Eliot Lear’s Ramblings

Today’s Wall Street Journal reports that mega-telcos Verizon and AT&T are in discussions with senior staff of the Federal Communications Commission (FCC) over a compromise for enabling legislation for the FCC to regulate access to the Internet.  This is no small deal.  Chairman Julius Genachowski has made very clear for quite some time that he thought there was a need to provide for some form of net neutrality to protect customers against service providers, and to insure openness.  Another thing is perfectly clear to everyone: the rules of the 1980s and 1990s certainly are antiquated.

However, one problem with net neutrality is that it can mean different things to different people.  To some it might mean protection from service providers charging for services that they themselves do not provide.  To others it might mean an inability for service providers to manage what they deem as excessive use of a shared resource (their network) by some consumers, as their cost models are all structured on the notion of over-subscription.  That is– if everyone tried to use a vast amount of bandwidth at once, we would all get very little, and not those megabits/second in the advertisement.

Here are a few facts to think about when you hear the term net neutrality:

• The tools service providers might use to give themselves some sort of market advantage are the very same ones they may need to use to protect consumers against denial-of-service attacks: it is in the average consumer’s best interest that bandwidth from rogue BoTs be limited.  Differentiating between protection against BoTs and protectionism may prove difficult to regulators.
• Bandwidth on the Internet is not the same as a phone call.  If you’ve ever been in a disaster situation, such as an earthquake or a hurricane, you’ll remember that there may have been times when you picked up the phone and got no dialtone.  That is not how the Internet works.  Most applications make use of Transmission Control Protocol (TCP), which is designed to share whatever bandwidth there is.  While voice and video require a minimum to function properly, even modern day tools like Skype & iChat AV can step down their use of bandwidth when they see quality degrading.
• Most of us weren’t born yesterday, and it’s plainly obvious that there are very few telcos in the United States.  The government has, since the passing of the Sherman Act in 1890, taken the position, with good reason in my opinion, that monopolies are bad, and that high levels of concentration are not good for consumers, either.  Prosecution through that act as a means of redress, however, is a last resort, because…
• Such prosecutions take years if not decades, are often at the whim of administrations, and often do not succeed. Three examples of arguably failed prosecutions include IBM, AT&T, and Microsoft.  In the case of IBM, the U.S. dismissed the case when Ronald Reagan became president.  AT&T is arguably a failed attempt, because we are very close to right back where we started.  In the case of Microsoft, European regulators have provided far more oversight than our own Justice Department, perhaps in part due to the non-European nature of the company, but also due to a lack willingness to go further by the Bush administration.  Hence it is better to nip a problem in the bud.  This is one reason for the FCC to have a role.
• At stake is not whether or not consumers will see a choice of service providers, but whether content providers and etailers, sites like mlb.com and Amazon will have a choice.  Otherwise, we get to a two-sided market, where those who own the so-called eyeball networks also own the other end, providing an enormous price control lever.
• Properly considered, network neutrality as a concept protects against the idea that you have to go to a service provider to implement new applications features in the network.  This is the core strength of the Internt, but it’s not clear that regulation is needed.  For one thing, I would hope that providers understand that new features and applications are in their best interests, since they get to sell more bandwidth, and perhaps even offer a few such features to their, and other, customers.

That’s what all the fuss is about.