Tag: Network Neutrality

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Regulation - What is it Good For?

The Consequences of Killing Network Neutrality

It looks almost certain that the FCC is going to kill Title II regulation, and with it net neutrality. Just as happened the last go around the FCC has already received millions of comments asking it to not kill net neutrality. And if you read all of the press you find dire predictions of the consequences that will result from the death of net neutrality. But as somebody who has a decent understanding of the way that broadband and the associated money flows in the industry I don’t think it will be as dire as critics predict, and I think there will also be unanticipated consequences.

Impact on Start-ups – the Cost of Access. One of the dire predictions is that a new start-up company that uses a lot of broadband – the next Netflix, Vine or Snapchat – won’t be able to gain the needed access with carriers, or that their access will be too expensive. Let me examine that conjecture:

  • Let me follow the flow of money that a start-up needs to spend to be on the web. Their direct largest cost is the cost of uploading their content onto the web through an ISP. The pricing for bulk access has always favored the bigger players and it’s more expensive today for a company that wants to upload a gigabyte per day compared to somebody that uploads a terabyte.
  • The normal web service doesn’t pay anything to then deliver their content to customers. Customers buy various speeds of download and use the product at will. Interestingly, it’s only the largest content providers that might run into issues without net neutrality. The big fights a few years ago on this issue were between Netflix and the largest ISPs. The Netflix volumes had grown so gigantic that the big ISPs wanted Netflix to somehow contribute to the big cost of electronics the ISPs were expending to distribute the service. The only way that there would be some cost to start-ups to terminate content would be if the ISPs somehow created some kind of access fee to get onto their network. But that sounds largely impractical. Bytes are bytes and they don’t exactly contain the name and billing address of the party that dumped the traffic on the web.
  • Some content like live video is a complicated web product. You can’t just dump it on the web at one location in the country and hope it maintains quality everywhere it ends up. There are already companies that act as the intermediary for streaming video to carry out the caching and other functions needed to maintain video quality. Even the big content providers like SlingTV don’t tackle this alone.
  • Finally, there will arise new vendors that will assist start-ups by aggregating their traffic with others. We already see that today with Amazon which is bundling the content of over 90 content providers on its video platform. The content providers benefit by taking advantage of the delivery mechanisms that Amazon has in place. This is obviously working and it’s hard to see how the end of net neutrality would stop somebody like Amazon from being a super-bundler. I think wholesalers like Amazon would fill the market gap for start-ups.

Paid Prioritization. The other big worry voiced by fans of Title II regulation is that it stops paid prioritization, or Internet fast lanes. There are both good and bad possible consequences of that.

  • It’s silly to pretend that we don’t already have significant paid prioritization – it’s called peering. The biggest content providers like Google, Netflix and Amazon have negotiated peering arrangements where they deliver traffic directly to ISPs in specific markets. The main benefits of this for the content providers is that it reduces latency and delay, but it also saves them from buying normal uploads into the open Internet. For example, instead of dumping content aimed at Comcast in Chicago onto the open web these big companies will directly deliver the Chicago-bound traffic to Comcast. These arrangements save money for both parties. And they are very much paid prioritization since smaller content providers have to instead route through the major Internet POPs.
  • On the customer side of the network, I can envision ISPs offering paid prioritization as a product to customers. Customer A may choose to have traffic for a medical monitoring company always get a priority, customer B might choose a gaming service and customer C might choose a VoIP connection. People have never had the option of choosing what broadband connections they value the most and I could see this being popular – if it really works.
  • And that leads into the last big concern. The big fear about paid prioritization is that any service that doesn’t have priority is going to suffer in quality. But will that really happen? I have a fairly good broadband connection at 60 Mbps. That connection can already deliver a lot of different things at the same time. Let’s say that Netflix decided to pay my ISP extra to get guaranteed priority to my house. That might improve my Netflix reception, although it already seems pretty good. But on my 60 Mbps connection would any other service really suffer if Netflix has priority? From what I understand about the routing of Internet traffic, any delays caused by such prioritization would be miniscule, probably in microseconds, which would be nearly imperceptible to me. I can already crash my Internet connection today if I try to download more content than it can handle at the same time. But as long as a customer isn’t doing that, I have a hard time seeing how prioritization will cause much problem – or even why somebody like Netflix would pay an ISP extra for it. They are already making sure they have a quality connection through peering and other network arrangements and I have a hard time understanding how anything at the customer end of the transaction would make much difference. This could be important for those on slow broadband connections – but their primary problem is lack of broadband speed and they are already easily overwhelmed by too much simultaneous traffic.

I am not as fearful of the end of net neutrality as many because I think the Internet operates differently than what people imagine. I truly have a hard time seeing how the ending net neutrality will really change the way I receive broadband at my home. However, I do have big concerns about the end of Title II regulation and fear things like data caps and of my ISP using my personal information. I think most of folks real concern is about Title II regulation, but that’s too esoteric for most folks and we all seem to be using the term ‘network neutrality’ as a substitute for that.

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Uncategorized

Will We See Net Neutrality Enforcement?

The FCC has not yet taken any direct action to enforce its new net neutrality decision. There have already been several ways that the agency has begun to use its new authority to regulate broadband under Title II regulation. But the agency has yet to directly act on the core issue of net neutrality.

It’s likely that the FCC was waiting for the courts to first resolve the challenges to the net neutrality ruling. Otherwise, anything they ordered might have been overturned by a negative court decision. But earlier this year the courts affirmed the FCC’s net neutrality order, and so it now seems to safely be the firm law of the land.

The basic premises of net neutrality are that the Internet is to be open and there is to be no blocking, throttling or paid prioritization by ISPs. There are a number of ISPs that have practices that seem to be a violation of the paid priority prohibition. For instance, the major wireless companies have plans to not count some video transmission as part of monthly data caps. The companies refer to these as ‘sponsored data’ and I they hope that somehow will excuse the practices from the net neutrality rules.

T-Mobile probably has the most egregious plans. The company has made arrangements with various content providers and over 100 video services are now available as part of its Binge On plan. This allows users to watch services like ABC, ESPN, Disney, NBC, Hulu, Netflix and Sling TV on their smartphones without the usage applying to monthly data caps.

Verizon has a more modest plan called Go90 which offers some unique content for Verizon cellphone customers that is not available anywhere else. This content is also exempt from data charges. But this might become a moot point since there have been several recent articles saying that the offering has gotten no traction with customers. But Verizon also just announced this week that they plan to zero-rate football games streamed to cellphones under the NFL Mobile app.

AT&T just announced a plan that looks to fall into the gray area. The company is going to start zero-rating the DirecTV app so that customers who buy both DirecTV and AT&T cellular service can watch the service on their cellphones without data charges. Their reasoning is that these are premium customers that already have a significant monthly bill from AT&T and that those bills cover the service. The company has plans to majorly revamp the DirecTV apps later this year and there is likely to be more of these package arrangements.

Comcast also has a questionable service. They send their TV anywhere content to customers outside of their monthly data caps. They have argued that they are using a technology that uses a separate data path than normal broadband, but it still seems to fail the net neutrality test. Comcast recently significantly increased its data caps which alleviates a lot of the concern, but there still must be customers who are going over the higher caps.

I’m thinking it’s highly unlikely that this FCC is going to tackle these issues. It’s likely the current Chairman will be replaced soon after the new year and the agency already has a number of other important proceedings it wants to wrap up soon, such as the current cellular auctions.

So this is probably going to be deferred for the next FCC chairman. And that means we’ll have to wait to see if that will be a democrat or a republican. It’s unlikely that a republican FCC would enforce net neutrality, and we can’t even be certain that a democratic chairperson would tackle the above issues.

I find it a little ironic that these issues are what supposedly prompted the net neutrality ruling, and yet nothing has been done. But the path chosen by applying Title II regulation to broadband opens up a ton of new topics for the FCC to consider like broadband privacy, data caps, truth in labeling and all sorts of other regulations associated with bandwidth products. And that’s where this FCC puts its attention this year.

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Regulation - What is it Good For?

An Alternative to Title II

Since major sections of last year’s net neutrality ruling are being reviewed by the courts, I started wondering what would happen if the courts reverse that ruling and say that the FCC doesn’t have the authority to regulate broadband under Title II.

It’s hard to think that the courts will overturn this completely because to a large degree the courts aimed the FCC at the current solution in their order vacating the FCC’s first attempt to regulate broadband. But there are a lot of lawyers who think that the FCC rushed the current ruling into place without following its own rules – and that could cause problems in the court.

There is one interesting alternative to the net neutrality ruling that was published late last fall. It’s called the Grand Bargain and was published by the Information Technology and Innovation Council (ITIC). This is a think tank that includes several federal congressmen, academics, and representatives of tech companies like Cisco, HP, Amazon, Google, Oracle, Intel, IBM, Qualcomm and Microsoft.

The main thrust of the Grand Bargain is that broadband ought not to be considered as a “telecommunications service” which would mean that it would not be appropriate to regulate it under Title II. The ITIC sees nothing inherently wrong with data prioritization and understands that there are already many places in the web and network today where prioritization is essential – such as priority given to automated stock traders or to gamers.

The ITIC reports says that “the real issue should not be prioritization versus no prioritization, but what kind of traffic can be prioritized under what business arrangements.” The ITIC feels that the net neutrality ruling places too much emphasis on the negative aspects of paid prioritization without looking at the overall good it can create.

The Grand Bargain doesn’t just favor pro-carrier solutions but is also in favor of some of the FCCs thinking on consumer issues like the broadband adoption programs and strong privacy protections for consumers. It’s an interesting proposal that looks at the beneficial ideas that came from both sides of the net neutrality arguments. It’s very much a middle-of-the-road set of ideas and there is something in there for everybody to like.

But the proposal has one big flaw that I think is shared by every alternative net neutrality idea that I’ve seen: the proposal looks at goals that the ITIC would like to see FCC achieve but does not look at the FCC’s underlying authority to do what they are suggesting. The current net neutrality order was somewhat heavy handed in claiming Title II authority over broadband, but I can’t see that the FCC has any alternative.

Recall that the FCC’s first attempt to regulate broadband contained some of the aspects of the Grand Bargain, and the courts said that the FCC did not have the authority to regulate broadband in general.

This inability to regulate broadband was the FCC’s own doing when years earlier they had declared that broadband was an information service and was not a telecommunications service. The Grand Bargain and every other alternative to net neutrality fails to deal with the basic underlying question of the FCC’s authority to regulate broadband outside of Title II.

It’s clear that the companies behind the ITIC don’t want to see FCC regulation of the parts of the Internet that they think should be wide open and unfettered. But without some kind of regulation the Internet was already headed towards a very ugly future. It’s not hard to imagine a future where half a dozen large companies control most aspects of the Internet. We were already starting to see hints of that as Facebook and other big web companies were negotiating with large ISPs to make their products part of the base broadband packages – to the detriment of other web content. It’s inevitable that companies like Facebook and Google will try to make deals that expand reach and influence on the web. Title II regulation looks to be the only way that a regulator could apply brakes to such deals by regulating the ISP half of the equation.

It would be nice if we had an FCC that could just pick and choose what to regulate and which was free to do the kind of things proposed by the Grand Bargain. There are other countries that can do this. But the FCC is constrained by the laws that govern telecom and broadband and the only way for the FCC to regulate broadband outside of Title II is for Congress to give it the direct authority to regulate broadband without having to jump through any hoops. Unfortunately we live in a time of political gridlock and a largely ineffective Congress, and so this kind of solution is not likely coming any time soon. So I am still hoping that the court can find a way to allow Title II regulation. It’s better than all of the alternatives.

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Regulation - What is it Good For?

Regulating Broadband Rates

FCC Chairman Wheeler testified in front of the House Communications Subcommittee recently about the FCC’s authority to set broadband rates. He was testifying about a bill passed out of subcommittee a few weeks ago, introduced by Rep. Adam Kinzinger (R-Ill.) that would prohibit the FCC from regulating broadband rates.

Wheeler cautioned that he was concerned that any law that curtailed the FCC’s right to regulate rates might also inhibit the FCC’s ability to regulate the three basic tenets of network neutrality – preventing blocking, throttling, or paid prioritization of data.

Unless you are an FCC rule junkie it’s probably hard to understand why rates and net neutrality might be tied together. But the Chairman’s concern comes from the reliance of the FCC on using Title II as the basis for regulating net neutrality. Part and parcel with the Title II rules also comes the ability to regulate rates.

Back when the Chairman was talking about using Title II rules he said publicly that the FCC wasn’t intending to get into the rate regulation business for broadband. In these hearings the Chairman repeated this and said that the FCC would be glad to help craft language that limit the FCC’s ability to do traditional rate regulation while making sure not to undo the other aspects of Title II regulations.

As a consumer and one who tracks industry trends I’m not so sure that the FCC should be so quick to give up rate regulation of broadband. I believe that we are at the beginning of the time when we will see continuous annual price increases for broadband. The large cable companies and telcos are under huge pressure from Wall Street to increase earnings every quarter and a lot of their traditional revenue streams like cable TV and telephone service are in a decline. This is going to leave no alternative to the big ISPs but to raise broadband rates.

We’ve already seen the beginning of this. The recent Comcast data caps trials and the recent announcement from AT&T that customers could buy unlimited data for only $30 more than what they are already paying for broadband are both nothing more than big rate increases on the biggest data users of broadband. All of these companies understand how fast consumer use of broadband is growing. We have been a curve since the 1980s where home use of broadband has doubled about every three years and there is no sign of a slowdown. So the big ISPs set data caps knowing that they will get extra revenue today from perhaps 10% to 20% of their customers, but also knowing that each year it’s going to affect more and more people.

And rate caps are only the first place ISPs will raise rates. We’ve seen a number of the large ISPs raise rates a few bucks in the last few years, and as earnings pressure increases one can expect that we are not many years away from a time when data rates are going to be increased each year in the same manner that cable rates have increased. But there is a huge difference. Cable rate increases have been driven in large part by increases in programming costs (although cable companies usually tacked on a little extra to boost bottom line). But it’s already clear today that broadband has a huge margin and that, if anything, the cost of underlying Internet connectivity keeps dropping each year. If ISPs raise data rates it’s due to nothing more than wanting to make more money.

And there is fundamentally nothing wrong with any business wanting to make more money. Except that for most markets in the US there is only one dominant broadband provider in the form of a cable company. And even where there is a second provider, like Verizon FiOS, they will undoubtedly be raising rates in lockstep with the cable companies in a pure demonstration of duopoly competition.

So I hope that the FCC doesn’t give up rate setting abilities because the day is coming within a decade when it’s going to be badly needed. You can be sure that the ISPs understand this completely and that they are the authors of the bill that would stop the FCC from looking at rates. They know that the FCC isn’t likely to do this today, but they know that there is going to be a huge public outcry for the FCC to do this in the future and they are launching a preemptive strike now to win this battle before it starts.

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Regulation - What is it Good For?

A History of Net Neutrality

These days it seems like everybody has an opinion about net neutrality. Ever since Arpanet was opened to the public in 1981 we have had almost the same debate we are having today. So today I thought I would look back at some of the key history in the net neutrality debate.

The first key event that could be called the beginning of the net neutrality debate was the publication of a paper entitled End-to-End Arguments in System Design by three computer scientists, Jerome Saltzer, David Reed and David Clark. For the real nerds among us I’ve included a link to that paper. This paper was written for a conference and was not intended as a scholarly piece, and yet it shaped the thinking of the early public Internet.

In the paper the authors said that the only logical way to design a network that had limited resources and that had to serve a large number of users with widely different interests was to have a network that performed logical operations on the edges, rather than the core. What they meant by this was that the core of the Internet should consist only of fast but dumb pipes and that any manipulation of data, and the paper focused on error correction as the example, should be done at or near the edge of the network with the last mile ISP or the user.

This paper had a big influence on the way the Internet was operated and for many years the Internet operated in a way consistent with this paper. Everything that was done on the Internet was done near the edge. For instance, the servers for large services like CompuServe or AOL were on the edge. The functions that ISPs made to receive and reconstruct files were on the edge. And end user software was contained in computers on the edge. In the middle were a handful of large carriers that transmitted data from hub to hub.

As the general public got introduced to the Internet the idea that the Internet ought to somehow be regulated arose. People who used the Internet liked the wide open feel of it and were worried that commercial uses of the Internet would change the nature and experience for everybody. During the 19080s we started seeing things like early versions of VPNs where large corporate data was given priority over other data. There was talk of creating priority bits for real time events like voice calls and video. And so the discussion began on whether the government ought to intervene and regulate the Internet in some fashion.

In 2000 Harvard law professor Lawrence Lessig published a book Code and Other Laws of Cyberspace. This was a scholarly work that explored the topic of Internet regulation. Lessig said that the end-to-end principle was one of the most important reasons that the Internet had produced growth and innovation and that a free and open Internet ought to be maintained. Lessig argued that there was a role for government, which was to maintain the end-to-end principle. He thought that without government regulation of some sort that commercial interests would chip away at the freedom and function of the Internet until it would lose the characteristics that make it so beneficial to society.

He used the word ‘code’ as a surrogate for software, meaning that whoever controls the software of the Internet can control what happens on it. He thought, rightfully so, that either commercial or government code could eventually interfere with the operation of the Internet. Today it’s obvious that both kinds of control are going on. Entire countries have been carved away from the open Internet by governments and other countries like Russia are considering doing the same. US carriers want to create Internet fast lanes and the ones in Europe have already done so. And we find ourselves being spied upon by governments and by commercial entities who either record everything we do or who plant spyware on our computers.

Tim Wu, a law professor at the University of Virginia built on the ideas in Lessig’s book and published an article in 2002, A Proposal for Network Neutrality. Wu argued in favor of the same end-to-end principle and said that an open internet caused a Darwinian competition among every conceivable use of the Internet and that only the best uses would survive. He said that network neutrality (he coined the phrase) was necessary to make sure that there was no bias against any use of the Internet.

Wu understood that some network bias was unavoidable, such as giving priority to voice packets so that voice could be transmitted over the Internet. But he thought that there should be some sort of defined dividing line between permissible bias and impermissible bias. And that dividing line, almost by definition has to be defined by regulators.

And so today we are still at the same point where Wu left the argument. Sadly much of the debate about network neutrality has wandered off into political directions and no longer has to do with the way we manage packets. But absent some sort of regulation it seem clear to me that commercial and government use of the Internet will continue to chip away a little at a time until the Internet is a controlled environment, and that any user’s Internet experience is going to be subject to the whims of whoever controls their local part of the Internet.

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Current News Regulation - What is it Good For?

Net Neutraility Comments at the FCC

The FCC’s Net Neutrality docket got over 1 million comments, most from ordinary Americans who are worried about the large ISPs and web companies colluding to restrict or hijack their Internet experience. I read through some of these comments and people are universally worried about companies like Comcast and Google getting together to limit what they can do on the web. The public does not want to see a network provider have the ability to slow down their Internet experience or to dictate which web sites they can use.

Obviously I didn’t read all of the comments in this docket and one has to wonder if anybody at the FCC can or will read it all. That’s a tall task. But I did look at the comments of the larger carriers and web companies to see what they have to say. There were no surprises with the big ISPs on one side of the issue and almost everybody else on the other.

AT&T is in favor of no additional regulation of the Internet, meaning they would be free to prioritize traffic if they wish. This could obviously make them a lot of money. AT&T says if there must be regulation that they would prefer it to be through Section 706 regulation, which is the section of the FCC rules that talks about no blocking of Internet traffic. AT&T is totally against having a Title II classification of the Internet as a common carrier business. And not surprisingly, AT&T is not in favor of regulating data for wireless carriers.

Comcast is also against Title II classification as a common carrier and they prefer no regulation at all. Comcast says that they are already a good web citizen and don’t need to be regulated, but even if they were there would be loopholes that would allow carriers like them to discriminate. This seems like an odd argument to make from a company that wants approval for a giant merger. Comcast says that if there is regulation that it should also apply to public Wi-Fi and mobile broadband.

Verizon had the longest comments I saw. Verizon believes the best solution is the least amount of regulation possible. They think the market will control carriers because customers won’t accept being throttled. Verizon says the real threat to the Internet comes from companies like Google, Netflix and Amazon. And obviously they are very much against Title II regulation.

On the other side of the argument is, well, just about everybody else except a few other cable companies. There were a few filings that represented groups of Internet-based companies. The Information Technology Industry Council represented companies like Apple, Facebook, Google, Intel, Microsoft, Yahoo and many others. They argue that the FCC needs to put in rules to protect consumers, but also to protect both small and large web-based companies. They are not in favor of Title II regulation but instead would like to see something similar to the rules that were vacated by the courts.

The Internet Association represents Amazon, Ebay, Expedia, Facebook, Google, Linked-In, Twitter, Netflix, Yahoo, Yelp and many others. As you might have noticed, Google and Yahoo are in both industry groups. This group also doesn’t support full Title II regulation but thinks that the FCC needs to find ways to stop the ISPs from discriminating and wants the FCC to support application agnostic network management. They want the same rules to apply to wireless carriers.

Netflix is at the core of a current battle over network neutrality. Netflix is about the only big tech company I could find in favor of Title II regulation. They think anything short of full title II reclassification will just be asking for another court battle that the FCC will eventually lose.

One has to wonder if the volume of public comments means anything. It’s clear where the public stands on this issue and people are afraid that the Internet is going to change to their detriment. They already see the ongoing battle between Verizon and Netflix and they don’t want to see a future where their web experience is dependent upon how ISPs and content providers are getting along. When they buy an amount of bandwidth from an ISP they want whatever fits into that bandwidth to work.

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Regulation - What is it Good For?

Why We Need Network Neutrality

While the FCC has been making noise about finding a way to beef up net neutrality, the fact is that the courts have gutted it and ISPs are more or less free today to do whatever they want. In March, Barbara van Schewick, a Stanford professor had several ex parte meetings with the FCC and left behind a great memo describing the current dilemma with trying to rein in network neutrality violations.

In this memo she describes some examples of bad behavior by US and British ISPs. While she highlights some well-known cases of overt discrimination by ISPs, she believes the fact that the FCC has actively intervened over the last decade in such cases has held the ISPs at bay. But now, unless the FCC can find some way to put the genie back into the bottle there are likely to be many more examples of ISPs discriminating against some portions of web traffic.

Certainly ISPs have gotten a lot bolder lately. Comcast essentially held Level3 and Netflix hostage by degrading their product to point of barely working in order to extract payments out of them. And one can now imagine AT&T and Verizon doing the same thing to Netflix and all of the ISPs then turning to other big content providers like Amazon and Facebook and demanding the same kind of payments. It seems that we have now entered a period where it’s a pay-for-play network since the FCC did nothing about the issue.

The US is not the only place in the world that has this issue. We don’t have to look at the more extreme places like China to see how this might work here. Net neutrality violations are pretty common in Europe today. A report in 2012 estimated that one on five users there was affected by ISP blocking. The things that have been blocked in Europe are across the board and include not only streaming services, but voice services like Skype, peer-to-peer networks, Amazon cloud services, gaming, alternate email services and instant messaging.

If we don’t find a way to get net neutrality under control the Internet is going to become like the wild-west. ISPs will slow down large bandwidth users that won’t pay them. They will block anybody who is doing too good of a job of competing against them. The public will be the ones who suffer from this, but a lot of the time they won’t even know it’s being done to them.

I don’t know anybody who thinks the FCC has the courage to take the bold steps needed to fix this. The new Chairman talks all the right talk, but there has been zero action against Comcast for what they did to Netflix. I imagine that the ISPs are still taking it a little easy because they don’t want to force the FCC to act. But the FCC’s threats of coming down on violators are going to sound hollow as each day passes and nothing happens.

Professor van Schewick points out that absent strong rules from the FCC that there is no other way to police network neutrality. Some have argued that antitrust laws can be used against violators. But in the memo she demonstrates that this is not the case and that antitrust law is virtually worthless as a tool to curb ISP abuses.

It’s not just the big ISPs we have to worry about. There are a lot of smaller ISPs in the country in the form of telcos, cable companies, municipalities and WISPs. It’s not hard to picture some of the more zealous of these companies blocking things for political or religious reasons. One might assume that the market would act to stop such behavior, but in rural America there are a whole lot of people who only have one choice of ISP.

I hope that things don’t get as bad as I fear they might and that mostly common sense will rule. But as ISPs violate the no-longer functional net neutrality rules and nothing happens they are going to get bolder and bolder over time.

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Current News The Industry

Is Peering the End of Network Neutrality?

NetFlix and Comcast have announced a deal whereby NetFlix will pay to peer into the Comcast network. Numerous articles popped up yesterday talking about how this is the end of network neutrality. But I am not so sure about that. In order to understand this, let me talk a bit about how peering works today. Peering is when two networks decide to make a direct connection between the networks rather than connecting in a more traditional way through the open Internet.

There are two kinds of connections that are typically made. One is local peering. This is when two networks who are geographically close decide to exchange data traffic. This typically benefits both parties. Let’s look at an example of why. Let’s assume the two parties are medium sized carriers, one a telephone company and the other a cable company that are competing in the same community. There is always a considerable amount of Internet traffic that is conducted within a community. People browse the websites of stores in their own community. People do on-line banking with local banks. People work at home and want to get data into and out of their employer’s local networks.

Normally each of these carriers would deliver traffic between their two networks, say between a customer on one network and a bank on the other one by sending this traffic to the open Internet. Each company will have a connection to the Internet, through some wholesale provider that will terminate eventually at one of the major Internet pops like Chicago or Dallas. And so when a customer wants to connect with his bank, the data will travel out through the first network to the major pop where it will be handed off to the data stream going back to the second network.

Such a connection is said to make at least several hops, meaning the times that the message is handled by a data router somewhere in the network in order to figure out where it is going. The more hops, the slower the connection. But local peering solves this problem because the traffic can be exchanged locally and goes straight from one carrier to the other without being sent first to some distant POP. This is a simplistic description because peering arrangements are usually more complicated than this. They are more likely to be between the underlying transport carriers that handles the traffic for the telephone company and the cable company. But peering will make the connection more direct than it would be under normal network circumstances.

The other kind of peering is one that saves money. I have many clients who peer with Google because Google and all of its various subsidiaries accounts for a significant percentage of the traffic on any Internet connection. My clients have done the math and see that it is cheaper to make a direct connection with Google rather than paying their underlying carrier to get it to Google. Anybody who peers with Google this way must pay out of their own pockets to get to a Google POP, probably including paying for the equipment at the POP needed to make the connection. But this kind of peering often results in a significant savings. Most people’s connection with Google is very much one-directional. There is usually a lot more traffic coming from Google than going to Google.

We don’t have the details of the Comcast / NetFlix deal to be certain what the arrangement is. But up until now it’s clear that the two sides have not agreed to a direct peering arrangement. One has to assume that the connection from NetFlix is nearly all in one direction – to download video to customers who sit on the Comcast network. Without a direct peering arrangement the traffic must get to Comcast through intermediate carriers and often would be routed in ways that would slow up the traffic, as is any traffic on the open Internet.

I would assume that there is not one big Comcast network, but instead there are pockets of Comcast all over the country. I would assume that for NetFlix to fully peer with Comcast that they are going to have to make connections with these various pockets, all at NetFlix cost. And if this was normal peering, NetFlix would also be expected to pay for the connections into the Comcast network including owning or somehow paying for the large amount of equipment needed to terminate their traffic.

Again, the two sides aren’t talking about the details. But I would expect it to cost NetFlix something to get their traffic directly to all parts of the Comcast network. That is how normal peering works. Where the line of network neutrality will have been crossed is if NetFlix has to pay a lot more for this connection than what others pay. But since this deal has been under negotiations for a year, one has to assume that both parties had the old network neutrality rules in mine as it was negotiated. I can certainly envision an arrangement that is more like normal peering than of a big violation of the principles of network neutrality. If it was the latter I would expect NetFlix to be putting up a big stink. Network neutrality benefits companies like NetFlix tremendously, and if they aren’t complaining then there is a good chance that this is peering like normal and not a giant money grab by Comcast.

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The Industry

Sponsored Data . . Huh . . What is it Good For?

Admit it, your mind finished that headline with ‘absolutely nothin’. And rightfully so. AT&T Wireless announced last week that they are starting a new program they are calling Sponsored Data. This is a plan that let’s content providers pay for data usage for their customers, and any data used by a sponsored plan would not count against their data caps.

Of course, this announcement came along with the promise that this does not violate Network Neutrality. In fact, AT&T swears that they are big fans of Network Neutrality. Nothing could be farther from the truth. You know the big network providers have always wanted to get into the revenue streams from content providers. After all, they spend a lot of money always upgrading their networks to be faster and each time those nasty content providers find content that makes customers use the new bandwidth. It must be very frustrating to be a huge network owner.

Of course this idea violates Network Neutrality. One has to wonder how long the AT&T marketers had to work to spin this to sound like a good idea. And they have done so. What they want to do is to let large app providers pay for the bandwidth for customers who use their app. What customers isn’t going to think this is a great idea?

But it’s a dreadful idea. This is exactly the kind of scheme that Network Neutrality is supposed to stop. In reality, under this plan, large wealthy content providers will pay AT&T a big fee to cover the bandwidth that customers use for their apps. This will let them get even more customers, at a cost. But this idea will have two consequences. First, a handful of large companies will do this if they believe it will get them more users. Because user is what creates value on the Internet. The more faces you have, the more billions a company is worth.

But the corollary of this is that small start-up companies won’t be able to afford this. And so the next big app may never get off the ground when competing with companies who can afford the sponsor fees. Over time, getting content providers to pay for bandwidth is going to kill innovation and stop the next generation of companies from getting started. And that benefits nobody.

It’s not like the wireless carriers like AT&T aren’t already getting a fortune for their data. The US already has some of the highest data prices among developed nations and cell phone data is by far the most expensive data in the US. So cellphone companies like AT&T are already gouging their users for their capped data plans.

There is no doubt that customers would like this, at least at first. After all, who wouldn’t like playing the newest game on somebody else’s dime. But we all know that programs and apps on the Internet come and go quickly and over time all users will suffer from lack of new content and new content providers.

It’s also pretty easy to envision that if this is allowed to stand that it won’t be too many years when only large ‘sponsors’ are expected to pay for their users’ data, but that AT&T will have their hand out to all of the app providers on the web.

The whole point of Network Neutrality is to not let content providers and network owners conspire to make some content preferred over others. Because once that barrier is broken then the Internet will stop being a source of innovation and will become the playground of a handful of large wealthy companies who will control the content. The big carriers come up with some scheme to get around Network Neutrality every few months and this is the latest. It’s quite clever, but it can’t be allowed to stand.

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