Tuesday, November 2, 2010

Another take at Net-Neutrality

This interesting opinion-article from The Tech argues against Net-Neutrality.

The article states:

Younger, wealthier, and better educated users are being subsidized by the old, poor, and less educated. As our holdover pipe from the dot-com bust gets utilized, and bandwidth becomes scarcer, the extent of that subsidy will increase. The ISPs, noting that they will lose customers if they raise rates uniformly, would like to pass the cost of revitalizing our network infrastructure onto those who are burdening it the most. The internet adepts, seeing the end of their free ride, now rail against the “un-neutrality” of this proposal, and seek to make it illegal for ISPs to perform such price-discrimination.

….

Tiered services work, and work well. They allow providers to better tailor services to customer needs, and bring the price of services in line with the cost of supplying them. With proper oversight to prevent monopolistic abuses, pricing innovation will improve the fairness of the system and ensure that future investments in network infrastructure are made optimally. Tiers are an encouragement — not a hurdle — to innovation, and will better allow end-use consumers to decide, through the free market, what they want their internet experience to be.

Should the telecoms be permitted to prioritize and price discriminate their data delivery services? Why or why not?



10 comments:

  1. While this article makes some questionable comparisons between the delivery of physical and information goods, it does raise a good point about the differences in demand levels of information goods/bandwidth across users. The classical example when talking about net neutrality--that of different politically leaning pages being prioritized based on the providers preference--is somewhat silly, in my opinion. Few users are going to be able to notice this, and if they do they will most likely not stand for it--even if I don't agree with a particular site, if I'm requesting it, that means I have use of it, and want it to load as quickly as anything else!

    The more interesting example is in the disparity between users and their demands. It seems to me that allowing some form of price discrimination based on bandwidth usage is very fair, and likely to become necessary.

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  2. The quote seems to confuse what services are accessed and the bandwith used: net neutrality is very compatible with quantity pricing; what it doesn't take is filtering by service.
    Distorting your opponent's claim is a classic in rhetoric, but this one is a little too common.

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  3. Yes, generally to get economies of scale. But the costs of bandwidth and switching drop faster than then the gain from scale, so the idea never gets traction.

    What I want are products to stream Internet video from my home to my neighbors over WiFi. The I can take Netflix's local business around here, and take the cable business and the DSL business. All with a few hundred dollars and a desktop PC with tons of disk space.

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  4. If the ISPs not allowed to do price discriminate and price competitively (i.e. at MC), then how will they get profit to invest in the next generation fiber optic cable or the internet of things? Someone has to do it?

    Should govt then be responsible for the investment on internet backbone? If no one is paying for it - everyone will suffer.

    We need to provide incentives for the current players to stay for the long term and invest.

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  5. There seems to be some confusion here about what net-neutrality actually is. Of course the providers are allowed to charge their customers (that is internet users) different amounts based on their usage patterns. Nobody I know has any problem with that, and in most places this is standard practice.

    What the net-neutrality movement seeks to prevent is that providers might be tempted to charge different prices based on the content someone accesses.

    For an analogy think about mail services: Obviously postage will vary according to weight and volume of the package I am sending, but postage should definitely not depend upon most other characteristics of a shipment, e.g. what brand of a certain product I am shipping.

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  6. This is a complex problem, and as we're finding, the rhetoric can easily cloud the issue. Though I cannot claim to be an expert in this – I have (in the past) worked for a couple large Carriesr/ISPs. I think there some examples from the and in the mid to late 90’s that provide and interesting backdrop…

    In the mid to late 90’s, the telco industry wanted desperately to create a “new internet”. Facing an increasingly deregulated market, all the telcos got together to create something call the “Beacon” initiative. It was a high speed copper/fiber hybrid network that in 1997 provided a 10 meg – full duplex connection. The goal of this network was provide a “better internet”, which meant that they would restrict, constrain, and segment traffic – for security and quality of service reasons of course ;). The Internet was just a service on this network – and the lowest grade one, since the rest of the Internet was just low grade. There were a huge number of “back end” initiatives started. There were partial deployments of Data centres that who had exclusive access to this network’s high speed lane. There were discussions of inking agreements with content providers to use these data centres. This was the frieakin’ holy grail of revenue for the telcos – but (possibly luckily for the consumer) a multitude of forces crushed this initiative (increasingly competitive market, growing rifts between telcos, regulation changes, etc)

    * Much is at stake...

    Communications are what underpins all the opportunities we saw, and will see - web 2.0, cloud computing, etc... Small changes to it (communications) will cause huge changes in these "other opportunities"... so obviously this is important stuff.

    * What carriers/isp might be compelled to do…

    Carriers/ISP will push for the opportunity to dissect traffic without restriction. Without restriction they can choose an almost infinite number of attributes to segment by...based on where it goes, what it is, how far it travels, how the chunky data is, what latency is required, ad infinitum.

    * Why Carriers may want to do this - Differentiate and Price Discriminate...

    Carriers need the two. They cannot price discriminate unless they can segment – and the most likely will not differentiate unless they can segment. If left with no restrictions, an almost infinite number of ways can be created to charge for service... throttle, block, create fast lanes - slow lanes, etc. and create preferential deals with content providers (the other side of this coin). Such a system of segmented pricing will result in differentiation opportunities as the number of different charges will begin to define the service - which will become just confusing enough that it will become apples and oranges comparisons between providers... and differentiation is then created.

    * But why note allow it? Unless carriers get economic profit, the build out of the next generation net will not be able to be funded.

    Ok, this post is getting long… Here is a reflection. Isn’t this the same argument that was used to justify telephone monopolies way back? At least in Canada, a historical analysis might conclude that the monopolistic telephone system was created because this structure was needed to ensure enough economic profit to build the vast network that – in turn – provided so much economic benefit. It’s unclear if this was a valid argument, but it took hold. And many decades of monopolistic pricing was created as a result.

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  7. This post is in two sections – because its too large :)

    This is a complex problem, and as we're finding, the rhetoric can easily cloud the issue. Though I cannot claim to be an expert in this – I have (in the past) worked for a couple large Carriesr/ISPs. I think there some examples from the and in the mid to late 90’s that provide and interesting backdrop…

    In the mid to late 90’s, the telco industry wanted desperately to create a “new internet”. Facing an increasingly deregulated market, all the telcos got together to create something call the “Beacon” initiative. It was a high speed copper/fiber hybrid network that in 1997 provided a 10 meg – full duplex connection. The goal of this network was provide a “better internet”, which meant that they would restrict, constrain, and segment traffic – for security and quality of service reasons of course ;). The Internet was just a service on this network – and the lowest grade one, since the rest of the Internet was just low grade. There were a huge number of “back end” initiatives started. There were partial deployments of Data centres that who had exclusive access to this network’s high speed lane. There were discussions of inking agreements with content providers to use these data centres. This was the frieakin’ holy grail of revenue for the telcos – but (possibly luckily for the consumer) a multitude of forces crushed this initiative (increasingly competitive market, growing rifts between telcos, regulation changes, etc)

    * Much is at stake...

    Communications are what underpins all the opportunities we saw, and will see - web 2.0, cloud computing, etc... Small changes to it (communications) will cause huge changes in these "other opportunities"... so obviously this is important stuff.

    cont...

    ReplyDelete
  8. * What carriers/isp might be compelled to do…

    Carriers/ISP will push for the opportunity to dissect traffic without restriction. Without restriction they can choose an almost infinite number of attributes to segment by...based on where it goes, what it is, how far it travels, how the chunky data is, what latency is required, ad infinitum.

    * Why Carriers may want to do this -

    Differentiate and Price Discriminate...
    Carriers need the two. They cannot price discriminate unless they can segment – and the most likely will not differentiate unless they can segment. If left with no restrictions, an almost infinite number of ways can be created to charge for service... throttle, block, create fast lanes - slow lanes, etc. and create preferential deals with content providers (the other side of this coin). Such a system of segmented pricing will result in differentiation opportunities as the number of different charges will begin to define the service - which will become just confusing enough that it will become apples and oranges comparisons between providers... and differentiation is then created.

    * But why note allow it? Unless carriers get economic profit, the build out of the next generation net will not be able to be funded.

    Ok, this post is getting long… Here is a reflection. Isn’t this the same argument that was used to justify telephone monopolies way back? At least in Canada, a historical analysis might conclude that the monopolistic telephone system was created because this structure was needed to ensure enough economic profit to build the vast network that – in turn – provided so much economic benefit. It’s unclear if this was a valid argument, but it took hold. And many decades of monopolistic pricing was created as a result.

    ReplyDelete
  9. Thanks for the very helpful comment Tim. If these Telco companies are allow to price discriminate the way the want to, that'd be a great obstacle for the innovations that are to come.

    ReplyDelete
  10. Thanks Baakanit,

    Upon reading my comment again - I wanted to clarify a couple points...

    The reference to "all the telcos" was to the Canadian Market. Until the late 90’s, Canada had a regulated network of regional telecommunications companies that were segmented by province. These regional companies collaborated, generally, through a separate organization called Stentor (from Greek Mythology - a Herald with a loud voice whose name has come to mean "loud voice"). To my knowledge, this organization (Stentor) no longer exists. Deregulation in Canada was brought in rather slowly – starting with data services in the late 80’s, to LD in the 90’s, to eventually the local loop in the 00’s. Resulting competitive forces resulted in much of Stentor (if not all) being disbanded in 1999.

    Second clarification - Though I've worked for a large telco/ISP in Canada (and another in the US), I also spent some time running a software development company within a region of one of these Canadian telcos. Any of my opinions presented in my previous post were _not_ gleaned/developed from any insider information. The “Beacon initiative” (mentioned in my previous post) was being trialed in a region where, at the time, I ran a software development company. This Initiative was creating quite a buzz in the business community, and the local telco was making many presentations on the virtues of this proposed system. From my recollection, "A better Internet" was the common theme.

    …Not that I think everyone wants to hear about the Canadian Telcom industry – I just think it makes for an interesting case in light of recent trends.

    ...now back to the discussion at hand. There would seem to be a fine line between arguing for healthy economic profit (to ensure the continued investment in infrastructural that has become so fundamental to commerce) and supporting excessive profit (that could have huge negative impacts on innovation). As ISP’s have now (generally) consolidated around a rather small number of providers – and the basic level of service has become pretty homogenous – where else will the telcos turn for economic profit? Within the telcos groupthink, they probably genuinely feel that they are subsidizing the Googles,Netflicks, and Facebooks, of the world - and thus want what they feel is their fair share of the profit. But, on the other hand, for every Google there are probably a hundreds, if not 1000’s, of companies that have failed. If it wasn't for the huge economic profit that could be gleaned as a digital product provider, less risk entrepreneurial energy would be expended… and innovation would most likely suffer…. and fewer Facebooks, and Googles would result… and less people would in turn want to buy the ISP’s product.

    It’s all just a bunch of teeter totters in balance :

    ReplyDelete