It’s been just over a year since the FCC repealed net neutrality. The FCC’s case is being appealed and oral arguments are underway in the appeal as I write this blog. One would have to assume that until that appeal is finished that the big ISPs will be on their best behavior. Even so, the press has covered a number of ISP actions during the last year that would have violated net neutrality if the old rules were still in place.
It’s not surprising that the cellular carriers were the first ones to violate the old net neutrality rules. This is the most competitive part of the industry and the cellular carriers are not going to miss any opportunity to gain a marketing edge.
AT&T is openly advertising that cellular customers can stream the company’s DirecTV Now product without it counting against monthly data caps. Meanwhile, all of the competing video services like Sling TV, Paystation Vue, YouTube TV, Netflix or Amazon Prime count against AT&T data caps – and video can quickly kill a monthly data plan download allotment. AT&T’s behavior is almost a pure textbook example of why net neutrality rules were put into place – to stop ISPs from putting competitor’s products at an automatic disadvantage. AT&T is the biggest cellular provider in the country and this creates a huge advantage for DirecTV Now. All of the major cellular carriers are doing something similar in allowing some video to not count against the monthly data cap, but AT&T is the only one pushing their own video product.
In November a large study of 100,000 cellphone users by Northeastern University and the University of Massachusetts showed that Sprint was throttling Skype. This is not something that the carrier announced, but it’s a clear case of pushing web traffic to the ‘Internet slow lane’. We can only speculate why Sprint would do this, but regardless of their motivation this is clearly a violation of net neutrality.
This same study showed numerous incidents where all of the major cellular carriers throttled video services at times. YouTube was the number one target of throttling, followed by Netflix, Amazon Prime, and the NBC Sports app. This throttling wasn’t as widespread as Sprint’s throttling of Skype, but the carriers must have algorithms in their network that throttles specific video traffic when cell sites get busy. In contrast to the big carriers, the smaller independent cellular carrier C.Spire had almost no instances of differentiation among video streams.
Practices that might violate net neutrality were not limited to cellular carriers. For example, Verizon FiOS recently began giving free Netflix for a year to new broadband customers. AT&T also started giving out free HBO to new customers last year. This practice is more subtle than the cellular carrier practice of blocking or throttling content. One of the purposes of net neutrality was for ISPs to not discriminate against web traffic. By giving away free video services the landline broadband companies are promoting specific web services over competitors.
This doesn’t sound harmful, but the discussions in the net neutrality order warned about a future where the biggest ISPs would partner with a handful of big web services like Facebook or Netflix to the detriment of all smaller and start-up web services. A new video service will have a much harder time gaining customers if the biggest ISPs are giving away their competitors for free.
There are probably more bad practices going on that we don’t know about. We wouldn’t have known about the cellular throttling of services without the big study. A lot of discrimination can be done through the network routing practices of the ISPs, which are hard to prove. For example, I’ve been seeing a growing number of complaints from consumers recently who are having trouble with streaming video services. If you recall, net neutrality first gained traction when it became known that the big ISPs like Comcast were blatantly interfering with Netflix streaming. There is nothing today to stop the big ISPs from implementing network practices that degrade certain kinds of traffic. There is also nothing stopping them from demanding payments from web services like Netflix so that their product is delivered cleanly.
Interestingly, most of the big ISPs made a public pledge to not violate the spirit of net neutrality even if the rules were abolished. That seems to be a hollow promise that was to soothe the public that worried about the end if net neutrality. The FCC implemented net neutrality to protect the open Internet. The biggest ISPs have virtual monopolies in most markets and public opinion is rarely going to change an ISP behavior if the ISP decides that the monetary gain is worth the public unhappiness. Broadband customers don’t have a lot of options to change providers and Cable broadband is becoming a near-monopoly in urban areas. There is no way for a consumer to avoid the bad practices of the cellular companies if they all engage in the same bad practices.
There is at least some chance that the courts will overturn the FCC repeal of net neutrality, but that seems unlikely to me. If the ISPs win in court and start blocking traffic and discriminating against web traffic it does seem likely that some future FCC or Congress will reinstitute net neutrality and starts the fight all over again. Regardless of the court’s decision, I think we are a long way from hearing the last about net neutrality.
Regarding AT&T allowing DirecTV NOW users to stream without incurring data usage charges. Similarly with giving Netflix to their own user base. You are basically saying that a company should not have the liberty to give preferred treatment or benefits to customer’s of its own product.. they are not penalizing anyone ELSE, simply adding features and benefits to its own customers.
Then towards ISPs “throttling” video by using prioritization rules so as not to allow video data to compromise their primary business.
Through limiting these type of behaviors you would be effectively penalizing the users of these ISPs; 1) All users of a service would be forced to subsidize network infrastructure with higher subscription costs (to allow uninhibited video use at all times), and 2) Customers would not receive a great benefit like Free Netflix or enjoying a benefit like DirecTV NOW without data caps.
You mentioned that users who may be unhappy with these behaviors would be unable to change ISPs because of monopolies. However, if these behaviors were prohibited, removing this potential pain point would encourage the continuation of monopolies, because there would be no competitive edge another ISP could offer to incentivize them making the capital investment necessary to provide a meaningful alternative.
Generally I love your relevant information and point of view, but these concerns seem short sighted at best, especially for someone as adept as yourself in this market.
You’ve actually gone straight to the heart of the net neutrality argument. You are making nearly the same arguments as the big ISPs. You are absolutely right that some of the ways that ISPs can violate net neutrality are going to be popular with customers, like AT&T bundling DirecTV Now with their cellular service. That sound really great for customers of AT&T.
So what’s wrong with that behavior by AT&T? The problem is the long-term detriment to an open web by letting the big ISPs pick winners and losers on the web. AT&T cellular already has huge market power just by being one of only four nationwide cellular carriers. When AT&T gives free access to DirecTV Now and doesn’t count it against data caps, then they have given DirecTV Now a huge advantage over every other video company on the web. Let’s just say that each of the four cellular carriers does the same thing – so that there are four video services that people can watch without hitting data caps.
There is no question over time that those four video providers will have a big leg up over every other video provider on the web, by virtue of having extra tens or even hundreds of millions of viewers for their video content. There is no doubt that, over time, customers that like the content on DirecTV now are likely to then buy that content for their home broadband connection.
Today there are something like 125 video web services. Only a tiny few of them are going to get the huge advantage of being bundled with a cellular carrier, and the rest will be at a competitive disadvantage. Over time many of them will fail simply because they didn’t have that extra marketing advantage.
The ISPs will make a counter-argument to that and say that what they are doing is just capitalism at work – that they ought to have the right to make partnerships that their customers like. But the fact is that the huge cellular carriers have near-monopoly power since there are so few of them. It is that concentration of market and monopoly power that is at the heart of net neutrality. The net neutrality rules are to protect the open web from letting ISPs decide which content people can watch. While AT&T cellular isn’t officially stopping you from watching Playstation Vue video on your cellphone they effectively are doing just that. Playstation Vue video will count against AT&T data caps, so you’ll quickly learn you can’t afford to watch it on your cellphone.
In an idea world, perhaps this would be okay, but we don’t live in an ideal world. If there was 100 different cellular providers then the behavior of any one of them would be of less concern. But AT&T is the biggest cellular carrier and not only have they picked a single video partner, but it’s one they own. They are using their market power in the cellular world to give a giant leg up to their own video product.
Maybe that doesn’t bother you since cell phones still carry only about 5% of the total data on the web.That means a cellular company alone probably is not going to ultimately change the video market. What AT&T cellular is doing with DirecTV Now is certainly going to get a huge market boost from avoiding cellular data caps – but that alone probably won’t kill Playstation Vue.
But now let’s consider the same thing, but this time it’s Comcast and not AT&T Cellular. Let’s say that Comcast starts coming up with pricing packages that benefit just one or two big web services. In most places the cable companies are becoming a de facto monopoly for home broadband, and so any associations they make with web services has huge market implications. If Comcast was put free DirecTV Now in their TV bundle they will have brought tens of millions of customers to that service – many who would not now pay for a competitive service since they are happy with what Comcast gave them for free.
The net neutrality outlook is a long-term one. It starts with the premise that in many markets and situations ISPs have huge market power, even monopoly power. And due to that market power’s bad for the long-term future of the web for those big ISPs to pick winners and losers on the web.
Included in the net neutrality discussion with the FCC order was a discussion of a future where a few big ISPs made bundling deals with a few big web services like Facebook and Netflix, to the point where people have to pay extra to get a web that allows them to use somebody else. That is the heart of net neutrality. AT&T Cellular is an ISP and sells web access to their customers. AT&T is telling their customers that they can only affordably watch video with an AT&T product but that watching any other video product will cost them more. That’s not behavior we can afford to have from any ISP if we want an open web.
I am clearly for net neutrality and for the open web. ISPs already abuse their market power in all sorts of ways. Allowing them to decide what video products I can watch on my data plan gives them even greater monopoly power, which in the long run is extremely bad for the web. I don’t want a web future where the big ISP / programming conglomerates decide what packages people can watch – which is exactly what they do when they make their own product bundle far less expensive than any other alternative. Why do you think AT&T and Comcast are both trying to buy every video creator in sight? They want to create broadband / content monopolies.
I’ve not taken some casual position – I think net neutrality is vital we are still to have an open web 20 years from now. I don’t want a future where AT&T and Comcast get to set the market rules. I personally take affront at having my position called short sighted. Feel free to disagree with me and that position, but there’s no need to get personal about it. I could just as easily say that you sound like a shill for the big ISPs. I suspect that is not true and you just see merit in being able to buy the AT&T / DirecTV Now bundle. If I’m a giant ISPs that’s how I violate net neutrality – first with a few things that sound great to customers, but eventually by only offering bundles of my own content. Like many other issues, net neutrality is a slippery slope, and once you allow some violations you’ve opened the door to major monopoly abuse.
Just note, though that you are buying into the arguments and positions of the big ISPs, probably in ways that are not in your own best long term interests. Enjoy your AT&T and DirecTV bundle today, but don’t yell in the future when the only affordable options on the web are bundles from AT&T and Comcast.
Well said of course. You also could point out that not having net neutrality will lead to less infrastructure investment and worse broadband over time. The only way that ATT can profit from pushing their own OTT by zero-rating it is if they set a data cap low enough to make that zero-rating be the difference in price to a consumer. Data caps only make sense when there is network congestion, and networks only get congested when a company chooses not to build their infrastructure appropriately. That is why the large ISPs are so gung-ho about the issue. They get to spend less on their networks, and use the their own negligence as an excuse to force consumers and content providers to pay them more. It’s an ISP shareholder paradise.
“a company should not have the liberty to give preferred treatment or benefits to customers of its own product”
The question isn’t what they do, it’s the effect they’re attempting to achieve with it. I can drive a car. I can shoot a gun. I can take things from stores. It’s just that some intents and failures behind those acts can make them wrong, that turn them into criminal acts. It’s not just “driving a car” if I do it on a crowded sidewalk.
So it is with “giving preferred treatment”. Nobody cares if a store gives its regulars preferred treatment and offers house brands and such, because customers can always choose another store. If stores got control of the roads, it wouldn’t be just “preferred treatment” if they started charging you to shop anywhere else. But they’d sure be desperate to portray it that way.
This is actually a huge issue. Because you can’t legislate intent, therefore if you intend to regulate, you must do so by legislating actions; actions that usually have beneficial market forces, though in short term they may indeed be bad for their customers, but this is actually GOOD, because then that anti-customer behavior causes them to loose that customer to a competitor.
This is why the market is such a powerful force, because by avoiding unnecessary regulation you give a company the freedom to make both good and bad decisions, this forces regulation to come from the market through competition, driven by customer demand.
…but if you take the profit incentives out of the market, there will be no competitors interested in driving competition.
The issue I see with your argument is that ISPs have a huge control of the market, therefore making customer options quite limited. Compared to other countries with many more ISPs as well as net neutrality rules, competitive incentive seems to be made more difficult by repealing net neutrality in a country where there isn’t any competition. The advances in tech are pushing the market from home ISPs to 5G at home–the same industry-leading ISPs like Verizon are moving towards this. There is also more profit to be had in 5G.
The competitive drought of ISPs isn’t going anywhere anytime soon in the US, and the phone/data providers are interested in keeping it that way.
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