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How important is 'network neutrality'? In the United States, the Federal Communications Commission thinks it's such a big deal that it's willing to completely ignore court rulings and potentially even Congress in its altruistic effort to 'protect consumers.'

But in a rare example of thoughtful governmental restraint, Ofcom, the UK's communications regulator, has determined that network neutrality may not be all that it's cracked up to be.

In a discussion document entitled "Traffic Management and ‘net neutrality", Ofcom concludes that "a prohibition on network operators/ISPs charging content and applications providers for access to consumers is unlikely to lead to efficient market outcomes."

Why is that? Because internet access is a two-sided market -- "the two sides consist of consumers purchasing internet connectivity on the one hand, and content, applications and service providers on the other." Both consumers and providers benefit from the connectivity provided by the ISPs. Consumers gain access to content, applications and services, and providers gain access to consumers.

Proponents of network neutrality dismiss concerns about network congestion and the need ISPs have to manage traffic, and they are repulsed by the notion that ISPs should be able to charge providers for priority access to their pipes. Yet Ofcom notes that ISPs will have little incentive to act foolishly:

The main regulatory implication is that when a platform sets the prices on each side it should in theory take into account these linkages to get the right (most profitable) balance between participation on both sides. For example, charging too much to consumers, will lead to reduced take-up of broadband internet. The internet then becomes less attractive to content and application providers. Conversely, if network operators and ISPs overcharged content and applications providers for access to consumers, that would lead to reduced investment in content and applications, which would in turn make the internet less attractive to consumers. In theory, the ISP is well-placed to act as an ‘honest broker’ bringing two sets of preferences together.

ISPs as 'honest brokers'? While some simply look at ISPs as evil corporations that can't be trusted, one fact above all others stands out:

At the heart of the traffic management and net neutrality debate, is a concern that traffic management could be used as a form of anti-competitive discrimination. To date Ofcom has received no formal complaints from industry that require investigation. [Emphasis mine]

In the United States, the network neutrality debate is largely the same: you'll find lots of bickering between ISPs and major internet companies like Google about theoretical discrimination, but you'll have a hard time finding legitimate complaints evidencing real consumer harm, something that the Federal Trade Commission has itself noted. The closest thing to such evidence: Comcast's past throttling of BitTorrent traffic. That's a dubious basis on which to engage in network neutrality fear mongering given that some surveys indicate 99% of the files on BitTorrent infringe copyright.

At the end of the day, it's worth remembering that the internet, largely free of the kind of overbearing government regulation that can choke offline economies, has brought the world great innovation and opened up new global markets that never before existed. It's nice to see that at least one government agency understands the wisdom of 'if it ain't broke, don't try to fix it.'

Patricio Robles

Published 25 June, 2010 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2381 more posts from this author

Comments (5)

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stephen

I don't really think you understand the issue.  Big companies like Google won't be hurt by these policies, small companies will.

As an ISP, without "network neutrality" Comcast can take payments from large content providers or merchants for "expedited services." - which would probably mean that they store Amazon or Youtubes content on some kind of cacheing proxy and deliver it faster to the end-user.  They could also "verify security" or any number of other value-add (I use the term loosely) services in order to extract payment from the content-provider.

This will have the effect of a perceived downgrade of any site that doesn't pay for said expedited service.  Why would anyone shop for something on a non-Amazon site if the Amazon site is "security verified" and twice as fast as the "standard" site?  It would effectively shut small players out of the market, since I can guarantee those "expedited services" will be priced for what Amazon and Google will pay.

This WILL happen, since once you have this additional revenue stream, it would be totally irrational not to utilize it.  If Bing elects to pay a million dollars a day to have their search pages returned twice as fast as Googles, then Google will have to pay the million dollars a day too.

The end game for this scenario is obviously a "guaranteed delivery" scenario, at which point it becomes technically and financially easier to simply downgrade that which hasn't paid for the expedited service.  This is the very definition of a protection racket.  "That's some nice data you got there.  Be a shame if anything happened to it while it was passing through our neighborhood.  I'm just saying is all."

The reason this hasn't happened yet, is because ISPs are all assuming they couldn't get away with it without having to fight it court.  As soon as they are assured they CAN do this, why wouldn't they?

about 6 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy

Stephen,

Simple question: can you name a single small business that has been hurt by a lack of formal network neutrality regulations? As both Ofcom in the UK and the FTC in the US have noted, there is not a single shred of evidence that consumer harm has taken place in the absence of these.

This will have the effect of a perceived downgrade of any site that doesn't pay for said expedited service.  Why would anyone shop for something on a non-Amazon site if the Amazon site is "security verified" and twice as fast as the "standard" site?  It would effectively shut small players out of the market, since I can guarantee those "expedited services" will be priced for what Amazon and Google will pay.

I hate to break it to you but large companies already pay for performance. They use content delivery networks, colocate servers in key geographic regions and use all sorts of hardware and software-based technology solutions, from load balancers to SSL accelerators to caching. When I go to amazon.com, it loads pretty fast. So does theuncommondog.com. Amazon.com, of course, spends millions upon millions of dollars annually on its infrastructure. TheUncommDog.com almost certainly generates less in revenue that Amazon.com spends on infrastructure. Where is the problem with that?

Are you going to argue that a small ecommerce company is being wronged because the costs of using a CDN like Akamai are too high? Or that a small publisher is being wronged because it can't afford to lease a dedicated database server? Should governments subsidize free Rackspace servers, mandate that Akamai have a free CDN offering, force Cisco to sell load balancers at below cost, and fix the maximum hourly rate web developers charge for their services?

The reason this hasn't happened yet, is because ISPs are all assuming they couldn't get away with it without having to fight it court.  As soon as they are assured they CAN do this, why wouldn't they?

The second most powerful court in the United States recently smacked down the FCC on network neutrality, and Congress told the FCC it should step back too. Yet U.S. ISPs haven't rushed to degrade service so that they can start a protection racket like the one you imagine.

The reason? It doesn't make any sense economically. That's the problem with most of the arguments for network neutrality: they completely ignore basic economics! Even if ISPs start charging for "expedited services", they don't have any economic incentive to substantially degrade quality for companies that aren't paying. As Ofcom notes, in the two-sided market they compete in, that would simply reduce the value of the product they sell to consumers. So they'd actually end up with less profit overall by trying to extract too much revenue from one side of the market over the other!

Bottom line: the internet has thrived because it was largely free of the misguided government regulation that strangles businesses and innovation offline. It is baffling that people so easily ignore this fact, along with basic economics, and instead place faith in the greatest delusion there is: the notion that government needs to 'protect' you from threats that don't exist.

about 6 years ago

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Jack

so just because ISPs won't immediatly use it, you just legalize the fact that they can put a censorship on your connection?

Beside, I already see a hell lot of reasons for which ISPs could block some services (Skype, anyone?) So yeah, I just don't see why ISPs should be legaly entitled to screw with your connection when you are (for instance) going to a competitor.

So I don't even understand the "they have no economical reason do it" because 1°) yes they do and 2°) it should be illegal in the first place anyway! It's just plain stupid to legalize something and cross fingers hoping that no one will use it...

about 6 years ago

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nathan

The UK and US markets are massively different.

Most Americans have only one or possibly two options when it comes to a broadband provider and as such the debate is much more poignant over there.

Thanks to Ofcom we have a plethora of provider options. 

So while I'm generally a proponent of net neutrality, I'm also aware that the market regulation here means that there will always be options.  Someone will be brave and bold enough to offer a way around the throttling that other providers may impose.  That may not always be true in the states.

about 6 years ago

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stephen

Simple question: can you name a single small business that has been hurt by a lack of formal network neutrality regulations? 

Canonical, which distributes Ubuntu Linux over Bittorrent.  I'm not sure how pronounced the harm was, but the fact is that anybody who had Comcast had to download it directly off their servers, a cost they would not otherwise have HAD to incur.

In fact, any American who has two broadband choices, has about 100% more about 40% of the country, and 50% more than most people.

In any case, you're still not understanding.  It has nothing to do with intentionally degrading service, and everything to do with offering "protection" to those who pay.  And yes, it is VERY different than Amazon being able to afford CDNs and massive service clusters.  Those do not even address even remotely the same problem.  If you have a server that's not located in somebody's house, the maximum speed you can get is determined by the bandwidth on the recipient's end.  CDNs and clusters enable concurrency, not delivery speed.  Your servers outgoing pipe is almost guaranteed to exceed the capacity of the client.

If you put in extra phone lines to your office, now you can make extra outbound calls.  You can hire extra people to man the phones.  But you can still only talk to ONE customer on the customer's line. "Bob's Outbound" has only one phone, one agent, and can still talk to ONE customer on the customer's line. If the phone company comes to you and says "We'll only guarantee your calls go through if you pay us an extra $500 a month, otherwise, sometimes, when you call a customer, they won't be able to hear you." - that's just shy of a protection racket. 

As for there being no economic incentive do so - again, I'm not sure you understand how this works from a technological perspective.  Right now, the downside risk of doing so is having to prove the Feds that you have the right to do this.  That costs money.  There's also the possibility that you could provoke unwanted regulatory attention.  Even now, the court hasn't said the FCC CAN'T regulate traffic like this, but that it couldn't do so under the regulation they cited.  Both of those are pretty big risks.  If the regulations said -  "Yes, it's okay to throttle traffic from websites that don't pay a 'don't throttle me' charge" - it would happen, because it's low cost, low risk way to add another revenue stream.

I will concede that if every person in the US had four or five broadband choices, and could switch freely between them, that market pressures would prevent this from happening (or at least, keep it at a low enough level that nobody would really complain about it) but when you have a series of regional monopolies, and your "choice" is between Amazon on broadband, or no internet, that's a market failure.

about 6 years ago

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