May 14, 2014

Solve the network neutrality dilemma and make money too!

As per the links and quotes below, my views on the network neutrality debate may be summarized as:

In this post I’ll add detail as to how that marketplace could work.

Personal note: When I interviewed for academic and think-tank jobs in 1981, my favorite interview speech was the one on utility regulation across different qualities-of-service in the face of uncertain supply and demand. I’m really going back to my roots here.

What I wrote in 2007 — and which garnered considerable discussion at the time — still applies:

Net neutrality is both necessary and workable for what I call Jeffersonet, which comprises the “classical”, bandwidth-light parts of the Internet. Thus, it includes e-mail, instant messaging, much e-commerce, and just about every website created in the first 13 or so years of the Web. Jeffersonet is the greatest tool in human history to communicate research, teaching, news, and political ideas, or to let tiny businesses compete worldwide. Any censorship of Jeffersonet – even if just of the self-interested large-enterprise commercial kind – would be a terrible loss. Net neutrality is workable for Jeffersonet because – well, because it’s already working just fine. Jeffersonet doesn’t need anything beyond current levels of bandwidth and reliability. So there’s no reason to mess with what’s working, other than simple profit-hungry greed.

Network neutrality opponents, however, point to evolving and future technologies, technically more demanding than what the current Internet can well support. Their uses are centered on what I call Edisonet – communication-rich applications such as entertainment, gaming, telephony, telemedicine, teleteaching, or telemeetings of all kinds. Reliable, tiered service is needed for these applications, and somebody has to pay for it. Even so – and this is a key point — the payment scheme should be as favorable to application-developer competition as possible.

So does what I wrote earlier this year:

I think the anti-discrimination argument for network neutrality has much merit. But I also think there are some kinds of payment structure that could leave the playing field fairly level. Imagine, if you will, that:

  • Consumers are charged for data, speed of connection, reliability of delivery, or anything else, but …
  • … internet companies have the ability to absorb those charges on consumers’ behalf, but can only do so …
  • one interaction at a time, with no volume discounts, via an automated system that is open to everybody.

Such a system is surely technologically feasible — indeed, it is at least as feasible as the online advertising networks that already exist. Further, it would be possible for the system to have nice features such as:

  • Telcos could implement forms of peak load pricing, for those times when their network capacity actually is under stress.
  • “Edge provider” internet companies could pay subsidies only on behalf of certain consumers, where those consumers are selected in all the complex ways that advertisements are currently targeted.

To see how this could look, let’s distinguish among some categories of market participant, and consider what kinds of business complexity they can reasonably be expected to endure.

The distinction I’m drawing here is:

Making the latter happen is, I maintain, just another job for the middlemen — provided those middlemen come into existence.

And so, net neutrality is easy to solve except for one chicken-egg problem:

I hope somebody — perhaps an existing ad-tech company — gambles on setting up the needed clearinghouse, and gets richly rewarded for doing so.

Comments

3 Responses to “Solve the network neutrality dilemma and make money too!”

  1. Vlad Didenko on May 14th, 2014 1:49 pm

    The way I read this post:

    1. On the consumer side net neutrality makes sense – regardless size (?)

    2. Content producers, which exceed certain threshold currently are at a business disadvantage as they have no market mechanism for pay-as you go, or differentiate on a per-customer basis.

    3. I did not understand from the article what specifically you suggest to be codified in the legal system, what should not go there. However later on Twitter it was clarified, that “I want net neutrality-ish baseline legal framework to protect small publishers, businesses, etc. Rest should be market-based with lightweight regulations only.” (replies to https://twitter.com/CurtMonash/status/466590559604588544)

    My thoughts:

    If a tiered content/end-point-agnostic service is legally required as a base for ANY connectivity, that is plenty for net neutrality. extra add-ons are optional.

    For point 2:

    a). If pay as-you-transmit plans over a base service available to businesses, would that begin to alleviate the issue? That is potential for market improvement #1.

    b). Every modern server can be setup to throttle traffic based on a parameter, like a session ID or a customer ID – so businesses can already discriminate outgoing traffic. Video services for example can discriminate the content resolution.

    c). There is no end-to-end QoS available for small businesses – which can not be solved by b). That is a more complex potential market improvement #2. If a publisher can tag packets with something like DSCP (http://en.wikipedia.org/wiki/Differentiated_services_code_point), the network still need a charge-through mechanisms to account and honor the elevated service requests. That still need not be regulated – it is an issue to be solved by market forces?

    One of big questions for me is A: how to define that threshold where net neutrality “stops”, if we talk about a threshold? Another is B: How to reasonably keep that threshold up with technological development.

    Am I in a ballpark?

  2. Curt Monash on May 14th, 2014 5:23 pm

    Yep, you’re thinking about exactly the right issues.

    I don’t think the contractual issues would need to get too severe; this isn’t derivatives, with their more-or-less-literally world-shattering levels of counterparty risk. That’s why I think “lightweight” regulation would suffice.

  3. Neil Hepburn on May 25th, 2014 9:32 pm

    Hi Curt,

    I like the idea of “Jeffersonet vs. Edisonet” It’s a useful way to think about the relationship between free speech and technology.
    Although I think if we meditate on this idea long enough it becomes apparent that there is no easy way to cleanly separate the two.

    I will come back to this point shortly. For now I want to explain how I see the net neutrality “debate” playing out in actuality.

    The reason why telecoms and cable companies are so desperate to eliminate net neutrality is so that they can further de-commodify their business. As it stands, most large consumer ISPs don’t really compete on price. They prefer to compete on “innovative services” like video-on-demand and call display. Unfortunately, consumers rarely prefer these services over 3rd party services (e.g. TiVO is far superior to the set-top-box I am forced to use with my cable provider). But since they often have a lock-in advantage, they barely have to complete on those “innovative services” as it stands, let alone price.

    While we can discuss the theoretical merits or hazards of net neutrality, the argument really boils down to this point: ISPs must pay for 1. infrastructure from their location to the “last mile” as well as 2. connectivity to the “internet backbone”. If ISPs were allowed to “pass on the savings” of not having to pull data from the Internet Backbone, then this would be a win-win for consumers and the ISP.

    If I believed that ISPs were sufficiently competitive, and would not be able to hold consumers captive to their services, I would be all for eliminating net neutrality, which is essentially an anti-free market position. But I am a realist that can see the history and patterns of these large telecoms and cable companies and am weary of allowing these companies to seize control of content markets. I honestly don’t believe it is a stretch to compare these tactics to those of Microsoft in its hay day.

    Getting back to Jeffersonet and Edisonet. Back in the 1990s up until the late 2000s, Blockbuster Video dominated the video rental market. Since Blockbuster had a policy of not stocking any NC-17 movies, NC-17 became the “kiss of death”. Studios made sure that NC-17 movies were avoided at all cost. Important movies like “A Clockwork Orange” were banned, and Kubrick’s final movie was controversially edited for the sole purpose of getting into Blockbuster (see: http://en.wikipedia.org/wiki/Eyes_Wide_Shut#American_censorship_and_classification).

    Now that the Blockbuster monopoly is over we all better off for this as a society.

    With that said, we are at risk of this happening again if the telecoms and cable companies get their way. They can easily undercut Netlix, Hulu+ and anyone else.

    So in summary, I strongly support Net Neutrality and hope we don’t forget lessons from history.

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