Does Network Neutrality Make Economic Sense?

from the yes,-but-that-doesn't-mean-you-mandate-it dept

A bunch of folks have submitted this story highlighting a study by a think tank noting that network neutrality makes economic sense. There's nothing surprising in the report -- if anything it seems like direct common sense. Basically, with a neutral net, you have the great competition and economic development happening on top of the platform. Without it, you get an effective fund transfer from the competitive layers (content and apps) to the least competitive layers (network infrastructure). The end result is a less economically efficient market, and a situation worse for everyone but the infrastructure companies -- who already get tremendous benefits from gov't-granted rights of way and subsidies. Pretty straightforward. That said, this doesn't necessarily mean that we should regulate net neutrality. This is really not all that different than Tim Lee's excellent Cato analysis from over a year ago -- which also notes the likelihood of dangerous unintended consequences from mandating net neutrality. Again, the real issue is the lack of real competition in the market. Since it seems pretty clear that the market of users won't stand for a non-neutral network in most cases, if they have a choice, the real way to ensure a neutral net and economic efficiency is to increase true competition.


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  •  
    identicon
    :), Jan 13th, 2010 @ 7:39pm

    In a duopoly without unbundling.

    Sure it makes sense.

    Without making others "share" the line no other competitors can come to the market in a timely fashion.

    It took the communication industry decades to build up the networks and nobody is going to be able to compete with them in the near future.

    So one solution would be communities not municipalities to start building infra structure on their own but it needs relaxing of rules and a moratorium on exclusive commercial regions which I don't see happening anytime soon.

    So unless the government unbundle the whole thing or change the laws there is going to be no competition on the U.S. market and they the FCC already said, no unbundling will happen because the FCC doesn't want the hassle of litigation.

    So really the only option on the table is net neutrality.

    Unless people wake up and start pushing for the construction of their own networks with their own IXP's which can be done and maintained as a public asset administered by a private entity and watched by the government with a fraction of the cost of today.

     

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    identicon
    :), Jan 13th, 2010 @ 7:45pm

    The important part.

    The key to not get corned is the IXP infra-structure without it people can't connect with other without having to pay someone else.

     

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    identicon
    :), Jan 13th, 2010 @ 7:59pm

    Separation Needed Too.

    Another thing I think it is important is the separation of interests.

    No infra structure should be owned by ISP's or content producers it is to tempting and it leads to bad lobbying for bad laws.

    Time Warner and Comcast don't want "metered" internet for technical or fair reasons they want it because they want to put their products there and have a way to exclude others.

    Even net neutrality can't stop that from happening as networks can cap usage using agressive pricing schemes.

     

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    identicon
    :), Jan 13th, 2010 @ 8:04pm

    Thinking about it.

    It will need legislation either way.

    Just the market will not be able to maintain a wealthy environment.

     

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      :Lobo Santo (profile), Jan 13th, 2010 @ 8:22pm

      Re: Thinking about it.

      actually, competitive markets tend to be self regulating. The only thing well designed legislation does is speed up the regulating factors which would occur normally. (Just like poorly designed legislation just interferes with the f^&(king market and makes me want to scream "STOP WASTING MY MONEY" at my local congress-person.)

       

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        identicon
        :), Jan 14th, 2010 @ 7:28am

        Re: Re: Thinking about it.

        I don't think so.

        I have one question, how a country that pride themselves for having competition in all levels end up with a natural monopoly and a lot of legislation that guarantee that monopoly?

        It was a market choice?

        The market without rules will make some players enact their own rules. Without guidance to guide development you could end up better or worst and from what I see the tendency is for worst on the side of costumers.

        In france you have the free.fr that is something to aspire for it works there how did they do it?

        The very first step was legislation, in Japan the same thing and in other places, unbundling didn't work in some places to well but still gave more to consumers then what they get in the U.S. and all started with legislation that create the right set of rules for a healthy competitive environment, the most famous case of market auto regulated failure is the financial sector they had no regulations to oversee what they were doing and failed the public leaving the people to clean after them.

        There is no escaping legislation unless you don't want to deal with it and let other decide it for ya, because that its what going to happen.

         

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        identicon
        :), Jan 14th, 2010 @ 7:45am

        Re: Re: Thinking about it.

        Just to be very clear. We don't need a set of static rules that are absolute we need rules that define GUIDELINES for the development of the business environment.

        Yes there could be some unforeseen consequences, yes it could fail yes a lot of bad things could happen and still we need to do something to change and unless people can build networks on the cheap and in less then a decade to blanket the U.S. and build their own IXP(Internet Exchange Points) and negotiate free peering I don't see a market like Japan that you sign for internet and receive a 100 plus list of ISP's available even at the most remotes parts with prices starting at $12 bucks or like the french free.fr that offers everything for $30.

        "All Roads Lead to Rome" in this case all roads lead to congress is where it will start and it will end.

        If the market was able to do something about it people would have done it already.

        The law don't let people build their own infra-structure so competition will not happen there, the law imposes a lot of barriers that kill all but the truly persistent, the law create an environment that is unhealthy for competition so at some point people will have to deal with legislation and all the unforeseen consequences because it is not going to come from the market that is paralyzed by bad laws.

        So as I see NN is the beginning of the process, is a statement saying were we want to go and if it doesn't work the dictionary have a lot of synonymous that can be used to come up with new terms to try and push for the same thing again with lesson learned.

         

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    identicon
    publius, Jan 13th, 2010 @ 8:26pm

    NN

    Yes, but you can't just assume that competition at access layer will magically appear. There are insurmountable structural barriers to entry -- there will be no meaningful choice, certainly not enough to justify a lack of regulation.

    If your anti-NN position is based solely on the assumption that access layer competition will solve all woes, then you have to change your position if that competition can't emerge.

     

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      Mike Masnick (profile), Jan 13th, 2010 @ 8:52pm

      Re: NN

      If your anti-NN position is based solely on the assumption that access layer competition will solve all woes, then you have to change your position if that competition can't emerge.

      If we went back to mandated line sharing... you would have competition at the access level.

       

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        identicon
        publius, Jan 13th, 2010 @ 9:48pm

        Re: Re: NN

        Amen to all that. But I think a more helpful position (given your view of the merits) is that NN should be the policy until line-sharing gets re-enacted. And if line-sharing becomes law, then we can focus energies on why NN shouldn't be mandated.

        But even with competition, it's not clear that you would remove all incentives to favor your own content, etc. That view requires a LOT from the user. The information costs, even in a line-sharing world, are too high IMHO.

         

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          identicon
          publius, Jan 13th, 2010 @ 9:59pm

          Re: Re: Re: NN

          To clarify,my last paragraph has two different points. First, incentives remain even with access competition. Second, customers can't be fully counted on to keep people honest b/c it requires a LOT of knowledge (technical k-ledge) from users. I mean, do you think an everyday Comcast user whose BitTorrent transfer failed would think to switch? They'd just stop using BitTorrent.

           

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    The Anti-Mike (profile), Jan 13th, 2010 @ 8:47pm

    In Canada, Bell was forced to resell their network to other companies, which in theory sounds great, but there are plenty of drawbacks. Most of those drawbacks come because it isn't just sharing the last mile, but sharing all of the network up tothe CO, at least.

    Bell still controls the network, so traffic shaping and such shapes for all companies.

    When you get service from a third party company, the wires and all are still bell, you are still connecting to bell equipment. When you have a failure, you have essentially an extra layer of "government" to deal with. You call your provider, they call bell, bell calls them, they call you, etc.

    The process is unfair, because the cable companies have not been forced to do the same.

    It has certainly lead to competition, but you trade a certain amount of cost savings, but you add potential headaches for service, etc.

    It would be a much better system if the last mile was run by a seperate company that had no ties to any of the incumbent players, and they all had the same access and the same responsibilities. Nobody can afford this sort of solution, so it ends up as hell by half measures.

     

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    Modplan (profile), Jan 13th, 2010 @ 8:48pm

    Innovative Disruption

    This is the perfect place to apply innovative disruption. Currently, there has been a sudden explosion in mobile broadband with USB dongles. The competition is fast becoming mobile operators who don't need to try and buy up or create their own wired infrastructure, instead using their existing wireless networks and continuing to improve beyond 3G. Add to that the improving Wi-Fi standards, they have some trouble coming.

    Should note I'm in the UK, not sure how different the market is in the US.

     

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      Chris in Utah (profile), Jan 14th, 2010 @ 1:20am

      Re: Innovative Disruption

      Agreed I'm on USB dongle myself with a cell-phone provider. I miss downloading a movie while I sleep but a few hours of wait later and I have it.

      I do look forward to 4g networks. Currently the cap I can get through torrents is about 80k given the towers in my area and about 2 bars.

      I dropped Comcast for bit slower but FLAT monthly rate with no contract for discounts. Hell of a lot more net neutral choice for me in Utah.

       

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    identicon
    Anonymous Coward, Jan 14th, 2010 @ 12:57am

    "with a neutral net, you have the great competition"

    And there lies the whole crux of the matter. Companies like Time/Warner and Comcast or Bell and Rogers do not want ANYTHING that competes with their own offerings to be available to you. At least not via "their" infrastructure. Competition is a dirty word in board rooms all across the country. This is the very reason why they are fighting so hard against net-neutrality and being relegated to being EXACTLY what they are. Nothing more than dumb pipes.

     

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    identicon
    john, Jan 14th, 2010 @ 6:56am

    You're right that real competition would solve the problem that NN seeks to solve. But I wouldn't be so quick to assume that line-sharing is exactly the same as "real" competition.

    Mandated line-sharing can only work if the owner of the lines is flat-out barred from entering into any sort of business arrangements with consumers, and is itself barred from entering into any business arrangements with content companies for speedier access over the segments of the wires that it controls. You'd hope contracts with resellers would take care of this.

    Additionally, you have to bet that resale, and competition among resellers, will bring about lower prices than the efficiencies that come from vertical integration and bundling. Likely, given the past practices of telco monopolies. But not a lock. It's something that works more in practice than in theory.

    "Competition" in what is a natural monopoly is going to require much more regulation than net neutrality (or common carrier regulation) of broadband ever would.

    Now, it's certainly possible that in many markets broadband internet access is not a natural monopoly. Wireless might provide competition. But I'd bet against it being anything but marginal. Cable/DSL competition is a historical fluke, and in most markets, overbuilding is not economic. The long-term is a fiber monopoly somewhat mitigated by wireless.

     

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    identicon
    Michael Turk, Jan 14th, 2010 @ 6:59am

    Government rights of way and subsidies?

    The end result is a less economically efficient market, and a situation worse for everyone but the infrastructure companies -- who already get tremendous benefits from gov't-granted rights of way and subsidies.
    Two points to clarify here. First, the 1992 Act eleminated exclusivity between municipalities and telecom providers, so anybody who wants to provide service can get access to the rights of way. The rights of way have nothing to do with competition, the enormous costs of running fiber through those rights of way is the problem. Second, while telephone companies have received subsidies through a guaranteed rate of return from ratepayers, cable (still the dominant broadband provider) was built with no such subsidies using private capital. So before you make a claim that either has anything to do with competition, you should be sure you have the facts right.

     

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      identicon
      Joe Dirt, Jan 14th, 2010 @ 11:09am

      Re: Government rights of way and subsidies?

      I am no fan of big government, or government interference in my day to day life.
      That said, and playing a sort of Devil's advocate here... what about applying a system similar to the US Interstates? A neutral pathway sudsidized by the government.
      The costs of development, implementation and maintenance would fall from private industries to the local, state, and federal governments resulting in little to no increase for the customer. These costs would be shared by all interested providers in the form of a usage tax(we have this to a degree anyway and it's pushed of on the customers). It would allow multiple vendors access without the need of mandated line sharing.

      Just a thought with no real idea of it's feasability.

       

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      Mike Masnick (profile), Jan 14th, 2010 @ 10:21pm

      Re: Government rights of way and subsidies?

      Two points to clarify here. First, the 1992 Act eleminated exclusivity between municipalities and telecom providers, so anybody who wants to provide service can get access to the rights of way. The rights of way have nothing to do with competition, the enormous costs of running fiber through those rights of way is the problem.

      Wireless too?

      Second, while telephone companies have received subsidies through a guaranteed rate of return from ratepayers, cable (still the dominant broadband provider) was built with no such subsidies using private capital. So before you make a claim that either has anything to do with competition, you should be sure you have the facts right.

      Sort of true about cable, but you are, of course, missing out on how cable benefited tremendously from the franchising system that eliminated all competition for them in building out that network.

       

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  •  
    identicon
    :), Jan 14th, 2010 @ 7:58am

    Idea.

    There are some great points here on the forum about what could go wrong.

    Since we need the legislation any way, just put all in writing and lets start talking with one voice.

    - Rights of passage are a problem.
    - IXP development is a problem.
    - Regulation forbidding or difficulting communities to build their own infra-structure is a problem.
    - Unbundling should be on the table while people haven't build their own infra-structure.
    - Conflict of interests in business decisions should be taken serious consideration in the market place and see where it happens how it happens and come up with ways to mitigate the problem or even not have it at all.

    Problems are not sufficient reason to dislike something as almost everything have a solution.

    So what you people think there needs to be in place for the market to function properly?

     

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    identicon
    :), Jan 14th, 2010 @ 8:17am

    Acquisitions is a problem.

    Bigger players acquire smaller ones an at some point there is no one left to compete, so there has to be a way to make acquisitions difficult and they have to have rules that observe if what impacts there could be on the market with great transparency.

    Without those mechanisms no legistation or market will can change anything.

     

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    identicon
    :), Jan 14th, 2010 @ 8:57am

    Start building infra structure.

    Maybe one solution would be and agreement between communities and government, the communities would build the network for them and the government would enter with financing and expertise for communities with a contract stating that the conditions it will operate under and what practices it would take and it could have public input as all participants of that network would have a vote on what they principles were.

    Just like I saw a open source football team in the U.K. where the fans decided who played and who did not.

     

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    identicon
    Anonymous Coward, Jan 14th, 2010 @ 12:49pm

    Until Then

    ...the real way to ensure a neutral net and economic efficiency is to increase true competition.

    No, just an "increase" is not enough. What is needed is a free market with unfettered access to utility right of ways, which will never happen. So, in the absence of something that will never happen, regulation is needed. If I'm wrong and it does happen someday (unlikely), then at that point the regulations can be removed. What Mike seems to want is no regulation for these gov't granted monopolies even in the absense of a free market.

     

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    TesserId (profile), Jan 15th, 2010 @ 10:15am

    The Roads Should Be Public (No Matter Who Owns Them)

    Who owns the free market?

    If the roads were all private property, what kinds of things would we see? Would the number of lanes between areas be affected? Would there be tolls between shopping centers?

    Of course, I don't want this to go to an extreme where all ISP's would be owned by the government. But, I want my ISP to be just an ISP and not in competition with content owned by others. And yet, we are not proposing laws that would forbid ISP's from offering any content. We just don't want them secretly pinching the hose when they get jealous of that competing content.

    And, (how many times do we have to say this), we don't want an ISP bill that looks like a cell-phone bill (diseased and perverted as they are).

    So, I don't see how we can avoid having some manner of Net Neutrality regulation. We can only hope that the rules are, not just fair, but clear and concise. But then, is there any hope that the laws, which ever way this goes, will not be a jumble influences from lobbyists and special interests, like that of the DMCA?

     

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    identicon
    Anonymous Coward, Jan 15th, 2010 @ 12:00pm

    Other neutrality regulation?

    So, Mike, are you against other forms of neutrality regulation too? Like say, for example, telephone, electricity, water and gas?

     

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