Blog Post

Net Neutrality Not An Optional Feature of Internet

The Senate Commerce Committee is currently holding hearings on Net Neutrality. Webcast . The Bells are not be directly represented, cable companies views will be shared by Kyle McSlarrow, NCTA President and CEO. Walter McCormick, President and CEO USTA and Earl Comstock, President and CEO, CompTel. will also say their piece. Silicon Valley will be represented by Vinton Cerf, Chief Internet Evangelist at Google and Jeffrey Citron, Chairman and CEO of Vonage. This op-ed, hopefully will make everyone care about “network neutrality,” especially in Silicon Valley. — Om

By Daniel Berninger

The desire of AT&T, Verizon, et al to end network neutrality and assert fees for access to connected customers represents a death wish. Imagine the prospects of an info tech industry without “software neutrality” where Intel charged a fee to enhance software performance. Pay Intel and your applications run faster. The incentives driving Moore’s Law disappear in this pay-to-play model. Intel’s profit maximizing incentives become serving the interests of software companies willing to spend the most on “enhancing software performance” not the end users of computers. The meritocracy driving competition between software companies disappears as Intel picks winners and losers based on willingness to pay. Innovation becomes permission based at Intel’s discretion.

The Internet does not exist without net neutrality. Consider the misleading assertion that tinkering with network neutrality simply amounts to adding class of service as in the case of air travel or HOV lanes on highways. Network neutrality refers to the uses of the Internet not the quality of access. There already exists an infinite range of classes of service as regards Internet access. End users pay for what they get regarding the performance and capacity of Internet access. Internet content and service providers like Google, Amazon, and Vonage already pay for access to the Internet.

The telco and cable companies have in mind creating another type of customer not a class of service. They want suppliers to pay for the right of transit. It amounts to airlines charging Time Warner for the right of readers to take Time magazine on an airplane. It means charging Ford tolls in addition to drivers for the right of Ford cars to use highways.

The pursuit of tolls based on content and application type requires something that does not exist in the Internet today. It requires a linkage between content type and transport. Equipment providers like Cisco increasingly deliver products offering packet by packet inspection in the name of network management, but implementing the access fees means giving billing systems the ability to monitor and track the types of applications and content customers use. Setting aside the chilling privacy concerns, the
telephone network’s linkage of usage to transport represents the primary obstacle to service creation I observed during five years at Bell Labs in the 1990’s. Forcing innovators to change the network in order to implement an application means an end to innovation. The end of innovation means the end of growth in demand for Internet access.

An end to innovation probably represents the main motivation behind opposition to network neutrality rather than merely the desire for a second revenue stream from Internet access. The dominant providers of Internet access have powerful incentitives to protect their existing voice and video revenue streams from Internet enabled innovations. The ability to add tolls by Internet application end the prospect of Vonage and VoIP as a threat to Plain Old Telephone Service. It ends the prospect of new Internet enabled video distribution models that might compete with CATV. Network neutrality allows end users to choose winners and losers in an application meritocracy
that threatens service providers long dependent on barriers to entry. The idea that Yahoo could pay Verizon to improve performance over Google means Verizon not the end user decides which search engine wins.

Beware of the monopolist that wants the “market” to decide. If there actually existed a healthy market for Internet access, users would certainly switch away from service providers tinkering with performance based on kickbacks from content companies. The toll collecting ambitions of the telco’s and cable co’s hinge on the absence of market forces. The fights against municipal wireless initiatives and lobbying budgets that exceed R&D budgets arise to defeat any leakage of market power. Network neutrality
forces a virtuous cycle where winning requires making offers faster and cheaper. This dynamic accounts for growth in the info tech industry as platform improvements expand the range of possible applications.

Eliminating network neutrality means giving one participant in the value chain a tool to extract a greater share of revenues without delivering greater value. The best effort Internet holds far more promise than the metering of scarcity associated with QoS because “best effort” continues to improve. The improvement in modems set the pace for expansion of the dialup Internet during the 1990’s. Lowest common denominator broadband access continues to govern Internet health as access capacity and performance determines addressable applications. Continuous improvements in cost performance represents the key to growth just like every other area of info tech.

The network management quality of service argument for ending network neutrality misses the fact QoS does not work outside a private network environment where a single entity controls usage end to end. The implementation of QoS remains limited to private networks, because it makes the negotiation of interconnection compensation intractable.

The large info tech companies like Cisco, Microsoft, and Yahoo view themselves as arms dealers content to accept business from both sides of the net neutrality debate. Intel has proven a more consistent friend of the Internet as with its Digital Communities effort supporting municipal broadband initiatives. Intel may recognize the connection between meager US broadband offers and the decline of the proportion of Intel revenue attributable to the US from 41% to 18% over the last 5 years.

The future growth prospects of the trillion dollar info tech industry depend as much on network neutrality as on Moore’s Law, so the arms dealer point of view represents a very short sighted one. The Bell company and cable MSO efforts to protect existing revenue streams means preserving the 20th century telco business model of controlling scarcity. The growth of the info tech industry comes from delivering surplus value as the means to generate demand. The info tech industry needs the find a way to protect network neutrality, because the Internet will cease to exist without it.

Daniel Berninger is a senior analyst at at Tier1 Research.

50 Responses to “Net Neutrality Not An Optional Feature of Internet”

  1. This will only be a serious issue when consumers do not have a “net neutral” option. The new AT&T promised to uphold net neutrality until 2007 as a condition of SBC’s acquisition. Analysts also believe that pledge will be extended through 2009 to gain approval for the acquisition of BellSouth. The free market will take care of net neutrality for the next couple of years, who knows what the technological landscape will look like by then. Let the government regulate something else in the meantime.

  2. as someone says earlier, this is 99% of business and the public against a bunch of companies in a single industry which is already (or was already) heavily subsidized.

    If we can’t maintain net neutrality, it’s an utter failure of our democracy as a whole.

  3. Chilehead

    I keep hearing references to “the Bells”. As separate entities, do they exist anymore? My recollection of history is that the old AT&T was broken into the one long distance company (AT&T) and the 5 ‘baby’ bells. Southwestern Bell created SBC (doesn’t stand for anything, just a catchy 3-letter name) to own them and other interests. At the time I was hired by Pacific Bell, they were being bought out by SBC… and by the time they laid me off to ship my job to India later that year, they had more than 13 telcos under their belt – they just buy them wholesale. Now that you have Pacific Bell, Southwestern Bell, and Southern New England Telephone (all parts of the 13 I referenced above), how many individual Bells are left out there? This is like the Borg collective just re-assembling itself.

    The telcos and the cable companies are fighting like hell to keep local communities from offering co-ax or wireless broadband service, and to keep anyone else that might compete with them out of the market. They essentially get paid by everyone with net access for the privilege. They get paid by the content providers for their internet access. With people on both side of the pipe paying for what gets shipped through the middle, why should they have to pay for it a third time? Why do they think they should get paid for the content that other people work hard to create and make valuable? This is like the airlines charging the magazines in the chairbacks based on how well the passengers like the articles… crappy articles get charged a dime, riveting articles cost the magazine a buck.

    Mr. Whitacre (heavy scorn and contempt content in those last two words), should your evil plot succeed and you do start charging content providers for access, that will be the day that I cancel my DSL connection with your company, and find some other provider for my voice services. Truck drivers get paid by the mile they drive, not by the value of the goods they ship. The same goes for the postal service, UPS, FedEx, DHL, Etc… You are nothing but an overpaid postman with delusions of grandeur. Wake up to that before it costs you your job (and everyone else in your company as well).

  4. Guys you are worrying over nothing, if you have reasonable government in your country or any amount of public activism this will not be allowed to happen, In 10 year technology will have advanced so much that we will look back at the “paltry” amounts of data we shuffled around and laugh. Data transferring will become a national infrastructure commodity in each country, like electricity. Information access is the pride and joy of the information age society. Its just a scaremongering story

  5. Great column. The pathetic aspect to this is the telcos are willing to hamper innovation and, thereby, destroy the US’ technological lead in Internet applications (e.g., Google, Digg, Vonage, eBay, Amazon).

    My hope is that — even if these rocket scientists manage to erect these useless tollbooths — technologies like Tor, OpenVPN, SSL VPNs, mesh networks, etc. will merge and thrive to prevent deep-packet inspection and traffic shaping.

    Here’s a recommendation for the telcos: try competing at layers 4-7, where real value can be created. Oh, that’s right, you’re a bunch of unreformed monopolists who prefer that the entire country suffer under your innovation-killing infrastructure.

    Click my sig for a hypothetical telco ad from the future… in a world without network neutrality.

  6. Maintaining “net neutrality” is an issue that both consumers and businesses care about and are on the same side on. The only enemies are the telcos and cable companies. Millions of US businesses sell goods and services on the internet. These buisnesses, which are small, medium and large, had better ban together fast to stop the telcos and cable companies from charging consumers to come into our internet stores.

    Our Congressmen and Senators should look after the interests of their consumer constituents and their real business constiuents, and not just those of the telcos and cable companies who are lobbying the heck out of them, in order to make sure consumers get a fair shake and US business is not hampered by two special industries.

    Somehow, US business needs to get together on this, US consumers need to get together on this and then both constituencies need to make Congress do the right thing.

  7. I agree that purchase power may work, however there is a growing ignorance with the underlying technology in the customer base. Many may be already ‘addicted’ to the usage, and have no idea that they are about the be unwitting subjects to data-mining and traffic-shaping.

    It is the efforts to limit or ban the creation of ad-hoc wireless networks that is the true indication of intent. If they truly wished to manage the pipe they own and not generate a monopolistic business model; I would expect to see a common carrier service agreement level offered.

    I cannot see how anyone could enforce limits on ad-hoc networks. And I’d gladly go back to BBS’s if necessary, but I don’t see how this will hurt them in the long run. When they cooperate or (co-own) the actual content creators and distributors… the end result is our ‘culture’ is no longer ours freely, but a commodity to be manipulated for a gain of the paltry few.

    Our only hope: In our renewal (new generations born daily), we will see more ‘underground’ culture being re-invented again and again.. And the giants will realize only failure. It is the slow and the old that will be the ultimate victim. Will they ever learn?

  8. The investment incentive argument that Mull refers to is the biggest myth/outright lie in the whole debate. What bells are blocking hardest (and/or overpricing outrageously) is access to the local loop. The local loop was built decades ago while the bells were state-enforced monopolies with state-guaranteed profit margins. They bore no investment risk. These days, the bells are not investing in the local loop – no need to, it is already there. In order to block access to the local loop – which for all intents and purposes was basically built with the public’s money – they use all sorts of red herring-ish specious arguments. Jealous companies are trying to “steal” and free ride off their “hard earned” success (hah!). Or, I won’t invest in fiber unless I am allowed to milk by copper assets and pre-emptively get rid of any competitors. The irony is that if the bells actually allowed proper access to copper, and competition thrived at that level, people might actually start to believe that a fair playing field had occured, and any new investment (say in fiber) should be left competitive and free of regulation. But as long as the bells hold a stranglehold on copper, it is difficult to see why one should allow them to extend that monopoly into other areas (including, now, apparently, downstream content).

    It is interesting to note also how the Bells’ arguments morph over time. Just a year or two ago when they were arguing to get UNE regulations lifted, they were arguing that basically competition at the physical layer was no longer important, because competition had moved to the services layer, and anyone could offer services over the internet (no monopoly power here). Vonage was much noted. Now that they have won over the FCC on that argument, they are trying to reverse the basis for it, by now restricting competition at the service layer. Is there any forem of competition that Bells’ can accept?

  9. Anonymous


    You can’t be serious. The Bells have gotten $200 billion in government guanranteed revenues just for that purpose and they still haven’t built these networks. They don’t need Wall Street.

  10. Did anyone ever think that maybe the reason the US has such low broadband penetration is because we limit the potential of the pipe owners?

    Why should I take a beating from Wall Street to lay fiber when I probably won’t be able to sell my voice and video services to the end user?

  11. Anonymous

    Imagine HBO, ABC, ESPN, etc. providing content directly to the consumer. Imagine receiving free programs from companies like Coca Cola. Imagine not having to pay a fee for phone service such as the one charged by the telcos. Imagine not having to pay extra for caller id, call waiting, voice mail, etc.

    Now imagine the revenue streams that will disappear for the telcos and cablecos. Are they scared you bet they are.

    I started an ISP when dialup was in its infancy. The local phone company fought us every step of the way. Why? Because internet customers stayed on their telephone longer than the average voice customer. This threw off their customer to lines ratio and they were forced to add lines. They didn’t consider that they were more than making up for this by charging my company business rates of $79 per phone line.

    When we started using $10 alarm lines to do DSL the telcos quickly realized that this internet thing had potential. They stopped offering access to alarm lines and started their own DSL service.

    We applied for access to resell their DSL lines. They gave us a price of $39 per line. This might not have been bad except they were selling it to the public for $39.95.

    We took our case to the state public service commission. We thought we had won a major victory when the public service commission required them to sell us the lines for $28. But they appealed and finally the price was raised to $33. This for a line that they once let us have for $10. This did not include our loop charge to their network which was in the neighborhood of $3000.

    The telcos then went to the public service commissions and ask for rate increases to help pay for expanding their DSL and fiber network into the rural areas. They got the rate increases but didn’t follow through on their promises. You can read all about it in a new book entitled “The $200 billion Broadband Scandal”.

    They then went from state to state and finally to the FCC getting broadband deregulated. Which means now the states can’t even penalize them for breaking their promises.

    They have taken to court cities for trying to create citywide wireless networks. They control the telephone poles, recently increasing monthly fees from $5 to $50. Our own city passed a bill charging anyone who had cable in the ground running through the citys rights of way a per foot fee monthly. Well everyone except the phone company.

    The phone companies have built their networks with profits guaranteed by the local public service commissions but still claim they are not monopolies.

    A second cable company was granted a franchise in our city in 2000. They have been in court ever since with the current cable company. City law says they can’t start laying lines until all court cases are settled.

    Satellite has to much latency for voice. Unlicensed wireless can’t provide enough bandwidth for video. So we are left with the wired solution. Even if other providers could get through the court cases the telcos and cablecos would throw at them it still would not make sense to have every provider running wire to every home. Just as there is not enough room to run multiple road systems there is not enough rights of way for more than just a few last mile providers. Imagine if MSN, Google, AOL, Earthlink, etc. wanted to put their own little green boxes in every neighborhood.

    When I read that SBC and Bellsouths CEO said they wanted to charge companies like Google for using their networks I couldn’t believe it. I thought their arogance had finally gone to far. But no once again their lobbying efforts and the lack of concern by the general public is paying off for them.

    Instead of the phone and cable company being the pipe provider they will now control what goes over the pipe.

    These companies didn’t build the internet and in fact they hindered it’s progress. Now they want to totally control it. Do we want to leave what may be our most critical infrastructure in the hands of these hypocrits?

  12. The other day when Whitacre started talking about charging content providers, I had the same reaction in my comments there… telcos have a right to be in the content value chain. Moreover, the content producer benefits by sharing their revenue with the telcos.

    To see it any other way is adversarial and short-sighted and flies in the face of retail economic models. Content providers who see themselves as a “separate service” from access are just as blind as the telcos who insist on trying pointless “walled garden” strategies.

    I put together a good, thorough, description of this on my most recent blog post.

  13. What if instead of your example of a passenger taking Time magazine onboard, Time Warner wished to stuff every seatback bin with their published reading materials, would the airline have the right to charge under that scenario ?

  14. Thank you Daniel, well said. I became alarmed about this a couple of months back when Mr. Whitacre became rather belligerent /adamant about wanting to double charge his customers for access to content.
    I doubt that the Senate Commerce Committee will reverse their support for “service providers” controlling their assets. FCC ruling 05-150 points the way for abandoning network neutrality.
    We’re going to need a economic train wreck on the right coast before Washington DC will do anything.
    California’s congressional delegation doesn’t seem to care, at least from the responses I received from Boxer, Feinstein, and Stark (my rep). You’d think they’d be a little concerned about someone choking the financial daylights out of tech in SF and SV.

  15. I’m convinced this is all about jealousy on the part of the Bells. They wish they were in Google’s sneakers, but they aren’t. So they want to make it difficult for Google. Why don’t they get into a new business? Theirs’ is going down the sink.

  16. While it may not be something they’re eager to do, all Google (and Yahoo and others) need to do in order to make this issue go away is to buy transit from SBC/AT&T, BellSouth, and Verizon. Right now, it seems that they mainly buy transit from Sprint and Level3 – so all this is just maneuvering by the telcos to get Google to buy pipes directly from then.

    Google brought this on themselves (and everyone else) by making that stupid $1B ‘investment’ in AOL – once the telcos woke up and realized that for some reason, Google thought AOL’s user-base was worth $1B, surely -their- user-bases were worth a few millions/year, as well, right?

    I don’t understand why nobody gets this. If Google would just buy transit from these ILECs – i.e., become a customer – all this would go away. Yes, it’s a form of extortion, but one Google can afford.

  17. Krishnan

    Google is offering “FREE wireless” ? Is it purely free ? is it collecting data?

    Metro fi is offering ad suported wireless.

    Cable TV is offerign ad subsidised TV.

    Similarily , maybe, verizon will offer a subsidised dsl access.

  18. …on second thought there might be another way out. If users could band together (using a social network?) and demand a net neutral Service Level Agreement with specific metrics from their ISPs they might use that purchase power to move their subscriber base to an alternate provider if they don’t get what they want.

  19. First, the net isn’t neutral right now. Both telcos and cablecos have equipment that “favor” their traffic versus traffic from others. Secondly, the infamous bandwidth glut is over, right now. The culprit? Cisco. Even though lambdas are cheap, the “big iron” it takes to route 10Gbps+ is extremely expensive and will likely continue to be. And let’s not forget deep packet inspection takes a lot of expensive horsepower and glass to the home ain’t cheap either. Next up, strategic partnerships between ISPs and content providers. Think broadcast TV and the affiliates network. BTW, the only way out of this mess was the muni wifi nets and we all know who stomped them out.

  20. I could not agree more. We can either have smart end points and dumb pipes or dumb end points and a smart pipes. We cannot have them both smart or both dump. Leaving innovation to the smart pipers (AT&T, Verizon and cable companies) is a bad idea. It is bad economically, technically and really every other way.