Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
The Knave Detector
I recently read a comment that Marx is useful to us because his philosophy allows us to easily identify fools and knaves. I’ve personally observed that the net neutrality debate is useful for much the same reason.
The FCC is currently considering a proposal that has many up in arms. Consider this, from the activist group SumOfUs:
Comcast, AT&T, and Verizon want to control what we can and cannot do online — and they’re about to get their wish.
Their lobbyists and lawyers have taken over the FCC — the agency meant to keep them in check. Now, the former lobbyist running the FCC is about to announce new rules that will kill Net Neutrality — the rule that stops Comcast, AT&T, or Verizon from deciding which sites you’re allowed to visit.
Does Guinness track the maximum number of errors that have ever appeared in writing for certain word counts? If so, the above statements are clearly in the running for the 75 word or less category. Rather than list them out in a fact-checking exercise, I’d like to ask some questions of those passing this drivel around on social media.
Why would Comcast, AT&T, and Verizon want to control what you can and cannot do online? Are all of these companies run by fascists who wish to force a specific world view on us? Are they run by puritans who are going to do away with porn? What could the aim of these for-profit companies possibly be?
What if — and I’m just spitballing here — their motivation was simply profit? What if they don’t care at all what you do online as long as they can make money providing you with internet access? What if they are having trouble adding bandwidth fast enough to keep up with demand, and are desperately looking for solutions aside from doubling the rates they charge their customers?
As you can see, internet usage is doubling approximately every two years, driven largely by an ever-increasing amount of streaming video. What the chart doesn’t show you is that the amount of bandwidth available is not doubling every two years.
Internet providers face a dilemma: how do they acquire the funds to do the R&D and infrastructure improvements required to keep up with our insatiable demand for bandwidth? One solution is for them to dramatically increase rates on all of their customers; an idea that will lead to a revolt among average Americans who just want to stream their favorite show at the end of a hard day and care little about the future calamity of a bottlenecked information superhighway. They face a similar backlash if they throttle back the bandwidth of all of their customers equally. Instead they have settled on a third option where they will charge websites extra for faster service.
The practical effect is that those sites that use the majority of the bandwidth will have to shell out the money required to add more. Naturally, Netflix, Google, and others are none too pleased with this outcome.
According to recent news reports, the Commission intends to propose rules that would enable phone and cable Internet service providers to discriminate both technically and financially against Internet companies and to impose new tolls on them. If these reports are correct, this represents a grave threat to the Internet.
This is creative usage of the word ‘discrimination’. In much the same way, car companies apparently discriminate against customers when they charge them more for a car with greater horsepower. I wonder if this represents a grave threat to travel?
The problem for the internet providers is the simplicity of the narrative. Most of us have had bad encounters with these companies and hold them in low regard. Meanwhile, we tend to see only the upside of YouTube and Google, as it’s natural to be less critical of services we seemingly get for free.
One of the more amusing aspects of this entire story is seeing mega corporations such as Google and Facebook described as “technology innovators” to avoid framing this as a dispute between massive companies about who should pay for what.
Instead of permitting individualized bargaining and discrimination, the Commission’s rules should protect users and Internet companies on both fixed and mobile platforms against blocking, discrimination, and paid prioritization, and should make the market for Internet services more transparent. The rules should provide certainty to all market participants and keep the costs of regulation low.
God forbid these businesses engage in “individualized bargaining”. Surely Google doesn’t offer superior services for an extra cost. And of course Netflix would never introduce any type of tiered pricing system that includes extra benefits to those who would pay more.
These companies would prefer the FCC pass new net neutrality rules that would prevent them from having to pay more in order to receive excellent bandwidth. I would prefer Google provide me with an unlimited amount of file and e-mail storage at no extra cost, yet somehow I suspect they would balk at the idea of users lobbying to have a regulation passed to avoid having to pay them extra for these services.
The spectacle of Google using the government to avoid having to pay more in a market arrangement while accusing the internet providers of doing the same would be funny if it weren’t so effective. One is forced to wonder what it would take for those who fear corporations above all else to realize that when they empower government to insert itself in these matters, they have really only empowered those corporations to engage in regulatory capture.
I suppose they’d have to first know what regulatory capture is. Hardly time to bother with that when they could be streaming Breaking Bad on Netflix.
Published in General
Professional sports organizations are essentially cartels. They have a dominant position in a geographic area that breeds a brand loyalty in excess of their actual on-field production. If the leagues’ were really interested in overall revenues they would let teams spring up wherever someone was willing to pay for them, for a franchise fee, of course. Except this doesn’t happen, not because overall revenues would go down, but because they have sufficient barriers of entry to keep competition out.
Net neutrality, as I understand it, is essentially a plan to limit these barriers of entry. This would in turn prevent the cartel situation from ever forming. If content providers are given preferential treatment by content distributors in a monopoly position, even at considerable cost, the barrier of entry would be burdensome and maybe even prohibitive to net content. I was just trying to point out that the value of the NFL in your eyes is added to significantly by parity, well that is my opinion of the internet as well. Not establishing a cost-prohibitive content delivery system has value to me.
David,
Square what you are saying here with the destruction of traditional telephone companies at the hands of cell phone carriers. The infrastructure that was required to be a telephone provider would have seemed in insurmountable barrier, except that technology (as it always does) surmounted it. Now there are numerous cell phone providers, where as there once was essentially a telephone monopoly. Notice that anti-trust actions against AT&T didn’t bring about this competition, but the market brought it about naturally.
No, the barriers to becoming a player in the ISP market are not insurmountable, and technological advances that none of us are presently aware of will change these markets in ways that will bring up new competition.
Unless you get the government involved and enable regulatory capture. Then things go haywire.
Hah! Great post, Frank. I love it.
Vice,
Can you name any other industry where you don’t believe that a company should be able to have multiple tiers of service quality at a variety of price points?
Furthermore, can you name an instance where government regulation of this type has not either led to regulatory capture, or to numerous unintended consequences in the market place in question?
Do you not believe the price system is the best method of distributing resources? Because that is the end point of your cartel argument.
You’ll notice that UPS doesn’t allow multiple hubs to open in the same region either. It would be silly in the long term for the NFL to allow teams to crop up everywhere to cannibalize each others profits and talent.
The reason sports leagues have difficulty creating real competition in the form of multiple leagues (which is the only thing that would qualify as actual market competition), is that people want to see the best players playing in the same league. The priority isn’t who can provide you a football game at the lowest price (as it would be with nearly any other product), it’s who can put the best in the world on the field so we can see the best game. Since there are only a dozen or so excellent quarterbacks in the league, suggesting that diluting the league with tons of inferior talent would be helpful for the health of the NFL seems short sighted.
This strikes me as yet another example of a broader problem.
A market works because the pressures of competitors, when focused on each other, can only be resolved by seeing which product is more popular with the public. Their competition with each other creates an eventual equilibrium, and that’s what sets the price. The only way to get an advantage is to make your product more popular with consumers, and that’s what drives the price down.
But when government steps in, it changes the game. The competitors’ pressures are no longer focused on each other; instead, they’re directed at government. And in that mode, the way to get an advantage is to sway the regulator, not improve the product. A competitive marketplace devolves into a political tug of war, with no advantage to the consumer.
We often complain that government bureaucrats “think they know better” and make market decisions that would otherwise be made by competition. (I’ve phrased it that way myself, sadly.) But the ugly secret is that this frequently happens at the prompting of the competitors themselves. The referees often don’t initiate the meddling – the players invite them to do it.
I feel like Eeyore on this thing. Though, I’ve been offered a different analogy than your Honda example: that it’s more like the electric company refusing to provide electricity to your Oster microwave oven because GE paid for preferred status for their models. There were variations on the analogy including quality variability as opposed to refusal of service, but the principle was the same.
The question is whether internet services are really more like Honda or really more like the electric company.
Electric companies already charge different rates for different classes of customers, not to mention time-of-day pricing that tracks changes in demand.
They’re neither. They’re much more akin to the Post Office or UPS, if UPS were to add a division designed to compete with Amazon.
ISPs are in the Content Delivery business, though, instead of packages. If you want an overnight package from UPS, you pay an expedite fee. Same if you want priority packet delivery over “the tubes”.
Internet is NOT a utility, and it is a falacy to continue treat it as such.
Internet is DELIVERY.
You also pay much much more for higher amperage in your service, additional lines, 3-phase, guaranteed redundancy, and power conditioning.
To continue the delivery model:
If UPS volumes are going up, they have several choices:
1. Add drivers
2. Add trucks
3. Make drivers work longer hours
4. Make drivers more efficient in their routes
5. Raise prices
6. Refuse some additional business
7. Build more roads that are more convenient to use
The analogy to Internet Service is as follows:
1 – 3: The equivalent of this would be trying to add faster routers and switches (Packet delivery).
4: This is where “net neutrality” fanatics show their blithering ignorance. This is known as Traffic Shaping, and ALL networks do this already. To demand “neutrality” is cast off 30 years of network understanding. ALL traffic is priority routed in various ways. VOIP (IE, your landline telephone calls) gets high priority so you don’t sound choppy. You want that treated “equally” with my teen neighbor’s adult-entertainment downloads? Madness, but that’s actually what you are asking for.
5. It is not unreasonable for you to pay by-the-packet, just like you do with UPS, just like you do with cell phones.
6. ISPs will not lay lines to certain areas.
7. This is adding more capacity.
I do believe that the price system is generally the best method of distributing resources. However, I also at least conceptually recognize that monopoly is not conducive to a functioning price system, that the price system breaks down in those kinds of situations. I also recognize that some industries are essentially natural monopolies even if technological innovation eventually (decades? half centuries?) leads to real competition and market improvement. Sometimes utility status is the least of all the alternative evils. I’m really not sure if that’s the case here, but I can’t dismiss it out of hand.
Another argument I’ve heard from more free-market-friendly net neutrality supporters is that net neutrality does keep the government out, mostly. Whereas allowing tiers and such invites huge amounts of regulation – because it will be regulated whether we think it should be or not.
This is the heart of the debate, I guess. Many do see it as a utility. I’m really not sure – I’m pulled in opposite directions to the point of being frozen in indecision.
Sure, but that that’s within a context of being highly regulated and treated as a public utility. Would the example given to me that I recounted above (eg refusing service to my Oster brand microwave because GE has the preferred contract) be acceptable in the electricity market? Part of the confusion – my confusion – is what the implications would be. I have no problem with Netflix being charged more the same way a commercial user of electricity could be charged more to cover the discrete infrastructure costs involved with providing the needed resources. However, I do have a problem with the electric company refusing to provide me service simply because I use the wrong brand of light bulb. I’m always hoping to gain better understanding, but so far as I understand it both of these scenarios are plausible without net neutrality.
Just look at what ISPs actually do – they route packets of data from one point to another. They do not generate the data.
The closest analogy is telephone service, but remember that the AT&T monopoly, then breakup, was the result of government sponsored cartelization in the first place, treating telephone service almost as a right. The result was a stifling of real communications innovation, and an awful nest of local vs long distance charges. When I still had a landline just 10 years ago, it cost me MORE to call inside my state and outside my area code than it did for me to call out of state. This was all due the hellish nature of FCC interference. Left along, the phone systems would never have come up with that pricing scheme.
To sum it up, then, I get the examples that Frank, Skipsul, and Misthiocracy are using. And they are compelling examples. However, I also get the examples that my net neutrality supporter friends have given. Those examples are compelling too. They are highlighting different problems; both seem real.
The problem is that “Net Neutrality” means vastly different things to different people. The consumers view it as not getting charged more to download 2tb of movies every month. The content providers view it as not having to deal with favoritism.
The FCC, however, views it as a mission to put itself in charge of everything, and by “neutrality” it means “political neutrality” and censorship. Its regulations keep getting tossed as the FCC is clearly trying to grab it all.
Compared to the fears of net neutrality supporters, the dangers of the FCC are the real threat. These clowns are slavering after power and playing the rest for leverage.
This is not just a question of Google/Netflix consuming a large amount of bandwidth with their content, it is also a matter of how that content uses bandwidth. The how is a function of the application that invokes that data transfer. Video streaming services provide large amounts of data to the requesting device as quickly as possible so that the device can buffer it in memory and provide high quality image and sound to the consumer. When looking at the network utilization during that streaming period, bandwidth spikes and plateau’s for the duration. This makes sense for that use case. For applications such as voice over IP (VoIP), the nature of the data transfer is completely different: the data is delivered in very small chunks (consuming almost no bandwidth), but the order of delivery is very important, and the timeliness of delivery is critical. VoIP traffic must be identified, classified, and given special treatment by carriers (and corporate networks), to ensure orderly and timely delivery. This is called Quality of Service (QoS). Without QoS, video and streaming crowds out VoIP and other latency sensitive traffic. Net Neutrality essentially guts the ability of a carrier to implement QoS.
Yes, exactly this! Double Like.
I’m with Ed G. on this one. The TimeWarner/Comcast deal looms over the FCC decision. The merger would create a small number of very large firms that can use their market share to choose their own customers. What we want to weigh here is the public good vs. reward for labor. At present, the cable companies already provide us an excellent example of what they will do with ending net neutrality–they will suppress innovation and jack up prices. If you doubt me, compare the set top box of today with the one Apple is developing. The one we’re forced to use practically says “You’ve got mail!” when you turn it on. Aside for DRM (which TiVo does better), they’re identical tech to twenty years ago.
This Coffee & Markets podcast here breaks it down well.
Nobody forces you to use a particular set-top box.
Heck, nobody forces you to get cable.
I don’t have cable. I have a Mac Mini hooked up to my tv via the VGA connection. Works like a charm.
Or get a Roku box, which gets you all sorts of ala carte channels, paying for only what you actually want to watch. I ditched cable 6 years ago because it was ridiculous to pay such a high premium just to watch Top Gear and a few other shows.
We shouldn’t confuse the cable TV service with ISP service. They may come over the same wires into your home, but they’re really separate businesses.
I agree that the TW/Comcast deal stinks, but what makes it dirty is not the content control per se, but that cities and counties around the nation have granted local monopoly status to the cable companies for service. TW is the only game in my town, the others are prevented by local law from laying their own wire.
Exactly.
Almost all of these issues would be solved if ISP’s started charging customers for data usage instead of bandwidth. The wireless providers went through this evolution and are reaping the rewards as users are more careful with their usage.
Very very true. Except that customers are lobbying the FCC on “net neutrality” grounds to prevent this very practice.
They might still end up having to do that. We just need to let the market sort this problem out, instead of turning to government.
Sometimes I wonder if people who are against Net Neutrality have an inequality fetish that they like to apply to every problem. Or, to put it another way, a knee-jerk reaction to anything associated with “equality” as if that automatically equated Communism.
Don’t like that characterization? Too bad. It’s no worse than saying Net Neutrality advocates are automatically knaves or fools.
Technically, Arjay is correct. Net Neutrality simply means the Internet doesn’t favor any particular packets above others. This is the principle that has allowed many startups and new innovations and protocols to take hold on the Internet. There is a level playing field for everyone, and it’s just a little harder for certain companies to monopolize niches of the Internet.
Almost all techies I know, who truly understand Net Neutrality (as opposed to political pundits who usually don’t, even though they make a living calling the rest of us fools), are for it, regardless of their political persuasion.
What a fantastic post. I didn’t think you could outdo your My Vox Resume, but you did. Bravo!