What creates net neutrality — market forces or the FCC?
Put down your pitchfork, and listen, and think. Think first.
What actually creates “net neutrality” ?
This is a hotly debated topic this week, and will be on the tip of the tech community’s tongue at least for a few more weeks. The FCC, under Republican chairman Ajit Pai, is prepared to nix the rules on their books that address what the industry lovingly deems “net neutrality” .
We all know the opposition’s line: without the FCC’s net-neutrality rules, the internet’s ISPs will strangle the consumer’s internet connection by (for example) putting competitors content on a “slow lane”, making a “fast lane” for companies that pay a premium price (higher than the price most internet businesses can afford), unilaterally blocking content the ISPs object to, pushing the ISPs content ahead of everyone else’s content, making up schemes to extort more cash from internet subscribers… and so on.
Okay, so let’s examine this beyond the surface layer — because there’s always more than one side of an argument.
What is the current state of things?
The most shocking fact may be that the internet already has “fast lanes” .
Really? you might be saying now. Yes. Really. And they’ve been around for a few years. They were constructed during the Obama years. They’ve been the economic model that funds your binges on Netflix, YouTube, Amazon, and every other major content source you consume high-bandwidth content from. How else do you think those big players guarantee that your videos play almost instantly at any time, anywhere, no matter what so long as you’re on a fast connection? They pay your ISP to prioritize their content. They put your video on a “fast lane”!
It’s basically paid prioritization. Yet three years ago, during the Obama years and under a Democratic chairman, the FCC enacted rules that were represented by consumer advocates as the prohibition of any ISPs paid prioritization schemes. Those are the FCC’s acts that form much of what we call the net-neutrality rules.
… Huh? you may be thinking now.
How is paid prioritization still legal?
- there’s a legitimate need for online video distributors (OVDs) like Netflix to guarantee that you receive video data quickly; and
- there’s more than one way to skin a cat.
From Quartz’s article published in 2014 a few months before the FCC finalized its net-neutrality rules:
Netflix… purchased transit from Cogent, which had a settlement-free peering arrangement with Comcast. […] Shortly after Cogent began delivering Netflix traffic requested by Comcast subscribers, Cogent’s routes into Comcast’s network started to congest. According to Cogent’s CEO, “[f]or most of Cogent’s history with Comcast…[as] Comcast’s subscribers demanded more content from Cogent’s customers, Comcast would add capacity to the interconnection points with Cogent to handle that increased traffic.” After Cogent began carrying Netflix traffic, however, “Comcast refused to continue to augment capacity at our interconnection points as it had done for years prior.”
Netflix attempted to address congested routes into Comcast by purchasing all available transit capacity from transit providers that did not pay access fees to Comcast—which involved agreements with Cogent, Level 3, NTT, TeliaSonera, Tata, and X0 Communications. Although all six of those providers sold transit to the entire Internet, only three of them—Cogent, Level 3, and Tata—had direct connections to Comcast’s network.
In 2013, congestion on Cogent’s and Level 3’s routes into Comcast’s network steadily increased, reaching a level where it began to affect the performance of Netflix streaming for Comcast’s subscribers. […] When Netflix approached Comcast regarding the lack of uncongested settlement-free routes available to its network, Comcast suggested that Netflix return to using CDNs, which Comcast could charge access fees that would then be passed on to Netflix, or use a Tier 1 network like which charged its own access fees. Comcast made clear that Netflix would have to pay Comcast an access fee if Netflix wanted to directly connect with Comcast or use third-party CDNs. In essence, Comcast sought to meter Netflix traffic requested by Comcast’s broadband subscribers.
Congested interconnection points affected Netflix traffic bound for Comcast subscribers throughout 2013. In December 2013 and January 2014, however, congestion on routes into Comcast’s network reached a critical threshold and Comcast’s and Netflix’s mutual customers were significantly harmed. Comcast subscribers went from viewing Netflix content at 720p on average HD quality) to viewing content at nearly VHS quality. For many subscribers, the bitrate was so poor that Netflix’s streaming video service became unusable.
The degraded viewing quality for Comcast subscribers also resulted in a sharp increase in calls to Netflix customer support. Those calls made clear that Comcast was well aware of the degradation of Netflix traffic and was directing its subscribers to contact Netflix.
During the peak streaming season — December and January — the viewing experience for Netflix customers on Comcast connections was so bad, Netflix was flooded with customer service complaints. They had to act. As Comcast is not required to increase capacity for any reason except their own, Netflix was compelled to forge a tighter relationship with the internet’s infrastructure owners that collectively serve Comcast’s subscribers. That list of players obviously includes Comcast.
Then, as if by magic…
Faced with such severe degradation of its streaming video service, Netflix began to negotiate for paid access to connect with Comcast. Netflix and Comcast eventually reached a paid agreement. Within a week of that agreement, viewing quality for Netflix streaming video on Comcast’s network shot back up to HD-quality levels.
The lesson here is that, as well-intentioned the FCC may be in its push for total net-neutrality, it does not have that degree of authority by the Constitution nor by Congress.
The network providers — the market forces — not the FCC — determine “net neutrality”
Because its power is fundamentally insufficient, their actions amount to little more than saber-rattling and public statements to influence public opinion (and, possibly, market’s response). The public thinks the FCC has a dog in this fight, but they really don’t, because they technically can’t. This battle takes place in the private arena; it was fought between Netflix et al and Comcast et al, and the property owner won (of course).
How does all of this relate to the FCC’s actions this month?
So now let’s return to the original topic: the proposal the FCC revealed this week.
What effect will a repeal of net-neutrality rules really have on today’s internet?
I do have some legitimate concerns:
- ISPs could prioritize their own content above the others. That’s a thing that Comcast/NBC, Time Warner/Spectrum/CNN/HBO, and AT&T/DirecTV consumers should especially look for and report to the rest of us. Those companies own a massive portfolio of other media properties: TV and radio stations, websites, original content, often in competition against others and so with a huge incentive to shape the internet worldview their subscribers receive.
- ISPs could play favorites against any content they dislike for [insert reason here]. An outlet that, say, has a contrary political opinion (conservative news site, perhaps?) could suddenly find their content struggling to reach their audience, notably if they don’t have the market strength to afford the size of partnership a player like Netflix needs to forge in order to overcome network “congestion” .
- ISPs enjoying government-sanctioned monopoly status would be most prone to reckless behavior. More on this point below.
The other concerns don’t ping my radar, because they discount the presence and potency of healthy competition. If/when an ISP commits to a shitty act, the others who aren’t being shitty will reap the benefit from the defections in that market. If AT&T imposes Draconian limits on my wireless data plan, at least one other carrier will produce a superior plan. (Just consider how T-Mobile flipped the tables on Verizon, AT&T, and Sprint, when they unveiled an unlimited data plan.)
Regulation is necessary for correcting marketwide abuses.
And, to be honest: in the case of the effective monopolies most cable companies enjoy from city governments, consumers are significantly limited — in some cases, they don’t have a second choice. In those markets, regulation is most justifiable. And the regional authorities of those areas should have full authority to intervene in defense of their residents. If I were running the opposition’s campaign, I’d be focusing a lot of energy against the section of the FCC’s proposal that would prohibit states from enacting legislation that supercedes the FCC’s authority with respect to net-neutrality. The option for regulation should be on the table for municipalities in cases where the monopolist misbehaves.