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Network Neutrality

In January of this year, a frontpage article on WSJ quoted Verizon Chief Executive Ivan Seidenberg “We have to make sure they (Google) don’t sit on our network and chew up our capacity”. Both AT&T and Bellsouth also made similar statements in the same article. A few days ago, Verizon repeat their call to “End Google’s Free Lunch”: “A Verizon Communications Inc. executive yesterday accused Google Inc. of freeloading for gaining access to people’s homes using a network of lines and cables the phone company spent billions of dollars to build.”

Also related, Verizon filed with FCC that they have plans to set aside bandwidth on their fiber optical network, effectively creating a two-tier Internet, one big-fat pipe for Verizon and their partners services and another for the rest. This is one of the consequences many already foresee when FCC removed the many obligations from broadband providers in order to spur the growth of broadband and fiber network in 2003.

Thus, it is no surprise that Network Neutrality, a concept where broadband providers are not to discriminate rivals when they charge tolls or prioritize traffic, is now on the agenda of the US Congress.


This reminded me of an article I wrote two years ago on how telecom business model is transforming from a vertically integrated business to a horizontal layered model: “To keep themselves relevant and “sexy” to their investors, they will move up the chain. They will provide not only their infrastructure services but also Internet access and even new service and content. And don’t expect them to give right-of-way to other Internet Access Providers, or Service and Content Providers given a choice.”

In traditional telecom model, we have local loop unbundling (LLU) to create a competitive and liberalized market. But the business model has changed. Instead of one network for one service, we now have one network and multiple service providers above it. The problem occurs when the network provider also wants to be service provider and refused to play nice with rivals. Sadly, we have no equivalence of LLU in this new paradigm yet.

Strangely, the lack of the regulation is actually due to us, the Internet proponents. For many years, we argued strongly that Internet should not be subjected to government regulations but rely on interoperability, market forces and Metcalfe’s Law to resolve itself. That message has been very successful and many regulators have adopted a doctrine that they regulate the physical network (spectrum, fiber, etc) but Internet and the applications of above it are to remain unregulated.

Yet, that doctrine missed an important point: That business model has changed, that the physical network isn’t as important anymore and that Internet is the network. When you have a powerful player (or a group of players) who does not play nice with its rivals, there is a market failure.

The unregulated crowd would argue that if Verizon customers couldn’t access Google, then their customers will switch to another service provider. Ergo, market will correct itself. Lets assume everyone has that choice to switch service providers (many don’t) and it’s difficult for Verizon to turn off Google/Vonage/MSN without losing large number of customers, if “market force” and “unregulated” is the policy, then there is nothing stopping Verizon to turn off one of the smaller VoIP or IPTV rivals.

Back to the debate on Network Neutrality, the two side of the debate can be summarized as below.

The Bells: “Verizon is spending billions of dollars to construct a fiber-optic network around the country for delivering high-speed Internet and cable TV services. Executives at other telecom companies, such as AT&T Inc. chief executive Edward E. Whitacre Jr., have suggested that Google, Yahoo Inc. and other such Internet services should have to pay fees for preferred access to consumers over such lines.”

The Anti-Bell (Om Malik): “I don’t know if you charge people about $75 a month, or about $825 a year for DSL and phone service, it is your job to fix the line. Did Google come and take my money as monthly service fee?”

Both actually agreed on one subtle point: Someone has to pay for the infrastructure. It is important to point this out because it is easy for the Verizon to accuse Google for having a “free ride”. The real question is “Who pays?” To use an analogy from the telecom model: caller-party pay, receiver-party pay or both-party pay. Verizon wants both-party pay.

It is conceivable that this is one of the most important debates as it will change the settlement system on the Internet. In a both-party-pay system, we will have a tariff, where Verizon will charge Google for accessing Verizon’s network but Google could also charge Verizon for allowing Verizon customers to use its services. This would have cascading effect in all other interdependent services on the Internet (even outside US). Interesting enough, this could be used as a justification for ICANN to impose a “tariff” on the ISPs for the use of root servers, something that the ISPs has refused to do so for many years.

Anyway, now that Network Neutrality is a debate in US Congress, the lobbyists must be hard at work. While FCC has adopted principles similar to Network Neutrality and that FCC has come down swift against those block their rivals’ service, given the ever changing politics within US, it is difficult to predict how debate will go.

Sadly, philosophical debates like “Network Neutrality” don’t win votes. The decision will ultimately focus on the business or benefits it will bring to their congressional districts. Hopefully one of them would ask if it is in the interest of United State if Google and the likes-of-Google have to pay Verizon and all the likes-of-Verizon in the world.

The world is watching.

By James Seng, Vice President

Filed Under


Ronald A.  –  Apr 17, 2006 10:57 PM

The lie in the network provider’s argument is blatant, yet uncontested:

How could e.g. Google possibly get a free ride? They can’t because they pay for the bandwidth they use. They have no less free access to the internet than any of the paying consumers. We all pay for the bandwidth we use, but how we use the bandwidth, if we make or lose money, if we give it away, use it for competitive services, etc. all is none of their business.

That is like going to the grocery store and buying olive oil:
V: You are using this olive oil for what sort of salad?
C: I make a greek salad.
V: Are you going to be using organic produce?
C: Yes.
V: Well, in that case, this bottle costs $15, not $10, because you obviously are a well heeled buyer, plus our chain is associated with the agro-business industry, and we consider small organic growers our competition.

Or lets visit the gas station:
V: your truck transports what sort of goods?
C: These are LEGOs.
V: Sorry, Exxon is endorsing Hasbro Toys, the gas will be twice as expensive for you.

I don’t think anyone would stand for a scenario like this. What we may need, if corporate greed is so insatiable, is the insight that the “digital information superhighway” has to become public infrastructure, just like the real, concrete and asphalt highways: public infrastructure, owned by the people, maintained by the government, and paid for by usage dependent fees (gas taxes). In the case of the internet, it’s simple: you pay for your bandwidth, how you use it, that’s your own problem.

Peter HJ van Eijk  –  Aug 18, 2006 2:08 PM

It is good to have an economic argument to the table, in addition to the free speech type of discussion.

As I describe in my blog, it makes sense to distinguish between three types of economic actors: client ISP, server ISP and transit ISP.

Ronald A.  –  Aug 18, 2006 5:06 PM

I’m not quite sure what the distinction between the three types of ISPs is supposed to do, particularly since as you say, ISPs pay each other, or if it benefits them, have mutual free interconnect. So transit ISPs to get paid, directly or indirectly. The same principles are at work as are in international postal service: you don’t pay for a letter sent off in a different country, because the postal services have mutual interconnect agreements.

The real issue is, that for years now ISPs hold all their customers hostage by refusing to switch from IPv4 to IPv6, which in turn results in the NAT abomination which prevents regular “clients” from running their own servers and forcing them to upgrade to “business” service or pay expensive hosting fees.

There is no such thing as a “client” or a “server” at the internet level, these exist only at the application level. The internet, hence the name, is a network of networks.

We all should only pay for bandwidth, we all should get a block of fixed addresses and our own domain names (rather than being forced to advertise some service provider who then locks us into keeping him just for the sake of keeping the IP address and e-mail address).

There is plenty of price differentiation in the bandwith. I run, because I was lucky to be an early adopter of the internet, a class-C network on an ADSL line. That’s fast enough to run my own mail, DNS, web, ftp, and soon VoIP servers. When net neutrality goes away, I can be extorted and blackmailed into getting expensive hosting contracts.

It’s amazing that the net neutrality debate surfaces as the transition to IPv6 becomes ever more difficult to stop. The ISPs want a legal framework by means of which they can charge above and beyond the bandwidth for which they are already charging, as soon as their IPv4 based stranglehold expires.

It is already such that e.g. Lingo blocks VoIP calls to the sign-up number of a superior, but smaller VoIP provider. I had to use my cell phone to switch providers.

Now, if ISPs want to charge extra, then it should have to do with QoS issues. e.g. they could for a surcharge allow *me, the client* to tell them to prioritize VoIP traffic, such that I don’t get choppy phone calls, or to prioritize RTSP traffic. Such a thing might allow me to get away with a lower total bandwidth, though, and so I’m not sure they would want to do that, unless they were allowed to sabotage traffic (as in making sure that VoIP packets are shuffled around in such a way that a normal phone conversation isn’t possible).

So assuming we had a means to monitor that they play fair (i.e. don’t engage in sabotage), then there would be a business model for them to charge for such QoS services. However, again, this would have to be at the client’s request, and it would have to be agnostic of the provider. After all, I want *all* my phone calls to be clear, not just those e.g. from Vonage, and I want all streaming video to be fluid, not just that from Apple’s iTunes Video Store.

No matter how we twist and turn it, the ISPs, at all levels, already get paid for the service they provide. If they calculate their fees based on partial usage of bandwidth, and then realize that some (like e.g. Google) fully utilize their bandwidth, then they just have to rethink their pricing. They could e.g. charge different fees for different bandwidth usage patterns.
So you could charge based on actual traffic. The point is, however, the cost for doing so outweighs the benefits, which is why flat-rate pricing was introduced in the first place.

In short: none of the ISPs are about to go out of business, and certainly not because their internet customers get a free ride. What they want to do is to leverage their strong position in data transport business into a strong position in the content providing business, and we’re not only supposed to become customers, we’re also supposed to foot the bill for their dubious investments. If they really had a good business case, then nothing would stop them from opening up shop just like Google did and get the same “free ride”.

The problem is, their ideas just aren’t good enough to be competitive, so they have to make money with highway robbery.

john brumage  –  Aug 18, 2006 6:30 PM

The last mile will soon be free, and consist of some small “critical mass” of 802.11N routers, purchesed at a local big box store for $99 (after mail in rebate, of course)

Self forming, self routing, self repairing networks exist now at the provider level. 802.11N takes that technology to the consumer.

I have mentioned to anyone that will listen that
802.11N hardware should be BORN IPV6.

The availability of a free community (really community, not local government) that has 500 Megs throughput, combined with IP voice handsets means the end of the copper bearer’s monopoly on the last mile.

In combination with swarming distribution systems, the financial gap between content producer and audience is reduced to a hardware purchase.

Online TV Show Man  –  Dec 4, 2006 5:13 AM

I definitely agree that something needs to be done about this, they’ve already instituted practices to limit our bandwidth usage and they’ve capped download speeds and they’ve already made a tiered system whereby you have two options - the low cost (it’s about $20 a month, not that low at all) for a slower cable connection (it’s less then 60kb/s - your lucky if you get 56k seriously) and a high cost ($60 a month - I’m on this one right now sadly), and you get something like 150+kbs (supposedly something like 1.5mbps)).

We need to act fast and we need to do something now, otherwise they’ll add another tier lower then the lowest tier currently, and they’ll push us down a tier so that it’s $60 for the 60kb/s and $100 for the 150+kbs.

john brumage  –  Dec 4, 2006 8:00 PM

If it ain’t neutral, it ain’t INTERNET.

Sprint has just announced flat (that is no restrictions) data access over their cell network.

This is a step in the right direction.

Perhaps the answer might be a campaign to make it illegal to use the Internet brand name for services that are slowed.

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