Each day, the open internet/net neutrality battle gets a bit more interesting. We just covered Tim Lee's excellent look at how Comcast and other big telcos were effectively using interconnection disputes to get the same result
as violating net neutrality, without technically violating the basic concept of what most people believe is net neutrality. And he's back with an even more important explanation of how Comcast's ultimate goal is to effectively make the internet more like the old phone system
, post AT&T breakup, in which everyone had to pay to access the end points of the network. Ironically, they're trying to recreate the internet in the form of the old telephone network, while at the same time doing everything to resist being classified as a telephone network by the FCC.
The short version is that, after AT&T was broken up into the baby bells, and you had some amount of long distance competition, the real bottlenecks were the baby bells who had a terminating monopoly. Anyone who wanted to call someone long distance had
to pay the terminating baby bell to reach those people, and since they were monopolies, they drove up the prices quite a bit. This is what happens under a sender-party pays system with monopolies on the last mile/termination points. The internet, on the other hand, was built under a very different system, what's known as "bill and keep", where by the end users pay for their own bandwidth, and ISPs are expected to work out the transit and interconnections on their own -- often with no money changing hands, thanks to what had been mostly informal (and later more formal) peering agreements.
In short: under the old baby bell model, payment mainly went from the "sender/caller" to the terminating provider for access to that end node. Under the internet model, the end nodes paid for access to "the internet" recognizing that part of the deal was that they were getting equal access to everyone else. The shift that Comcast (and now others) have been making, is to try to take their dominant position to recreate the old system, seeking to charge for access to those end nodes as well (effectively, as we've been saying for years, double charging for the internet). That is, they're seeking to have you both pay for your bandwidth and
having internet companies pay again to get to you on the bandwidth you already paid for.
And the only reason they can do this is because they have tremendous market power. Comcast pretends
that it's doing this because of differing traffic ratios between peering partners, but as Lee notes, that's not right:
But that's not how the internet works. Consumer-facing ISPs have always received more traffic than they send out. Comcast itself sells "unbalanced" internet service to its customers, with download speeds much faster than upload speeds. That makes it inevitable that ISPs like Comcast will receive more data than they send. But in the bill-and-keep model, ISPs generally pay transit providers for connectivity, regardless of traffic ratios.
The traffic ratio rule Comcast advocated in 2010 was a variation on the sender-pays rule. It will create the same kind of terminating monopoly problem that plagued the long distance telephone market. But that might not seem like a bad thing if you own the monopoly.
Again, what's really happening is that Comcast is trying to quietly recreate the baby bell system of old, in which it has enough power as a terminating monopoly to charge monopoly rents for "access" in a system that was built off of the idea that no one needs to pay to access another end point, you're just paying for your own connection to the network.
And the simple fact is that the other large ISPs (including AT&T and Verizon -- who understand this deeply, given their own histories) have caught onto what's happening and are doing the same thing. That's why the transit players are pointing out
that the five biggest US ISPs have all been effectively clogging up the internet
in order to effectively hold end internet sites hostage, to get them to pay for access, and to remake the internet's more open system into something that much more resembles the old telco system with monopoly rents.
And this is also why Comcast is being dreadfully misleading in arguing that its merger with Time Warner Cable won't impact anything, because the two are not in competitive markets. As Lee notes, Comcast is (purposefully) mis-identifying the market that's actually important here:
Defenders of the merger have argued that it won't reduce competition because Comcast and Time Warner don't serve the same customers. That's true, but it ignores how the merger would affect the interconnection market. A merged cable giant would have even more leverage to demand monopoly rents from companies across the internet.
A century ago, the Wilson administration decided not to press its antitrust case against AT&T, allowing the firm to continue the acquisition spree that made it a monopoly. In retrospect, that decision looks like a mistake. Wilson's decision not to intervene in the market led to a telephone monopoly, which in turn led to 70 years of regulation and a messy, 10-year antitrust case.
Obviously, the combination of Comcast and Time Warner would not dominate the internet the way AT&T dominated the telephone industry. But recent events suggest that Comcast is already large enough to threaten competition on the internet. Preventing the company from getting even larger might avoid the need for a lot more regulation in the years ahead.
The interconnection market is where Comcast has tremendous leverage, and Time Warner Cable will only give them much more leverage. And they're using it to reshape the internet in a very dangerous way, which will make internet connections more expensive, with no direct benefit. On top of that, it will slow down the ability for startups to create new innovations by increasing the cost (potentially massively) to innovate on the network by creating access tolls.
Oh, and the major problem is that the FCC still doesn't even seem to realize this is the issue, with Tom Wheeler arguing that the interconnection issue isn't really an issue at all, despite it likely being the
issue here. As Lee explains concerning telco regulations around a terminating monopoly system:
Unfortunately, while all-knowing perfectly benevolent regulators could make this work, in practice regulators tend to be neither all-knowing nor benevolent.
So imagine what kind of internet we'll have when you recreate the terminating monopoly tollbooths, combined with regulators who still don't seem to even realize what's going on.