of differential packet treatment are acceptable (are there no reasonable applications for QoS?)
  • There are existing carriers extracting quasi-monopoly rents on them.
  • In many cases those same carriers are the people who control the Internet connection to your house (i.e., the local exchange carriers).

The last point is particularly relevant because it gets at the heart of the problem, which isn't differential treatment--that's just a technique for price discrimination--but rather the monopoly itself. Your average Internet customer has at best two options for broadband (cable and DSL) and many have only one (I can't get DSL and have to settle for ISDN). It's extraordinarily expensive to run new cables to people's houses (people hate having their streets dug up), so this is a sort of stable situation. Given the monopoly/duopoly, it's completely unsurprising that the providers will attempt to extract monopoly rents and that generally means price discrimination.

Remember that price discrimination is only really practical in a non-competitive market. There's no reason that Internet service provision can't be competitive: it's just the market for last mile service that's inherently difficult to have competition for. The natural fix, rather than having a bunch of complicated rules about packet handling, is to separate the provision of the wires from the provision of Internet service so that we can have competition for packet carriage. Unfortunately, we're moving in the opposite direction. For a while, the local telco carriers were required to provide equal access to their lines to other Internet service providers (though there was always a lot of complaining that you got better service if you used their captive ISP rather than an independent ISP) but now that's not even required.

3 Comments

Do current anti-monopoly laws not already regulate this behavior? Wouldn't it be illegal to bundle a high-priced "VoIP access" service with a monopoly-protected "local internet connection" service? That is, if a company has a monopoly on some layer of the network stack, wouldn't it be illegal to leverage that monopoly into attempting to either control or extract undue fees for use of some other network layer? If Standard Oil cannot use control of pipeline networks in order to control the price of oil, then how can an ISP use control of network physical lines to control the price of IP packets?

I think there's a real need (perhaps more in the US) for a major antitrust showdown over this and related issues, especially with the coming of IMS.

The Standard Oil argument was essentially why, in the UK, BT was forced to put its copperwire access network in a separate division (BT-Openreach) with a charter to offer the same terms of service on comparable products to BT-Retail, BT-Ignite, and all other ISPs.

More competition is always better - you'll get no argument from me there. I do think that a more hands-off approach is necessary though if we're going to get a more streamlined, competitive infrastructure for the next phase of broadband. I haven't seen how regulation will make this possible. Letting government in could potentially kill innovation and progress and set us back years.

Leave a comment