Net Neutrality vs Open Infrastructure

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Adam Kenigsberg did a very brave thing in posting a case against Net Neutrality and inviting his friends to “start a vigorous debate in the comment thread.” As someone who has long been interested in Net Neutrality and who has vacillated between favoring it, opposing it, and being undecided about it I was interested in what would follow before I even saw the comment thread.

Notes and Context

The case against Net Neutrality was written by David Veksler who has written quite a number of interesting cases for and against a variety of things. If you enjoy thoughtful consideration of issues his cases deserve a look. I wanted to make that clear lest anyone think that my deconstruction of his case indicated any lack of respect for his approach to this or any other topic. I would also note that his case was written more than 7 years ago. Much has changed about the internet and the surrounding industries in that time. For example, AOL was still merged with Time Warner at the time and Facebook had been open to the public for less than a year and wouldn’t have its IPO for another five years after this case was published.

Mr. Veksler’s case is broken up into four headings. I’ll deal with each individually (although not in the same order).

What is “net neutrality?”

From the original article:

To borrow Senator Ted Stevens’s infamous analogy of the Internet to a series of tubes, imagine a network of pipes connected by switching stations. The width of a pipe (bandwidth) determines the volume of messages (packets) than can be sent through it. Packets arriving at a switching station wait in a queue until they can be forwarded to their destination. The pipe’s diameter and the volume of traffic determines the total time (latency) that messages take to reach their destination.

Advocates of “net neutrality” argue against the right of the owners of the pipes (Internet Service Providers) to discriminate between different messages or to charge recipients of messages.

This seems to be a fairly reasonable and understandable explanation of what Net Neutrality is. My brain recognized a connection between “the internet” and another arena defined by pipes of limited capacity – the natural gas industry – which illustrates the structural problems of our current view of the internet and highlights both the advantages and the drawbacks of Net Neutrality.

The natural gas industry is broken out into three areas and very few companies operate in all three. Many companies only operate in a single aspect of the industry. The three areas are gas production (that’s drilling for new wells and operating existing ones), gas transportation (that’s maintaining the pipes that receive gas from the producers and move it to market), and gas delivery (that’s the public utility company that most end users are familiar with). I believe a comparable breakdown applies in the electrical power industry but natural gas is the one I am more familiar with. The internet has three comparable components of production, transportation, and delivery that interact in largely the same way as they do in the natural gas industry. The content producers provide something the consumers want, the transportation delivers it to and through the “series of tubes,” and the delivery gets that content to the end user.

There are three major differences between the internet and the natural gas industry.

1. The natural gas industry has been around much longer and has had time to mature. We have come to acknowledge that it is a public utility that deserves to be regulated because of the nature of the goods. It is becoming more apparent all the time that if we are serious about equal opportunity and allowing the full economic potential of the information age, internet access deserves to be classified as a public utility just as much as telephone service and electricity. Because of the maturity of the natural gas industry we have had time to develop a stable set of regulations that help to ensure that the monopolistic nature of gas delivery and gas transportation don’t get exploited to gouge end users. On the other hand, the gas production area isn’t inherently monopolistic and has far fewer regulations. (Most or all of those are related to environmental issues rather than competitive ones.)
2. We have almost universally coupled the transportation and delivery aspects of the internet. When we talk about an ISP we are generally talking about the company delivering the internet to the homes of consumers as well as the company transporting content from the content producers. The fact that the regulations related to gas delivery and gas transportation are very different suggests that we need to treat these as separate functions even when they are undertaken by a single corporation.
3. While gas delivery is naturally monopolistic (imagine the cost of having parallel gas delivery systems everywhere simply so that end users could select service from a variety of providers) internet delivery isn’t naturally monopolistic. With a single point of entry into my home I can potentially have multiple service providers to choose from – in fact I already do (although that’s not the case for everyone). The problem is that every transportation provider is also a service provider. I can get internet through CenturyLink and they charge me a fee for a certain level of service. I then have the option to use CenturyLink as my service provider – at no extra charge – or to choose another service provider like X-Mission who I get to pay another charge for their service. Even if I prefer an alternative service provider I have to decide as a consumer if its worth having two different companies to deal with whenever I need help with my service considering that the second company has no control over the speed of my connection and the cost of their service is entirely in addition to the cost of the transportation provider. That is a decidedly un-level playing field in favor of combining the transportation and delivery aspects of internet access. With severely limited transportation options (most homes have either one choice or two choices for how to get an internet connection into their home) the opportunities for price gouging and substandard service are enormous.

Because the transportation aspect of the internet industry is naturally monopolistic it makes sense that it should be regulated either by an agency such as the FCC (as Net Neutrality proposes) or by real market forces that result from robust competition among service providers. At present we effectively have neither means of regulating that area of the internet industry. Hence the push for Net Neutrality.

Regulations breed more regulations

True. This is something that should always be factored in when considering new regulations.

The Internet is private property

This statement is true but it doesn’t logically follow that regulation is therefore inherently unacceptable. The natural gas pipes in the gas transportation business are also private property but we have seen fit as a society to regulate them substantially and it seems that we have effectively created a level playing field for gas producers and gas suppliers while ensuring that the naturally monopolistic sectors of the natural gas industry aren’t used to leverage exorbitant prices from consumers. In other words, being private property doesn’t preclude the possibility of regulation.

Regulation stifles innovation

Monopolies also stifle innovation more often than not and usually more effectively than regulation. Also, as we learned with Enron years ago, nefarious innovations crop up even more easily than beneficial innovations and monopolies have no incentive to stifle those while regulations should at least attempt to do so.

My conclusion on the idea of internet regulation

I don’t mind the idea of allowing private companies to decide if they want to do fast lanes or slow lanes if consumers have a variety of broadband options to choose from. Real competition between service providers opens up market forces to naturally provide the regulation and incentive to improve service. So long as that robust competition among various service providers remains a non-reality I think it is very reasonable to look at government regulations like Net Neutrality to try preventing the service providers from using the lack of competition to extort content providers or users by manipulating their delivery speeds.

Personally I think the best thing that could happen would be for us to treat the infrastructure like a public utility – making it either publicly funded like a library (my preference) or regulated like a power company (the path of Net Neutrality). If we publicly fund an open infrastructure we lower the barrier to entry for service providers and open the way for real, robust competition making the need for Net Neutrality vanish. Service providers are then pooling their resources on the same infrastructure which they each have a vested interest in improving while on the other side they each have competition to encourage them to innovate in their prices, offerings, and customer care. One may choose to charge Netflix to give their data priority speeds, another might charge customers a premium price for faster movie streaming, and a third might treat all data equally and charge consumers less for a less optimized service. Netflix can choose if it’s worth paying for a fast lane and consumers can vote with their wallet on which model best suits them. Different consumers will have different needs and choose different services and price points.

Even if we opt to go down the path of legal regulation we have an unanswered question of exactly what regulations would best accomplish the purposes of protecting consumers and producers. Taking a queue from the natural gas industry, the basic thrust of the regulations on the gas transportation sector is that the transportation infrastructure be made equally available to anyone. In other words, so long as there is capacity available any service provider may use that capacity under terms that are equally available to other providers. This allows a level playing field for new service providers to compete with each other by innovating in search of the most desirable combination of customer service, price, and service packaging. Lacking the specifics of what regulations would be made, it is impossible to unequivocally support Net Neutrality – the best I can do is acknowledge the potential value of regulations that might be labeled as Net Neutrality.