WOOF! Newsletter

May 30, 2014

Should the Internet be Open or Closed?

Should the Internet be open (Net Neutrality) or closed (paid priority)? Most Web users are on the side of Net Neutrality...but if we look closer, we'll see that the issue is not so black-and-white. This WOOF examines the possible consequences of both classifications, and what the future may hold.

Free Market Governance Vs. Common Carrier Status – What’s the best model for Internet access?

There’s a firestorm of controversy raging over the Internet’s future.

The FCC voted on May 15 in favor of a plan which would allow ISPs to charge content providers more for the Internet bandwidth they use while serving customers.
"FCC approves plan to consider paid priority on Internet" – Washington Post

This “tiered model” plan would let ISPs govern their products (fiber optic lines, wireless networks) under free market guidelines. Many oppose this “tiered model” proposal, calling for the FCC to instead apply ‘common carrier’ status to the Internet.

Common Carrier would essentially classify all Internet Service Providers (ISPs) as public utilities, like water and telecommunications. As a public utility, ISPs must provide equal access to all customers at equal speeds & equal bandwidth. This is what most people mean when they call for “Net Neutrality.”

Does this sound like the perfect solution? No ISP can block or slow down access to anyone, for any reason. However, the issue isn’t as black-and-white as it seems. There may even be risks to Internet access under common carrier which would not exist otherwise.

In this month’s WOOF! we’ll examine what may happen with either ISPs as common carriers (an “open” Internet), or governed under free market stipulations (a “closed” Internet). As you’ll see, the problem of which model works best is much more complex than it appears.

Open - ISPs as Common Carriers

A former FCC commissioner has called for classifying ISPS as common carriers. His reasoning?
"Without this step [common carrier status], we are guaranteeing an Internet future of toll-booths, gatekeepers, and preferential carriage. Without this step, we stifle innovation, put consumers under the thumb of special interests, and pull the props from under the kind of rich civic dialogue that only open and non-discriminatory communications can provide."

It’s a compelling argument. But there’s a snag.

Let’s use the example of fiber. Internet access over fiber is super-fast and able to handle high traffic volumes. Several large companies have laid fiber, including Google, AT&T and Comcast.

If AT&T installs fiber lines in order to provide Internet access to businesses in a certain area, it has paid for the installation and setup. They will charge for Internet access using the fiber to make their costs back. Standard business model, right? Yet under common carrier status, it would be possible for other companies to tap into that fiber line too. Whether or not AT&T authorizes them. The government gave them permission by classifying AT&T as a common carrier.

Right away we see a problem here: Ownership vs. Governance. By guaranteeing equal access under common carrier, private entities lose a major incentive to continue providing Internet access: control over their hardware. This translates to an immediate and serious loss of profit.

Why would ISPs continue to improve, let alone provide Internet access at all, if they can lose all profit for doing so?

Closed - ISPs under Free Market Governance?

Critics argue that ISPs will gouge users and content providers if the FCC’s plan is adopted. If they have no regulation, ISPs can create “tiers” which charge content providers more depending on how much bandwidth they use providing their service to customers.

Case in point is Netflix. Netflix uses a large amount of bandwidth for streaming its movies and TV shows to home users. Currently, Netflix pays the same rate for Internet access, while using up lots of bandwidth. This came about over time, as Netflix grew.

Under free market governance like the FCC proposes, an ISP like Comcast could change that. Netflix doesn’t pay extra to Comcast for all that bandwidth? Comcast slows down access to Netflix for its users. Now Netflix users can’t stream TV shows.

Would the free market correct this behavior in turn? It’s possible. With Google’s push into Internet access, the proliferation of smartphones & continued development into other access technologies, there is some counterbalance in place already.

FCC Chairman Tom Wheeler has said that the agency wouldn’t allow for unfair, or "commercially unreasonable," business practices. The Netflix/Comcast instance above is a prime example of what Wheeler says he wouldn’t accept. The market itself could correct for such actions by introducing “open bandwidth” competitor ISPs.

Can the free market correct ALL imbalances in a marketplace? Even one as vast & complex as the Internet?

A ‘closed’ internet doesn’t necessarily solve the problem of equal access. Nor does regulation, due to the incentives issue. Do we want someone doing a lot of business to pay more for their Internet service…just because they’re doing a lot of business? That would practically punish success!

Potential Middle Ground: Reclassify the ISP/Provider Relationships

The Mozilla Foundation has offered a mid-way solution: Classify the ISP/edge provider relationship as a common carrier service, instead of the ISPs themselves.

Mozilla offers FCC a net neutrality plan—with a twist – Ars Technica

From the article:
"The FCC currently views last-mile Internet routing as only one commercial relationship: the relationship between an ISP, such as Comcast, and the end user. Mozilla is urging the FCC to recognize that technological evolution has led to two distinct relationships, adding a relationship between the ISP and edge providers.

"The petition calls on the FCC to designate last-mile delivery of edge provider communications as ‘remote delivery’ services, and as telecommunications services under Title II of the Communications Act. These services include all of our Internet activity, from watching a video on YouTube to shopping on Amazon to playing online games on Xbox Live."

This approach might work. It’s a middle-ground which narrows the common carrier focus, and would allow for some free market governance to establish itself outside the relationship.

At the very least, the option is worth considering. Right now, Common Carrier vs. Free Market looks like an argument where no matter who wins, a lot of Internet users lose.