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August 03, 2008

Net Neutrality and Metered Broadband

Yesterday Chris Albrecht writing on GigaOM pointed out that NBC is warning users that it's Olympic download service is "not recommended for people with dialup or metered broadband Internet access (emphasis mine)."  Chris predicts "That is just a taste of things to come — especially if you're a fan of video services like Hulu."

Last Friday the FCC voted to uphold a complaint against Comcast for blocking BitTorrent (software for file sharing) traffic and ordered the cable company to cut it out. The two stories are actually strongly related. From a New York Times article on the decision:

"Curiously, representatives from other telecommunications companies praised the decision, even though they objected to the commission meddling in how they manage their networks. They said they would prefer such rulings to legislation from Congress, which has discussed enshrining net neutrality principles in the law."

There could well be another reason why at&t and its brethren were less than unhappy with this FCC decision: it helps pave the way for the widespread introduction of metered Internet access – something the carriers have already imposed on cellular broadband access services.

The PR argument'll go like this: "A few people are using the lion's share of our bandwidth. We're not allowed to block software like BitTorrent  used by these bandwidth hogs; we're not allowed to discriminate in any way. So we'll have to charge by the megabyte instead so that costs will be 'fairly' allocated and a few users don't spoil things for the rest of us. It would be bad for our users to allow them to actually have unlimited Internet access. This plan doesn't discriminate against anyone."

Andy Kessler blogged against the FCC talking the position it did on net neutrality:

"We need policy to help cut a path for more competition, rather than protecting incumbents -- a Bandwidth Competition Act of 2008, not bogus net neutrality. All takers should be allowed access to poles or underground conduits. This is where neutrality should be enforced, instead of being a choke point.

"Municipal or privately run wireless data services using Wi-Fi or WiMax should be sprouting like weeds. But they aren't being built because of lack of access to street lights, of all things, to set up access points. Verizon is busy rolling out a fiber optic service, FIOS, that will provide much higher speeds and real competition to Comcast. But it is slow going, as state by state video franchise rules still favor cable over any newcomers.

"A stroke of a pen can cure these ills, incumbents be damned. They will adjust. I personally would climb telephone poles on my street to run fiber if I could get 100 megabit Internet service. Any takers? Talk about an economic stimulus; this is the type of infrastructure we need. The stock market will fund it all as well as resolve overbuild problems."

The problem, as Andy points out with his usual eloquence, is lack of competition. Adding more regulation into the mix won't get us broadband in the US which is comparable with what already exists in the much of the rest of the world. Put another way, regulation usually favors incumbents and discourages innovation. There are no companies more skilled at playing the regulatory game than the existing telcos.

Here's some evidence from NewTeeVee of what has happened in the more competitive Internet market of Western Europe where utilization limits used to be the rule. A couple of years ago, metered pricing meant it could cost about $30 in charges to download a movie. But YouTube and other online video services are very popular in Europe.

"And guess what? The online video boom has taken its toll on the ISP market as well, with customers voting with their feet for better plans. And as for all the metered packages that were all the rage just two or three years ago, none of the big German ISPs are even advertising them anymore. Instead, they're trying to sell premium packages bundled with fast, unmetered broadband access.

"Take 1&1 for example, one of Germany's biggest ISPs: The company is now offering its customers a DSL package with 16MBit, unlimited bandwidth and 100 movies on demand, streamed to your PC, for just 40 euros per month. Beats paying $30 per movie download, doesn't it?"

Don't make a mistake: it's all about the video! Comcast doesn't want "free" Internet content displacing packaged entertainment plans; Verizon counts on charging for content to justify the huge capital investment its making in FiOS; at&t wants to be your content company. They each have a right to try to make money by selling packaged content. They don't have a right to use the power of what Andy calls "faux competition, cable monopolies versus phone monopolies" to assure their business plans.

But, defenders of the cablecos and telcos will say, they won't invest in their networks if they can't make more profit from them. Well, we do have the example of Europe to say that isn't so. If the present incumbents won't invest, their successors will. If you are purely in the network business, cheap content makes your network more valuable because you get more usage and can compete for a greater share of the total entertainment dollar by providing superior access.

BTW, though, I do think that Comcast should have been prohibited from blocking BitTorrent – one, because it IS a monopoly (or part of a duopoly) in its service areas and two, because it wasn't disclosing the practice. Users had a right to assume that they could use their unlimited bandwidth absent any warning to the contrary.




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