Tag Archives: Net Neutrality

Still Working on Net Neutrality

Net Neutrality has been a topic I have written about at length, multiple times this semester. With the recent Netflix Deal in place the debate about the legality or consequences for the health of the internet as we know it. As I wrote about in my previous pieces on this issue, there seemed to be a general though that maybe the loss for the FCC against Verizon in the case on how Verizon needed to treat is broadband traffic regarding whether or not telecommunication antitrust rules applied to them, was not really a loss at all. In fact, the “loss” may have opened up the opportunity for the FCC to write all new legislation for ISP’s that would be much more strict and well defined than anything they could enforce via the old teleco rules.

Unfortunately today, the WSJ and NYTimes reported that the FCC was going to propose new Net Neutrality rules that to my eye, seem like a real cop out on the parts of legislators. With the new rules that the FCC will propose, ISP’s and certain companies would be allowed to create deals giving those companies preferential treatment in terms of bandwidth if the terms were “commercially reasonable”. The WSJ article claims that this is an attempt by the FCC to find a middle ground amongst the many different voices in their ear on how to legislate on this major issue. With companies like Apple and Amazon creating massive streaming operations the ISP’s will need to be more technologically sound than ever, but the question in the end is who should bear that cost and with what sorts of consequences.

I believe that the passing on of these costs to consumers will be a huge limiting factor for companies who need the larger bandwidth constraints but cannot pay for it as well as a barrier to entry for those potential companies that cannot afford to strike deals with the major ISP’s. Cable prices have skyrocketed over the past 20 years as I am sure the majority of us can attest to as we pay the Comcast bill every month, and in my opinion if these companies are allowed to charge for preferential treatment the costs will be passed onto the consumer and then some, all the while stifling any competition left in the market. The road will not be easy for the FCC with multiple lobbying efforts going on and with a new technological reality than they have ever faced sitting in front of them, but hopefully they stay strong on net neutrality rules for the sake of the internet.

Net Neutrality takes Another Hit

Last week, I posted about the dangerous precedent set by Netflix by agreeing to pay Comcast for faster streaming speeds for its users. The FCC just gave a green light for this kind of agreement to be reached between any websites and broadband providers. While broadband providers aren’t allowed to block or slow any individual websites, by allowing some websites who can pay for it preferential treatment, other websites will slow down relative to websites who pay. While the FCC’s newest rule on Net Neutrality requires that they oversee every agreement to make sure the terms of the agreement are “commercially reasonable”, I am afraid that this is putting us on a dangerously slippery slope towards an internet that is heavily tilted towards benefiting companies whose ability to pay for such arrangements exceeds that of most other websites. While the clear winners here are broadband providers, this move can have massive effects, including stifling innovation when startups can’t pay for the same speed as other websites.

While websites are the ones paying the price of these rules, sooner or later, the broadband companies may be turning to internet users to pay based on how much they access the internet as well. Verizon’s CEO says that “you should pay more if you use the internet too much“. While currently this is not allowed under net neutrality rules, the FCC doesn’t have jurisdiction over mobile internet traffic. As I am sure many of you remember, Verizon and others used to have unlimited data plans for your smartphones. Recently those are beginning to turn into monthly limits on how many gigabytes of internet you are allowed to use. For those of us who don’t want an outrageous phone bill, this forces some changes to how you use the internet on your phone, including waiting until you are home and connected to your wireless network. If Verizon’s CEO had his way, the same types of data restrictions that are new to your phone may soon be coming to your home internet. While there are some points to be made justifying such a stance, the effect of such a move would put those who can’t afford to increase their monthly bill every time they browse the web into a disadvantage in countless ways. The internet is how students access information and job seekers access job postings.

My point is that net neutrality is headed towards the wrong direction and if the FCC, lawmakers, and the American people aren’t careful, some grim realities may become truths of how the internet is accessed, which will have a much larger impact on the bottom income earners.

(Revised) Netflix to Pay Comcast; May Cause Future Problems

A couple of months ago, Netflix announced that they would be paying Comcast for faster streaming to Comcast’s customers. Comcast, who recently acquired Time Warner, is the largest internet service provider (ISP) in the country with around thirty-two million households as customers. This move may have unintentionally harmed Netflix, other internet based companies, and setback everyone in the United States who requires access to speedier internet. This post will analyze the effects on all three of these groups of actors in the internet market.

1) Netflix

While Comcast is the dominant internet provider, there are numerous other internet providers who have just gained a substantial bargaining edge with Netflix. Since the move has increased streaming speeds for Comcast’s Netflix users, CNN reported that Netflix is in talks with Verizon and other ISPs to work out a similar deal. While the financial terms of the Comcast deal haven’t been announced, I think it is a fairly safe bet that this was costly for Netflix. They may have the cash on hand to pay Comcast and Verizon for this kind of arrangement, but It would surely be too expensive to pay every ISP in the country. Additionally, if an ISP wants such an agreement, what is to stop them from slowing Netflix’s streaming speed if they don’t pay up? Despite entering these agreements to pay ISPs, Netflix is publicly condemning the fact they have to in order for their customers to stream their movies and TV shows at a reasonable pace.

2) Other Web Based Companies

Not only has this move opened Netflix up to the problems mentioned about, they have set a dangerous precedent that may force other websites into such arrangements in order to get the same speed for their users. This will particularly effect websites who have massive traffic but don’t have the massive revenues to pay ISPs.

Since the previously slow streaming speed on Netflix was the result of their massive number of users, we can assume that internet speed is a zero sum game. If one website loads faster, others must load slower. This will also pressure websites who don’t want to frustrate users with slow load speeds to enter into agreements with ISPs and pay them so that their users can enjoy the same speeds.

3) Internet Users Everywhere

Finally, internet users in general are harmed by the direction that net neutrality is headed. Websites who previously had very minimal advertising may be forced to cover their websites with banner ads to make up the revenue that will be spent paying internet service providers. While the websites that we use that do agree to pay for faster streaming will speed up, other websites who don’t have the cash to pay ISPs will relatively slow down. 

A Proposed Solution

As the FCC’s net neutrality rules no longer hold ISPs from throttling websites’ speeds, ISPs are in a position to take advantage of websites, as they are doing with Netflix. To stop this, websites like Netflix can stop entering such agreements and instead use the money to help fund or lobby for increased expansion of services like google fiber, the 1 gigabit internet that is reasonably priced relative to companies like Comcast. (Currently it is only offered in a handful of cities). If Netflix would simply refuse to pay Comcast, Verizon, and other ISPs and instead try to help google fiber reach the entire country, there would soon be no need to pay for increased speeds, and websites would have no problems loading faster than ever.

Net Neutrality Struck Down? (Revised)

Earlier in the month, I wrote about the conclusion of a lawsuit between Verizon and the FCC. Verizon won the lawsuit; “three judges on a US Appeals court panel struck down net neutrality rules saying that because the FCC decided to characterize ISP’s not as telecom companies but in a category of their own, the FCC could not regulate them as such.” (Econ 411 Blog).

This essentially left the door open for the FCC to start pushing through new laws in an attempt to regulate this “new market” that they had characterized these ISP’s as. Since I wrote this article, there have been a few very interesting developments that I think stoke a fire under the net neutrality debate as well as the FCC as they are now under even more pressure to take action in markets that are seemingly becoming more and more concentrated. The most prominent of these events are the Comcast/TWC merger as well as the deal between Netflix and Comcast that effectively makes Netflix pay for efficient streaming of their content.

With this in mind, I would like to take a look back over my explanation of the Comcast/Time Warner merger:

“Let’s start with just the bare bones of each company — according to the NYPost, TWC had some 11 million video subscribers combined now with Comcast’s 22 million gives you a rough estimate of 33 million subscribers out of a total of 100 million people who have some sort of cable video connection through a provider in the USA. The question then, is what constitutes a monopoly? In terms of Antitrust regulation (and in Econ 432 class), one of the main indicators of monopoly or at least one of the main influencers of regulation from the government is the Herfindahl-Hirschman Index or more simply known as the (HHI). This measurement is used to determine the “concentration” of an industry or given market in an attempt to determine how close to monopoly conditions a given merger would create. According to the article, the formula is computed on a scale of 0-10000 with 0 being perfect competition and 10000 being one single company owning the market. According to the government, a score from 0-1499 is low concentration, 1500-2500 is moderately concentrated and above that is considered to be highly concentrated. Moreover, in a “somewhat concentrated industry” a merger resulting in a 200 point increase gets the government worried and an increase of 100 points in a highly concentrated market does the same. The NY Post did rough calculations and found that the HHI increase due to the Comcast/TWC merger was in the range of 639 points (500 if you want to be conservative they say). This most definitely would make the government look twice.” (Econ 411 Blog)

As of this moment in time, the FCC has not made any major comments about this case, but the word is that they are looking into things. It would seem just from the piece above, that there should at least be some due diligence completed by the FCC on a deal like this. The WSJ and myself made the comment about the Verizon/FCC case that maybe Verizon’s victory in that case had set the stage for the FCC to take a strong stance in the future to regulate the ISP industry.

This however, was before the Comcast/TWC took place and the deal between Comcast and Netflix succeeding even that — things have gotten even scarier for those wanting to make sure the internet stands to stay the internet we know and love.

So while those of us waiting waiting eagerly to see the FCC action from the Comcast merger had our eyes locked on just that, Comcast had different plans. Sunday morning it was announced by the WSJ that Netflix would be paying Comcast an undisclosed amount for direct access to their servers. Yes, I know you are wondering what the heck that means, so here is a little background on this issue. Recently (around Holiday ’13 and since then) there have been numerous anecdotal reports of Netflix streams deteriorating on different ISP’s networks. The WSJ article I just mentioned dives into this with a little more detail, “the average speeds of the company’s prime-time streams to Comcast subscribers dropped 27% from October to January. Netflix’s streams to Verizon subscribers also have slowed in recent months.” The battle has since ensued as to who should pay to prop up the ISP’s networks in order to keep things running smoothly. Netflix acknowledged these issues in their 4th quarter conference call recently saying that if they were forced to incur additional expenses due to paying to keep networks running in such a state that they can efficiently transfer their content, that their own bottom line would be adversely affected. It is hard to speak to this point at the current time due to the fact that we do not know exactly how much Netflix agreed to pay Comcast– what effectively happened was that Netflix paid to cut out the middle man between them and Comcast.

The issue here is not that Netflix paid Comcast to cut out the middle man; the money was going to someone regardless and that, in my eyes, is just an expense that is built into their business model to begin with. The real issue is the fact that Comcast has a makings of a monopoly in the US market and is in a position to make a company pay based on the type of use of Comcast’s network. In other words, Comcast is the ISP to enough Netflix customers, that Netflix had no choice but to cave and pay in order to maintain the integrity of their own business. It is extremely disturbing to me that a company like Netflix, that has fundamentally changed the way that average American citizens consume media, is now at the mercy of an ISP like Comcast.

The time to act is now, and if there was not a clear enough image of the types of perils caused by allowing these ISP’s to run amok without proper legislation, I believe there is now. The problem with not treating all traffic the same is not the fact that Netflix’s bottom line gets squeezed at Comcast’s glee, but rather that smaller companies (the next Netflix etc) that require full use of the internet as a part of their business model, can now be choked out like a weed in concrete. I hope that the FCC sees this and does prove both myself and the WSJ right by issuing legislation with a heavy hand, as the future at this moment seems quite fragile.


Netflix to Pay Comcast may Cause Future Problems

Netflix just announced that they would be paying Comcast for faster streaming to Comcast’s customers. Comcast, who just acquired Time Warner, is the largest internet provider in the country with around 32 million households. This move may have unintentionally harmed Netflix, other internet based companies, and everyone in the United States who requires speedier internet.

While Comcast is the dominant provider of internet for households, there are numerous other internet providers who have just gained a substantial bargaining edge with Netflix. If Netflix is willing to pay Comcast, they should also be willing to pay these other internet providers around the country. However, this could prove costly depending on the details of the payment (which weren’t announced). If Netflix customers who stream from a provider other than Comcast are angered by this and membership for this subset of their users begins to drop, Netflix will have to act quickly to pay other internet providers to increase streaming speeds.

Not only has this opened up Netflix to potential problems, they have set a dangerous precedent for other websites that get massive traffic but don’t have the revenues of Netflix and can’t pay for better streaming. Since the slower streaming on Netflix was reportedly caused by the massive number of users, apparently internet speed is a zero sum game. If one website loads faster, others must load slower. This will harm websites like reddit or wordpress who generate a high volume of traffic but don’t have the massive revenues of companies like netflix. While deals like this one between Netflix and Comcast aren’t governed by the rules of net neutrality, this certainly affects it. (net neutrality is defined by google as “the principle that Internet service providers should enable access to all content and applications regardless of the source, and without favoring or blocking particular products or websites.”)

Finally, the users of the internet are harmed by this. Not only will sites necessarily revisit their stance on ads (probably in favor of selling more) to make up for the increased cost of paying internet providers for reasonable streaming speeds and loading times, but this will keep the expansion of services like Google Fiber (which offers 1 gigabit internet) from speeding up. If Netflix would simply refuse to pay Comcast for their speedier streaming and instead used that money to promote the expansion of faster internet services, then the need for paying Comcast and other internet providers would eventually become nonexistent. But for now, I guess we can just envy the handful of lucky cities and their google fiber, go home to our Comcast XFinity connected homes and be content with streaming House of Cards marginally faster.

Net Neutrality Struck Down?

According to Wikipedia, net neutrality is the idea that internet service providers (ISP’s) & governments should treat all traffic on networks equally, regardless of user, content, site, etc. (Link) Yesterday, in a lawsuit from Verizon, the three judges on a US Appeals court panel struck down net neutrality rules saying that because the FCC decided to characterize ISP’s not as telecom companies but in a category of their own, the FCC could not regulate them as such. (WSJ)

At first glance this seems like a huge victory for the likes of large companies like Verizon, AT&T, Comcast, etc. Now these companies would supposedly be able to throttle data based on whether or not a person was watching YouTube or Netflix or maybe just checking the score on ESPN. ISP’s now could make you pay egregious amounts in order to have your content display with the same efficiency as other website for any reason they deem fit. To me this truly is a terrifying thought. Coming from an area north of Ann Arbor in less “urban Michigan” I know first hand that many people only do have one possible choice for cable internet/tv and that is a problem that the judges even admitted to in their opinions. What is even more frustrating though, is that the judges looked to services like Google’s new Fiberoptic internet connections that are sparsely available in Kansas, Utah, and Texas, to keep cable companies honest in a sense. (BGR Link)

However, looking at another WSJ opinion article by Tom Gara got me thinking that maybe all was not lost. In as many words, Tom elaborated on the fact that while the Appeals Court may have thrown out the FCC’s rules yesterday, in a broader sense they acknowledged, “the FCC’s broad power to regulate the relationship between broadband network operators and the Internet companies that push their content through the networks…” (WSJ) Now this really is quite an interesting perspective; in fact, Tom quotes Duke Law School Professor Stuart Benjamin as saying that he thought if Verizon had seen this outcome in the cards before they filed the suit, they probably would have just left it alone. In a sense, Verizon won the battle, but they definitely have not won the war. The FCC has the power to promote the development of new network capabilities and services. This could be anything from promoting the next Google or Microsoft– whatever it may be.

Overall, I think striking down net neutrality would be a huge loss for the internet that we have all come to know and love. Something that plays as large of a part in our lives as it does truly needs to be handled with care. By allowing ISP’s to throttle and tier data plans I truly do think that any innovation we could see in the future would be choked off like a plant with no water or sun. It is my hope this case is revisited, but after looking a second time, maybe the loss was not a loss at all.

The quiet end of net neutrality

One of the most important developments of the past 100 years is the development and integration of the Internet in our daily life.  Even though it is just a collection of documents and databases scattered around the world, accessible through a number of protocols and languages, with out it there is no Facebook, no iTunes, no Amazon or eBay.  Econ 411 would be a very different class, as there would be no blogs.  One of the things that make the Internet the captivating source of information and entertainment is its openness.  Anyone can put information on the Internet, and anyone can access it.  This past Tuesday, the Internet became a little less open.  As reported in the Wall Street Journal,  the Federal Appeals Court in Washington DC repealed the laws establishing net neutrality.  Net neutrality is the idea that all traffic on the Internet is to be treated equally, and not slowed down or blocked by service providers (ISP’s).  With the removal of these restrictions, there maybe some potential changes coming, and we all may be worse off for it.

Consider the market for Internet service as a two-sided market with network effects.  This is plausible since the Internet is more attractive the more things/content/people are on it, which provides network the effects, and with the removal of regulation, it could be that now content creators want traffic, and service subscribers want content, with the ISP in the middle of the market.   While this market may have existed before, it wasn’t two sided since access to consumers has never been allowed to be manipulated.  Additionally, I will assume that consumers are more sensitive to a change in price then companies that deliver content through the Internet.

What this could mean for consumers is that they get a wider variety of choices where there didn’t used to be any.  This could come in the form of fees for full speed Netflix, Hulu, access to international sites, and whatever else the ISP can think of to better match the tastes of its consumers.  But who wants a menu of options that used to be standard?  Consumers may not appreciate being charged for something that used to be free, and due to the previously mentioned price sensitivity, it may be more likely that the fees will be charged to the companies.  As reported in the Wall Street Journal article, the ISP’s even argue that they can now recoup infrastructure costs, considering themselves similar to government-regulated monopoly that is the retail electricity market.  Whether the infrastructure for Internet service is similar enough to that of providing electricity (a regulated monopoly) to warrant this comparison is a judgment left to the reader, but I can’t help but feel as though a little bit of what made the internet so great has been lost.

Consumers may not bear the brunt of the financial cost of this ruling, but it is a step back for us as a free society.  In China, the government sensors the Internet, which many in America consider abhorrent.  Google pulled out of China, refusing to participate in the censorship, for that very reason.  How very American that we have private companies censor the content, through a filter of dollars.  The laws providing for net neutrality need to be restored to guarantee equal access to both sides of the market.


U.S. Appeal’s Court’s Controversial Strike on Net Neutrality: Is all lost?

In a Wall Street Journal report, net neutrality proponents were set back on Tuesday when a U.S. federal appeals court in Washington rejected federal rules that require broadband providers to provide equal service to all internet users. In presiding over Verizon’s lawsuit against the Federal Communications Commission (FCC), the court decided to repeal the 2010 FCC rules that require Internet service providers (ISPs), such as Verizon and Comcast, to treat similar content crossing their networks equally. The repeal would give ISPs greater freedom and discretion in how they allocate and charge for bandwidth.

It appears that the decision stems from legal confusion about how exactly to classify broadband carriers. In a Bloomberg news article, according to U.S. Circuit Judge David Tatel, “[…] the commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the commission from nonetheless regulating them as such.” A common carrier is an old, legal definition of a service that provides a method of transportation to the public. CNET provides a good example of a common carrier: a ferry company could provide a service by transporting people across a river, but since the river is a public waterway the company would be required to charge customers fair and reasonable prices, and could not “indiscriminately choose to service some customers and not others.” Due to a past FCC ruling that excluded broadband from being considered as a common carrier, it is now ruled that they cannot now regulate broadband as one.

The main problem that proponents of net neutrality see is that broadband network companies such as Comcast and Verizon could now charge Internet companies, including Google and Netflix, for broadband access. The main fear is that this will stifle innovation by increasing the costs and barriers to entry for Internet startups. Opponents stress that the previous net neutrality rules had been too harsh on network providers. Opponents also suggest that there could be potential benefits if the balance shifted more towards the network providers, mainly through the added safety of allowing for better policing of the internet if providers could shut down access to websites suspected of criminal activity. In addition, if the rewards to competition were increased in the broadband industry, ISPs may be better incentivized to provide faster and cheaper service to end-users in the long-run. Although I would consider myself a proponent of net neutrality, I agree that by providing the right incentives to encourage competition, broadband companies might seek to expand their service by laying more high speed network infrastructure that would ultimately benefit both Internet companies and end-users at home. To me, this situation is akin to the development of the highway infrastructure across the U.S.: Drivers benefit greatly from having greater access to transportation, and they definitely hate to pay at toll roads, but in the end someone has to pay for the concrete, asphalt, the highway construction crews, and maintenance workers that gave them the freedom of mobility. Just like in the development of highways, there is no free lunch in the construction of new broadband networks, so an uncompromising war on the ISPs likely won’t lead to the most efficient outcome.

In the end, this isn’t a question about whether we would prefer a Mad Max like anarchical broadband system to 1984-esque totalitarian style bandwidth providers. Internet startups need a cheap, effective way to reach users, consumers need an affordable way to find the content they want, and broadband providers need a way to be compensated for their enormous costs of creating the expensive infrastructure. This is a matter of how to best incentivize all players in the Internet to create the most efficient system of transferring information from one place to another. Without the ability to balance the interests of both bandwidth consumers and producers, achieving that goal will be hopelessly impossible. Lets hope further appeals could further refine the FCC regulations such that everyone benefits.