The volume of discussion and debate surrounding so-called ‘net neutrality’ in recent days has increased dramatically. And, as usual, it is a polarizing topic. The President has weighed in on the issue, urging the FCC to explicitly deny service providers the right to rate-limit the Internet’s content. His ‘request’ has been met with a venomous response from those who feel differently. Those who oppose so-called net neutrality want the Internet Service Providers (ISPs) to remain free to sell their capacity in a way they deem appropriate for profitability. So who is right and who is wrong? I do not believe there is middle ground to be had. One side favors control and the other side favors freedom. But in order to understand how we got to this point we need a brief refresher on where we came from.
A Quick History of Data Types
We can break information into three generic categories: voice, video and data. Many years ago there were distinct and separate networks for the delivery of each. The telephone companies provided phone service to homes and businesses, the cable TV companies provided television (or it was delivered over-the-air) and the Internet service providers connected us to the Internet. As a business or residential customer you purchased all three services from different companies. Then things began to change. The continued evolution of technology created Internet via cable TV wires as well as the mainstream capacity to have voice transmissions (i.e. phone calls) delivered over the data network (the Internet). The impact of both was huge. For little to no additional charge, Voice over IP (VoIP) technologies gave residential customers the ability to make long distance or international calls using their computer’s Internet connection rather than paying the phone company their expensive rates. Businesses quickly saw the opportunity for cost savings and, in fairly short order, the IP phone replaced the traditional systems on the desks of businesses around the country. Rather than paying expensive toll charges, a businesses internal voice communications migrated to the data network; a gigantic cost savings for them.
Running parallel to the VoIP revolution was the rise of the mobile phone and its lack of long distance charges. Customers who owned both a mobile phone and a “land line” at home began asking themselves why they needed the land line when their mobile phone was always with them and didn’t come with additional long distance charges. Having a land line is an oddity these days; few people really needs one. The number of network types needed to deliver the big three (voice, video and data) had dropped to two. Traditional telephone (PSTN, POTS) having taken a double-edged thrashing, had been relegated to an also-ran in the battle.
The next evolution started when Internet services like YouTube, Google Video, Hulu and Netflix entered the marketplace. Watching video on the Internet existed before these services arose but it was mostly a download-the-file-and-then-watch-locally delivery mechanism. YouTube knocked the Internet sideways with its ability to not only watch video on-line but to also easily contribute it, too. Jump forward a few years and you get to where we are today: a rapidly increasing number of people no longer pay for cable TV service. They get all of their content on-line, via the data network (the Internet). Using YouTube, Hulu, Vimeo, Netflix and iTunes a customer can get watch pretty much anything they want, whenever they want. The last remaining limitation of not being able to watch a program on its original air date (i.e. when it is aired for the first time on cable TV) is teetering on the brink of oblivion, too.
How the ISPs Fit Into the Evolution
As the Internet increasingly became the primary mechanism for the delivery of voice, video and data the need to provide supporting data rates came along with it. And the cable companies responded; data rates have risen many, many times over in the past 10-15 years. The impressiveness of this feat should not be discounted; the Internet was built to support latency. Data transmissions can handle the delays of the Internet with remarkable resilience. Voice and video, which were not initially intended to be traffic types on the Internet, can not.
In order to maintain and maximize profitability, cable companies began offering a bundle of services: voice, video and data. And, for many years, customers were willing to purchase all three. But that has changed. Increasingly, customers only want Internet service from their provider. Their mobile phones provide them all the voice service they need and they can get increasingly good video services through their Internet data connection. Services like Skype and Google Hangout fill in the gaps (over the data network). This means that revenue from selling phone services is gradually dropping off the ISPs earnings statements. And, increasingly, so are cable TV service revenues. This puts service providers that were once providers of voice, video and data into the bad financial position of having only the revenue from data subscriptions while continuing to deliver the video (and some of the voice), packaged inside IP packets, in the same data pathway. They are still ultimately delivering the video but are no longer being paid to do so. The revenues for providing content have shifted to Apple, Netflix, Hulu and YouTube. The ISPs are now only being paid by the end user to deliver bulk data with no regard to what the IP packet contains. But it isn’t ‘bulk data’; it’s frequently packed with time-sensitive video packets. This is somewhat true for voice traffic as well but voice traffic doesn’t put the load on the network that video traffic does. And that is why this net neutrality issue didn’t come up sooner than it did.
Because the data network is now responsible for delivering high-quality video to an increasing number of homes and businesses, ISPs have turned their attention to the people who are making the money on that delivery: the content providers. Consumer dollars that were once paid to the ISP have been partially diverted to Netflix, Apple and similar. ISP customers want fast access to the video service they are paying for. The content providers do their part by using increasingly good compression algorithms that optimize video quality while decreasing the quantity of data to be delivered but the real job falls into the hands of the ISPs to get the content to the customer in time. And there isn’t any extra money in it for them to do so. Until now. ISPs have begun making deals with companies like Netflix to give , for a fee, their packets priority in their networks. This is a win for the customer whose video is snappy, jitter free and high quality. It is a win for Netflix (or similar) because their customers are happy with the product they are paying for. And, finally, it is a win for the ISP because they have found a way to offset the loss of revenue they are experiencing from the decline in cable TV subscribers.
The fear is that there will also be losers. If an increasing number of content providers buy elevated data priority from ISPs there will be an increasing number of services on the Internet that fall into the bottom, ‘best effort, tier. And the fear mongers suggest that these folks, who will comprise a majority of the Internet, will experience painfully slow service as a result. In order to prevent this supposed unfairness, advocates of Net Neutrality, like our President, are pushing for rules that make these deals between ISPs and content providers illegal.
Net Neutrality: Right or Wrong?
The people who support the government using laws and regulations to eliminate these deals are wrong. Net Neutrality must not be allowed to make any headway. Here is why:
- If ISPs are not free to maintain profitability in an ever-changing and dynamic marketplace they will have two choices: increase the rates paid by ALL end customers or go out of business. The government is insane if it thinks it can mandate so-called fairness in the Internet. Cable providers are increasingly responsible for providing faster and faster delivery of data but are not expected to be able to seek new means to be compensated for doing so? That is wrong.
- Government should not be playing a role in how business in an open marketplace is conducted. Customers, content providers and service provides are fully capable of working out how much they are willing to pay for the services they get. The involvement of government will, as it always does, make things worse. Governments is poor (a euphemism) at commerce and typically serves as a hinderance to productivity and innovation. The costs associated with compliance are passed on to the customer. Bureaucracy and slowness, both common features of government, are not traits shared by the rapidly evolving Internet. Yes, the government regularly (and wrongly) involves itself in business but it is never a positive outcome. And yes, I know the government played a major role in the development of the Internet. But it had little to do with what the Internet has become. The government can best serve the Internet by not getting in its way.
- The FCC is capable of making rules that impact the lives of Americans without any real recourse. Because the FCC can make rules independent of the legislative process, citizens have little to no ability to have their voices heard. The only way to fight a rule made by the FCC (or any other government regulatory entity) is to let the rule be made and then file a lawsuit. This can take years and a lot of money. The so-called “open comment period” is a joke; a thing designed to placate the riled up masses.
- The mantra of “everybody and everything should be equal” does not correlate with reality. Netflix consumes a healthy portion of the Internet (from a data rate perspective). It is decidedly NOT equal. They should have the opportunity to pay for that in order to support the infrastructure providers (ISPs) that make their livelihoods possible. The ISPs customers want it, the ISPs can provide it and Netflix has it. We don’t need to government to regulate it. To suggest that the data traveling from my web site to your home should be given equal priority to the latest episode of House of Cards that you are binge-watching from Netflix is absurd. The Netflix data needs to be delivered faster and it is right for your ISP to charge Netflix a premium for doing so.
- Blockbuster video should be able to testify nicely about the capacity for innovation to change things in a hurry. Netflix is given a lot of credit for Blockbuster’s demise and they didn’t need the government to level the playing field to take Blockbuster out. Innovation killed Blockbuster (or the lack of it on their behalf). Nobody is prevented from doing the same thing to Netflix. You are welcome to do it yourself.
In the end you will always fail when you try to force people (and businesses) to be equal. Equal opportunity does not mean equal success. People with distorted views on reality think they can pass a law (or a rule) that limits the best, the innovators, the investors, the visionaries and force them to let others have a chance. But it won’t work. Forcing the best to work with one hand behind their back doesn’t make their lesser’s any better, it just turns our betters into lessers.
Cheers,
Colin Weaver
