Tuesday, November 29, 2005
Network Neutrality -- Desirable But Not Practical
There's a consensus emerging among my friends Brough Turner, Bill St. Arnaud and Martin Geddes, that Network Neutrality by regulation is not practical. Each has their own reasons, but the conclusions converge inescapably with mine -- given current industry structure, the incentives are all wrong. Vint Cerf's fervent wish (hey, mine too, were it more plausible!) for a "lightweight, enforceable Network Neutrality rule" is a pipe dream. Any such rule I could think up would put today's carriers in an untenable, self-competitive situation.
UPDATE: After I posted this I remembered Susan Crawford's posting several weeks ago, saying much the same thing. (This time she was only a few weeks ahead of the rest of us.) Susan wrote
Unless there's an obvious solution I am missing, Network Neutrality, as currently conceived, will result in a gonadless rule that nods vaguely towards the good but incents discriminatory and predatory behavior. I'm sure today's carriers would prefer that to (a, b or c) above.
Let us remember that the goal is Internet Freedom, an Internet that is maximally open, best effort, supported by the best available technology, and at prices that are just, that is, close to cost but sustainable.
UPDATE: After I posted this I remembered Susan Crawford's posting several weeks ago, saying much the same thing. (This time she was only a few weeks ahead of the rest of us.) Susan wrote
I am as committed to the ideal of the open internet as the next guy, and my dream is to have OneWebDay support that goal. But the mischief that can be done to our future (in so many unexpected ways) by insisting on statutory and regulatory definition of neutrality seems to outweigh the possible benefits of this path. There is so much nonsense, so much horse-trading, between where we stand now and the glorious goal of neutrality. The sad fact is that Americans don't mind vertical integration one bit, and the duopolists know that. Not only that, but price discrimination in a competitive market is actually a good thing. Now all we need is a competitive market.The only ways out are (a) heavyweight structural separation, that is, the providers of underlying connectivity would be prohibited from offering applications, (b) heavyweight enforcement, whereby violators would be punished so severely that it would indeed deter violation, or (c) Layer Zero Competition, with very low barriers to conduit, pole attachments, spectrum, and "carrier neutral meet-me points." In extreme forms, (a) would be realized by a Layer 0-3 provider that was a government sanctioned rate-of-return monopoly, and (c) would play out as a plethora of customer-owned networks. (There's another family of scenarios, too, where some company (or set of them) evolves a business with economic incentives to provide and subsidize an open Internet.)
Unless there's an obvious solution I am missing, Network Neutrality, as currently conceived, will result in a gonadless rule that nods vaguely towards the good but incents discriminatory and predatory behavior. I'm sure today's carriers would prefer that to (a, b or c) above.
Let us remember that the goal is Internet Freedom, an Internet that is maximally open, best effort, supported by the best available technology, and at prices that are just, that is, close to cost but sustainable.
Technorati Tags: Competition, Deregulation, F2C, Freedom, Internet, NetworkNeutrality, OpenAccess, Regulatorium, Telepocalypse, VintCerf
Comments:
Near the end of your discouraged post you offer the caveat: "Unless there's an obvious solution I am missing,"
I do think there is.
Public ownership of the last-mile natural monopoly. Call it the "Lafayette solution."
You've (and others have) nicely laid out the well-founded doubt about that the more common solutions to the looming end of net neutrality won't work. Lightweight rules are too easily evaded. Heavyweight enforcement lays down stultifying rules that might be worse than the disease. Structural separation is an only theoretical solution. (Tell BellSouth no phone service and Cox no video? Never gonna happen.) The newest fantasy seems to be that all sorts of institutions and even individuals will own their own last mile making many choices available to each consumer and so making the culturally favored "competitive" solution magically "bloom."
The trouble with the "let many flowers bloom" alternative is that the last mile actually is a natural monopoly and it is a unrealizable fantasy that any kind of big pipe, bits-as-cheap-commodity, "dumb" network will be other than a natural monopoly. This is an economic truth and not some sort of uncomfortable political claim that can be safely ignored. (IMHO :-)) Water service is the best example of a cheap, commodity product delivered by expensive infrastructure. Water is dirt cheap. Pipes and maintenance and access to the property in which the pipes are laid is ungodly expensive. Laying in the infrastructure to support two, three, and four water suppliers to every household is never done. Why? Because the inevitable economic consequence that water would cost almost two, three, or four times as much since almost all the cost is in the infrastructure. In real-life situations the first supplier to market pays off their system with monopoly rents and no one can ever afford to actually "overbuild" since the owner of the amortized network can drop the price of water much lower than the new competitor can stand. As long as there is no external subsidization that's simply the story. Natural Monopolies come close to being natural facts in our economy. The roads are analogous. Most of us want bits to be like water or the roads, cheap, reliable, universally supplied, and undifferentiated. Commodified.
The ONLY way to get there is to first admit that at least the last mile of the network is a natural monopoly and that, in bald economic fact, multiple providers of a dumb network are not desirable since their only contribution will be to drive up the infrastructure cost that must be divided among all that use the product.
Since the fact of natural monopoly reveals the ugly side of our cultural belief in riotous competition as the automatic cure-all solution for all economic ills we try to ignore it or deny it when we can. That is what the FCC is in the midst of. And all its solutions that pretend that the basic economic truth can be evaded turn out to just solidify monopoly power (witness the absorption of AT&T and MCI or the actual consequences of regulatory concessions that were supposed to encourage fiber overbuilding across the nation.)
Where the "many flowers" solution intersects some viable insight is where its proponents say that the last mile should be owned by the users. That's true. Monopolies evil consequences flow, almost exclusively, from the fact that the temptation of owners to abuse their power over customers is almost impossible to resist. (Good stewardship, ironically, makes legal demands on corporations that they maximize shareholder value, for instance.) The real solution is to remove the temptation for abuse by making the owners and the customers the same.
The model that we should be looking to is electrical provision: Every state has municipal and cooperative organizations that are doing quite well, thank you, in providing local people with good service and cheap prices. Electricity was the last great technical innovation that drove economic growth and changed people's lives. It left a residue of public ownership that checks the unbridled rapaciousness of private energy providers. (Notice please that we do not see more than one electricity company's line running past anyone's house. It, too, is a natural monopoly.)
We are ignoring what was learned there. Public ownership works in natural monopoly settings. The benefits of public ownership are gained without incurring the expense of multiple, massively uneconomic overbuilds. (We ought to try and restore some of that model too... PUHCA...but that's another, even longer, post.)
Having participated in the referendum fight in Lafayette I am painfully aware that fear of "goberment" and an cultural/ideological assumption that government is inefficient and backwards-thinking is a major impediment to going this route. But such assumptions are, frankly, without basis. Again, I urge all to examine the history of electrical power provision. And remember...enron was a private "energy" company that played all the right cultural notes about private provision, freedom to compete, etc. We also hear, all too often, that the public route is impractical because the BellSouths and Coxs of this world will beat them down politically. Lafayette, and other cities, have proved this untrue as well. Lafayette's referendum battle was based straightforwardly on classical 1920's progressive ideals that led to public electrical utilities: frustration with monopoly service, anger at greed, disgust with corporate arrogance, and the desire to do for ourselves and control our own local destiny. The people chose to put a public utility into competition with private providers --62 to 28 %-- in one of the reddest cities in a deep red state. The argument is available to all. If it can be done here (and in Provo, Utah!) it can be done anywhere.
I am also aware that, if my analysis is right, that Lafayette will eventually become a monopoly provider in its footprint. I'm enough of an American to be very uncomfortable with that...but I try very hard to live in the real world and on my analysis a monopoly outcome of converged, commodified, IP-based networks is inevitable. There will, eventually, be a monopoly regardless of my cultural prejudices.
If that is so, and I think it is, then it is absolutely necessary that we try, as much as possible to make sure that the last man standing is owned by the public and so has its owners interest governing the provision of services. The "incents" for a publicly owned monopoly are right; the "incents" for a private company that run at odds with the local, public good. Public utilities might be a terrible solution in some particulars, but like democracy, it is one that is clearly preferable to the demonstrably worse alternatives.
There should be serious discussion of encouraging by every means possible a fourth alternative to those you mention: publicly-owned utilities and coops built on the model of, and often on top of, the public electrical utilities that are currently serving Americans well.
I don't think you can hope to have anything like net neutrality without a substantial publicly-owned counterweight to the self-interest of current private owners. And, in the end, you may have to move to one of those municipalities to get it. Lafayette would be happy to have you.
(Incidently, thanks for the supportive remarks about Lafayette's situation in the post immediately preceding the one this comment is attached to. I reviewed your remarks on net neutrality while putting together a post for Lafyette Pro Fiber about BellSouth's recent attack on net neutrality. It was after thinking about Lafayette's situation that I came back to comment here. I make some of these same points in that post directed at the concrete situation in which Lafayette finds itself. http://lafayetteprofiber.com/Blog/2005/12/bellsouth-and-net-neutralityand-lus.html)
Post a Comment
I do think there is.
Public ownership of the last-mile natural monopoly. Call it the "Lafayette solution."
You've (and others have) nicely laid out the well-founded doubt about that the more common solutions to the looming end of net neutrality won't work. Lightweight rules are too easily evaded. Heavyweight enforcement lays down stultifying rules that might be worse than the disease. Structural separation is an only theoretical solution. (Tell BellSouth no phone service and Cox no video? Never gonna happen.) The newest fantasy seems to be that all sorts of institutions and even individuals will own their own last mile making many choices available to each consumer and so making the culturally favored "competitive" solution magically "bloom."
The trouble with the "let many flowers bloom" alternative is that the last mile actually is a natural monopoly and it is a unrealizable fantasy that any kind of big pipe, bits-as-cheap-commodity, "dumb" network will be other than a natural monopoly. This is an economic truth and not some sort of uncomfortable political claim that can be safely ignored. (IMHO :-)) Water service is the best example of a cheap, commodity product delivered by expensive infrastructure. Water is dirt cheap. Pipes and maintenance and access to the property in which the pipes are laid is ungodly expensive. Laying in the infrastructure to support two, three, and four water suppliers to every household is never done. Why? Because the inevitable economic consequence that water would cost almost two, three, or four times as much since almost all the cost is in the infrastructure. In real-life situations the first supplier to market pays off their system with monopoly rents and no one can ever afford to actually "overbuild" since the owner of the amortized network can drop the price of water much lower than the new competitor can stand. As long as there is no external subsidization that's simply the story. Natural Monopolies come close to being natural facts in our economy. The roads are analogous. Most of us want bits to be like water or the roads, cheap, reliable, universally supplied, and undifferentiated. Commodified.
The ONLY way to get there is to first admit that at least the last mile of the network is a natural monopoly and that, in bald economic fact, multiple providers of a dumb network are not desirable since their only contribution will be to drive up the infrastructure cost that must be divided among all that use the product.
Since the fact of natural monopoly reveals the ugly side of our cultural belief in riotous competition as the automatic cure-all solution for all economic ills we try to ignore it or deny it when we can. That is what the FCC is in the midst of. And all its solutions that pretend that the basic economic truth can be evaded turn out to just solidify monopoly power (witness the absorption of AT&T and MCI or the actual consequences of regulatory concessions that were supposed to encourage fiber overbuilding across the nation.)
Where the "many flowers" solution intersects some viable insight is where its proponents say that the last mile should be owned by the users. That's true. Monopolies evil consequences flow, almost exclusively, from the fact that the temptation of owners to abuse their power over customers is almost impossible to resist. (Good stewardship, ironically, makes legal demands on corporations that they maximize shareholder value, for instance.) The real solution is to remove the temptation for abuse by making the owners and the customers the same.
The model that we should be looking to is electrical provision: Every state has municipal and cooperative organizations that are doing quite well, thank you, in providing local people with good service and cheap prices. Electricity was the last great technical innovation that drove economic growth and changed people's lives. It left a residue of public ownership that checks the unbridled rapaciousness of private energy providers. (Notice please that we do not see more than one electricity company's line running past anyone's house. It, too, is a natural monopoly.)
We are ignoring what was learned there. Public ownership works in natural monopoly settings. The benefits of public ownership are gained without incurring the expense of multiple, massively uneconomic overbuilds. (We ought to try and restore some of that model too... PUHCA...but that's another, even longer, post.)
Having participated in the referendum fight in Lafayette I am painfully aware that fear of "goberment" and an cultural/ideological assumption that government is inefficient and backwards-thinking is a major impediment to going this route. But such assumptions are, frankly, without basis. Again, I urge all to examine the history of electrical power provision. And remember...enron was a private "energy" company that played all the right cultural notes about private provision, freedom to compete, etc. We also hear, all too often, that the public route is impractical because the BellSouths and Coxs of this world will beat them down politically. Lafayette, and other cities, have proved this untrue as well. Lafayette's referendum battle was based straightforwardly on classical 1920's progressive ideals that led to public electrical utilities: frustration with monopoly service, anger at greed, disgust with corporate arrogance, and the desire to do for ourselves and control our own local destiny. The people chose to put a public utility into competition with private providers --62 to 28 %-- in one of the reddest cities in a deep red state. The argument is available to all. If it can be done here (and in Provo, Utah!) it can be done anywhere.
I am also aware that, if my analysis is right, that Lafayette will eventually become a monopoly provider in its footprint. I'm enough of an American to be very uncomfortable with that...but I try very hard to live in the real world and on my analysis a monopoly outcome of converged, commodified, IP-based networks is inevitable. There will, eventually, be a monopoly regardless of my cultural prejudices.
If that is so, and I think it is, then it is absolutely necessary that we try, as much as possible to make sure that the last man standing is owned by the public and so has its owners interest governing the provision of services. The "incents" for a publicly owned monopoly are right; the "incents" for a private company that run at odds with the local, public good. Public utilities might be a terrible solution in some particulars, but like democracy, it is one that is clearly preferable to the demonstrably worse alternatives.
There should be serious discussion of encouraging by every means possible a fourth alternative to those you mention: publicly-owned utilities and coops built on the model of, and often on top of, the public electrical utilities that are currently serving Americans well.
I don't think you can hope to have anything like net neutrality without a substantial publicly-owned counterweight to the self-interest of current private owners. And, in the end, you may have to move to one of those municipalities to get it. Lafayette would be happy to have you.
(Incidently, thanks for the supportive remarks about Lafayette's situation in the post immediately preceding the one this comment is attached to. I reviewed your remarks on net neutrality while putting together a post for Lafyette Pro Fiber about BellSouth's recent attack on net neutrality. It was after thinking about Lafayette's situation that I came back to comment here. I make some of these same points in that post directed at the concrete situation in which Lafayette finds itself. http://lafayetteprofiber.com/Blog/2005/12/bellsouth-and-net-neutralityand-lus.html)
