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Summary:

The “commercial disagreement” between Comcast and Level 3 illuminates two things about the state of the Internet. The lack of competition in access providers is the underlying issue at the core of this dispute and means we need to develop a regulatory compromise on net neutrality.

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The “commercial disagreement” between Comcast and Level 3 is still ongoing, and while many (including the cable company) portray it as a simple peering disagreement, it’s also illuminating two things about the current state of the Internet. The first is that the lack of competition in access providers is the underlying issue at the core of this dispute, and the second is that this lack of competition means we need to come to some sort of regulatory compromise on net neutrality or lay new pipe to businesses and consumers. Laying new pipe isn’t really an option, however, and the FCC is so emasculated, it’s possible we won’t get regulations to solve this problem. If that’s the case, the web as we know it is in trouble.

To recap, last month, Level 3 blasted Comcast for charging it more money to deliver traffic to the cable company’s customers. Level 3 argued this violated network neutrality, and since it had recently started delivering traffic from Netflix’s streaming video service, people in power started taking a long look. Level 3 accused Comcast of setting up a “toll road” to deliver content to consumers who subscribe to Comcast’s service, but Comcast pointed out that Level 3 was suddenly trying to deliver double the traffic it normally sent to Comcast. Comcast claimed this violated its peering agreements, which are deals struck between network providers to let each other’s traffic pass at no cost on their networks, with the idea being that the traffic is reciprocal.

A New Way to Pay for the Web

Comcast has made some very convincing arguments. But the issues raised by Level 3, which hasn’t been a fan of net neutrality in the past, are also compelling, especially as ISPs explore the idea of charging both consumers and content providers for access to their pipes, which creates a double-sided market. The argument is that video takes so much network capacity to deliver that ISPs can’t possibly beef up their networks to meet this demand and make a profit. Many find this argument implausible, but since the market for broadband access is a duopoly in most of the country, it’s also difficult to know exactly what the market will bear, since the market isn’t actually functioning.

I’ve talked to many people about this, and have heard from those who believe that content providers should pay ISPs for access in much the same way folks in Europe who make telephone calls on cell phones pay for originating a call, while at the other end folks pay for the ability to receive it. However, there are plenty who question that model, especially since it would cut into the business models of startups trying to offer bandwidth-intensive content. Any video startup, for example, would immediately be faced with fees (outside of the server capacity and CDN fees it already pays) to deliver its content to consumers. Additionally, once you set up a pay-to-play system in order to get someone’s bits to the end consumer, the Internet becomes a less democratic place, a place where mommy blogs or teens who make money via their haul blogs may not exist, much less projects like The Internet Archive or various political watch dog organizations.

Even as it brings in revenue, it also places ISPs in a position where they can no longer argue they aren’t responsible for the bits on their pipes, making them vulnerable to copyright attacks or even public outrage if they are found to have enabled objectionable (but lawful) content to get to subscribers’ homes. It may sound fine for ISPs to block creepy pedophiles, but if they are pressured to block abortion information or the “It Gets Better Project,” it opens up a can of worms that may not be worth the extra revenue.

What We Don’t Know Will Hurt Us

At its core, there are still too many questions about the Level 3 and Comcast spat. Comcast has said it offered Level 3 a lot more ports to handle its traffic, ports that Comcast has to provision and pay for. Some have pointed out it’s suspicious that Comcast was unable to provide ports on demand for a backbone provider but was able to scrounge them up for a “customer,” while others see it as a clear indication that Level 3 is flooding Comcast’s pipes. Another question I’d like to have answered is whether or not the Netflix deal with Limelight and Level 3 is reducing the traffic Akamai sends to Comcast, and thus reducing what Akamai pays as a CDN to Comcast. Did Limelight’s rates shoot up as well? So far, all parties are silent on that issue.

The other unknown is the cost of sending a bit around various networks in the first place. It’s different for every provider depending on their network size, infrastructure and the route any bit travels. Knowing that helps determine reasonable prices for both consumers and content providers, if ISPs were to charge them. In a competitive market, the prices would reach some sort of profitable equilibrium, but in a market where the cable company or a Baby Bell is the last-mile provider (or a Baby Bell is the middle-mile access), it’s hard to know if an equilibrium has been reached.

What’s the FCC to Do?

All this means that net neutrality regulations of some sort are necessary. Absent pricing information and a fair market, communications firms can act in their own interests and harm their customers by making it impossible for subscribers to access content from providers who don’t pay, or who pay more to deliver content faster. Even if the Comcast/Level 3 issue is a “simple peering dispute,” the lack of transparency and the lack of options for Level 3 as it tries to deliver a service that’s competitive with Comcast’s pay TV business smells bad. Transparency removes some of the stench, but I won’t argue that important and potentially competitive business dealings should be shared everywhere. Absent transparency in a market with no competition, we need regulations. Unfortunately, the FCC isn’t in a strong position to make those regulations.

Thanks to Comcast’s win against the FCC last April, the FCC’s authority over the bits passing over cable, DSL and wireless pipes is weak (GigaOM Pro sub req’d). So as it offers up a network neutrality framework on Tuesday at its open meeting, it has had to bow to industry demands and weaken its original ideas and stance. Yet, even as it caves, the Bells and cable companies are not satisfied and are pushing hard to keep the FCC from doing anything. Yesterday, a group of Senators threatened to revoke the FCC’s funding if it attempted net neutrality, while the Republican Commissioners campaign against it.

The Comcast-Level 3 fight is a perfect example of why we need network neutrality rules: Absent real competition and transparency, we need a framework by which to keep ISPs from preventing lawful content from reaching subscribers, or discriminating against content providers based on price. Ironically, it is also a perfect example of why network neutrality rules are problematic: They can act as a shield behind which content providers can attack ISPs for running their networks as they see fit. We need a strong FCC to arbitrate on these issues at a moment when the FCC is at its weakest, with little-to-no power to regulate broadband providers. So the combination of a powerless FCC combined with Comcast and Level 3′s spat may indeed change the Internet as we know it. I’ll call it broken, while ISPs and Wall Street will call it profitable.

For more on the Level 3 and Comcast Fight Please see the following resources:

Image courtesy of Flickr user TheTruthAbout.

  1. I live in Hayward California, hardly the middle of nowhere and smack in the middle of what most would consider a technology “hotbed”. At my house, which is in a suburban neighborhood, so again, not away from population, the last time I checked I have precisely 1 option for “broadband” (which I would class as >1MBs) access. That’s right – one. I can use Comcast or I can go pound sand (it is possible that we’ve gotten DSL access by now, but earlier this year they had not put in the necessary repeater). Even with DSL my options would only rise to a robust 2.

    Hardly what I’d call stiff competition. I’m sure some markets are different – Laramie Wy for instance, but in *this* market there are an awful lot of people who have very little choice.

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    1. Like 98% of the US population, Hayward does have competitive options. (Just because you are unaware of them does not mean they don’t exist.) See http://www.wirelessmapping.com/WISP%20National%20Map.png for a PARTIAL coverage map of competitive wireless ISPs (only about 40% of all WISPs have put themselves on the map).

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    2. The only thing completely predictable about a network neutrality post is the appearance of Mr. Glass to claim that GigaOM is Google-biased.

      What’s interesting is that Mr. Glass never seems to comment on any of the articles here that are critical of Google. For instance, I certainly never see any comments on the Apple channel, where Google is practically a four-letter word (plus a few) for both most of the writing staff as well as the commenters.

      I have pointed out before that spotty 4G coverage, terrible DSL coverage, and a dominant Time Warner leave my city — Rochester, NY — in that same quandry regarding lack of competition, but Mr. Glass ignores that. Furthermore, even playing devil’s advocate and assuming that Google IS trying to hurt ISP business, as he claims, why on earth would they be pushing for network neutrality at the same time as they are launching FiOS? Wouldn’t it actually be in their best interest monetarily to side with the Comcasts and other ISPs, thereby double-dipping?

      The argument makes no sense, and I’m convinced Mr. Glass only likes to comment on Stacey’s posts, regardless of the stance on network neutrality.

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    3. Glass is the troll who’s made the case for an update of Godwin’s Law, to wit: “As any on-line thread on Internet regulation grows longer, the probability that Brett Glass will show up and denounce multiple parties as Google lobbyists approaches 1.”

      He pulls this stunt on the Washington Post, The Hill, and National Journal on a daily basis, so don’t take it personally.

      And remember, every time someone feeds a troll, God kills a kitten.

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    4. I too live in a major market – DC area in Northern Virginia, and have exactly 1 option. I have written a blog post on this very underlying issue in the past. The fact that consumers cannot switch providers eliminates the market forces necessary to compel ISP’s to play fairly or act “net neutral”.

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    5. The Washington, DC area has a large number of competitive ISPs. If anyone claims that there are no options, he or she simply hasn’t looked.

      As for Richard Bennett’s comments: Richard seems to attack anyone who points out that he’s an inside-the-Beltway DC lobbyist or notes the nefarious activities of such lobbyists.

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    6. I am not a lobbyist, inside the Beltway or otherwise, not that there would be anything wrong with it if I were. In fact, I work for a non-profit think tank that is forbidden by law from lobbying. Glass knows this.

      Glass does, however, lobby Congress and the FCC on behalf for his so-called WISP, just not very effectively.

      Carry on.

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    7. Glass is so full of himself that he can’t even tell when he’s being mocked. Rest assured, it won’t be 24 hours until he’s calling someone else a Google lobbyist.

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    8. Seriously Cyndy, you need to ban the troll.

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    9. There’s a very hands-off policy regarding commenters. Speaking only for myself, I do find it rather amusing. I already know when I’m editing who the first commenter on these posts will be. I also know that certain points will never be addressed, such as why Google would be “anti-ISP” right at the time when it’s launching FiOS service.

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    10. Sean, you are incorrect. DSL-Extreme can serve you for far less. Albeit, you may have to use your phone lines. But there is competition out there if you actually take the time to look. Did you know you could get service from SBC in a Verizon area? I know this was how it was. You had to go through Verizon to get SBC. By law Verizon had to offer up their cables to SBC, since Verizon owned the cable in the ground. When I switched from Verizon to SBC years ago, Verizon still had to provide maintenance to my SBC phone line under that deal. But all my money went to SBC– Not Verizon. I think it goes against laws for any comm provider to have a monopoly on any area. So there are other options. I admit, the days of AT&T anti-trust hearings are a thing of the past. Nowadays, with Pelosi, Reid, and God running our gov’t, Comcast and Verizon are just “too big to fail”. They get whatever they want, and there’s no one standing in their way anymore.

      Enough said. Now pay your taxes and be a good populace the liberals want you to be. One that is governed and not heard.

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  2. Re: Brett Glass

    Ok, please provide the evidence that “lack of competition among access providers” is a “blatant falsehood.” In my location, I have only one broadband provider. This is not unusual outside of major cities. How is this a competitive market situation? Also, absent some proof to the contrary, correlation with Google’s advertising on GigaOm in no way indicates causation in terms of the views expressed by the site’s bloggers. That kind of “logic” may be widely used in political campaigns, but it doesn’t seem appropriate or relevant for a policy discussion.

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  3. I don’t see how the desire that some people have for super cheap and/or super fast broadband says that the FCC is obsolete. The FCC was created by Congress via the Communications Act of 1934, and their powers are limited by the Act. The last amendment, the 1996 Telecom Act, was silent about regulating the Internet. Ultimately, the questions about the regulation of peering agreements are moot until Congress tells the FCC to go get ‘em by amending the law. I don’t see that happening anytime soon.

    I think it’s fairly disturbing that the scope of net neutrality arguments continues to expand. A couple of years ago, net neutrality was about preventing ISPs from blocking or degrading transmissions, but recently it’s been applied to TV retransmission, community broadband, corporate mergers, and peering and transit agreements.

    The main problem with this issue is that it serves as a magic wand offering the solution to all communications-oriented policy issues. Reality is not that simple, so the laziness that net neutrality has brought into policy has blocked and degraded a lot of serious discussions that need to take place in the US.

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  4. So, which ISP do you work for Brett?

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    1. I operate my own. And compete handily with the cable company, the telephone company, and several other wireless carriers. Stacey is denying the existence of competition because this is the foundation of her advertiser Google’s arguments for regulation that would benefit its monopolies.

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      1. You keep mentioning wireless… since when was this all about wireless only? Wireless usage is restricted by fees and while you keep referencing it, the rest of us, and the preponderance of this article, are addressing the concerns developing from the lack of choice and opportunity of our home networks. e.g. the Netflix streaming vi L3 through XYZ ISP pipes.

        I imagine you run our own ISP the same way I own my own ISP. by buying a Business class static IP and running a LAMP/WAMP server with ISPConfig or some other “ISP” server management software.

        Definitely NOT the same thing being discussed here!

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  5. I live 2½ outside city limits of our state capitol. Until a year ago, I had one choice for broadband – Comcast. Now, our Telco finally offers me 1.25mbps. Woo-hoo!

    In town, they offer 2.5mbps.

    That’s all she wrote gang.

    I agree btw – don’t feed the troll.

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  6. I am military and move frequently. I have noticed three trends over the years, through multiple moves: never more than one option for a provider, rising costs, and poorer customer service.

    What limits new companies from access to the market?

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  7. One big hole I see in Stacey’s argument is in disregarding the steep declines in the cost of Internet bandwidth. I’ve been tracking wholesale IP bandwidth prices since the Internet’s commercialization. Prices have come down roughly 1500 times since that late 90s. To put that in perspective just over the past 4 years or so, there have been price declines of at least 10 times. Just before Google bought YouTube in 2006, it was estimated that YouTube was putting out almost a million dollars a month in bandwidth costs. For that same volume today, they would pay about $100K. So, the next “NewTube” startup that comes along would wind up with a cost structure far less than that of YouTube’s. I find the argument for the FCC or some other government entity to regulate the peering/transit/CDN ecosystem completely hollow. If the government keeps its hands off, we’ll see even better bandwidth pricing with better service in the future…

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    1. Stacey’s also wrong about the cell phone billing issue. She says: “folks in Europe who make telephone calls on cell phones pay for originating a call, while at the other end folks pay for the ability to receive it.”

      That’s how the system works in the US, where you burn minutes to talk whether you’re the caller or the callee, but Europe actually has a “calling party pays” system where the subscriber who answers the call does not have to burn minutes to talk. Some of the fees that the calling party’s carrier collects are simply passed along to the called party’s carrier, which is why it costs money to call a cell phone from a landline in Europe.

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      1. Richard,
        I’m not sure and I’ll let Stacey speak for herself…. But, I think she is trying speak to the notion of “access tiering.” As we both know, some ivory tower economists have been pushing for a ban on broadband “access” ISPs charging for premium, or in some cases any, access to their subscribers. As such, if Comcast charges Level 3 for better QoS, then this would be a form of that sort of tiering. Whether harm to the consumer or overall Internet ecosystem can be demonstrated is another question. I highly doubt that ivory tower academics can make much of a case for preemptive regulation in any case. Readers can see my InterStream blog for a more detailed view of the arguments…

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  8. Bennet, you and your ilk need to stop using that word “Troll” or “Trolling”. You are the problem. I don’t care what anyone says, so why would I or you try and take away someone’s freedom of speech? I say ban Bennet. Tar and feather him too, while you’re at it.

    This troll reference is so disrespectful to what this country is about. Freedom to say anything you want, regardless if you are right, wrong, liked, or disliked. So if I disagree with you and the journalist, I’m a troll? If I am not positive, I am a troll? And according to Bennet, anyone who is accused of such a thing shall be excluded from speaking.

    Bennet, get a life.

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    1. Sorry, Todd, but free speech doesn’t come with the entitlement to slander and engage in pointless disruption, it comes with an obligation to behave responsibly.

      Glass has clearly demonstrated a total lack of interest in engaging issues in a serious way and a reckless disregard for the truth. He simply runs around the Internet calling people “Google lobbyists” if he doesn’t approve of their every phrase. This has been going on for too long.

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  9. The lack of last mile competition seems to be a legacy problem due to past government regulations. The fact that cable companies and nationwide telcos dominate the last mile access to businesses and households is due to regulations that in the past limited cable and telephone competitions. It is hardly inspiring to ask for the FCC to solve problems that it created in the first place.

    Any wireline based last mile competition is going to require hugh capital to spring into existence. Even if FCC removes all regulatory handcuffs, I doubt new wireline real competitions are going to appear due to the high capital requirement and tons of regulations at the local level that will take forever to resolve.

    Our best hope lies with wireless broadband. Here the government may have an opportunity to do something new and innovative. It should encourage and enable startups to acquire unused frequencies to foster last mile competition.

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  10. [...] members “really, really dissent.” Lawmakers are divided. Meanwhile, Stacey Higginbotham recaps Comcast vs. Level 3 and its implications for net [...]

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