Risky Business

by publius

Julian Sanchez wrote a thoughtful critique of the FCC's decision yesterday.  There's a lot there, but his main theme is simply that we should be skeptical of adopting rules like these because of the potential unknown consequences (on investment, network construction, etc.).  A few thoughts...

First, it's a small point, but I don't think his analogy to constitutional avoidance works.  The reason that judges avoid constitutional questions has less to do with pragmatic fears of messing up the basic "architecture," and more to do with legitimacy.  Constitutional decisions can't be changed by Congress.  But anyhoo...

The main argument is that rules cause unintended consequences.  That's certainly true in many contexts.  It's less true, however, in the open networks debate.

I mean, it really just depends on where you're starting from.  Sanchez argues that we should be skeptical of big change.  I would respond that the FCC is merely protecting a successful -- a wildly, ridiculously, and insanely successful -- status quo.  It is Comcast who is playing dice with the Internet's basic architecture.  If anyone is causing unknown risk, it's them.

One benefit of Internet openness is that you don't have know anything about the underlying physical network to introduce new services.  The founders of Twitter, for instance, didn't have to call Comcast and say "Hey, if I launch this, will you block it?"  They also didn't have to coordinate with Comcast's network engineers.  This openness -- and ease of entry -- is one of the Internet's greatest virtues.  (Professor Barbara van Schewick has a forthcoming book that lays out these economic and architectural arguments in detail).

Comcast threatens these traditions in a very fundamental way.  For instance, if you have a new service that uses peer-to-peer protocols, things are much different if you have to worry about it getting blocked.  This behavior triggers all sorts of negative consequences -- higher negotiation costs, higher cost of startup investment, encryption arm races, etc.  In fact, it may have already triggered all these consequences -- thus the need for a very forceful stand by the FCC right now.

In short, the FCC's action is less risky because we've seen these rules in action for decades.  And they have -- to say the least -- been very successful.  I have no idea what a world of secret blocking will look like.  And I don't care to find out.  The negative consequences of this hypothetical world seem far more tangible than Sanchez's fear of duplicative network facilities.

(And as I've said before, I'm helping with briefs adverse to Comcast on these issues).

Comments

[russell]

I guess I have two comments to make on the whole net neutrality issue.

First, it's interesting to dissect the pros and cons of the issue in terms of the OSI model, packet routing algorithms, and who's responsible for the last mile, but by and large folks who sign up with an ISP more or less think of what they're plugged into as "the internet", and they have some expectation that they should, and will, have access to whatever can be delivered over "the internet".

It's not an unreasonable assumption, however naive it may be technically.

Second, every and any rule or regulation that anyone passes regarding pretty much anything you can think of will have unintended consequences.

Likewise, if we pass NO RULE OR REGULATION AT ALL, that will have unintended consequences.

If folks have specific consequences in mind, and they can demonstrate how those are likely to flow from specific policy choices, there may be something worth considering.

Claiming that we must not act because there might be unintended consequences is more or less meaningless. Every time you cross the street, you run the risk of getting hit by a truck, but you cross the street nonetheless.

We live in the age of libertarian ninnies. Who'd of thunk it.

[liberal japonicus]

publius, about 2-3 years ago, I think there was a lot of discussion about comparative advantages that other nations have with a broadband policy. (here and here are two examples), but I have seen less and less of this. Is that because I haven't been looking in the right places, or has that part of the discussion been relegated to the sidelines?

For reference, here is a Ministry of Internal Affairs and Communications powerpoint pdf (in English, yay!) detailing the situation in 2006.

[publius]

If you just want metrics, the OECD keeps all that - and we're way behind in everything.

This is an underdeveloped area, but there are a few people who write on it. Amit Schejter has a chapter in the And Communications For All book that lays it out.

As I recall, South Korea had aggressive government subsidies for its fiber networks. And the UK has open access (wholesale/resale separations) that make neutrality regulations less necessary. We hit the sweet spot in wretchedness -- our public investment is crap (b/c that would be socialism) and our access policies have been deregulated.

in short, our policy is almost entirely structured around the needs of Big Telecom (excpet for what happened Monday)

[Catsy]

Thanks for articulating this important point, publius. I know it's old hat by now, pointing out the various ways in which today's "conservatives" are hardly conservative at all, but this is yet another example of an issue where conservatives should be able to jump on board precisely because net neutrality is the "conservative" position of resisting ill-considered change in favor of preserving a status quo that has been incredibly successful up until now.

[Free Lunch]

As I recall, Big Telecom made Big Promises when Congress gutted telecom regulations for them. It's no surprise that they forgot to fulfill their promises because the law didn't actually require it.

Time to undo more of the silliness.

[Julian Sanchez]

So, FWIW, we're on the same page when it comes to the idea that Comcast Must Be Stopped. The question is whether they can be stopped by a transparency requirement (forcing them to honestly disclose network management policy to customers) or whether you need an explicit nondiscrimination rule. I'd rather try the transparency rule alone first just in case there are genuinely benign departures from neutrality we might want to let them experiment with -- in good end-to-end fashion -- without seeking permission, especially in the burgeoning wireless broadband context where the constraints look different. I note that Free Press and Larry Lessig differ among themselves about which kinds of network management are impermissibly non-neutral. If we start seeing a lot of persistent network-breaking practices, then go ahead and impose a rule that's more narrowly tailored to stop whatever bad behavior we see and permits any useful policies that emerge.

[Julian Sanchez]

More succinctly: My argument isn't "rules have unintended consequences; never do anything!" It's "the broader the rule, the more unpredictable the consequences; regulate in the narrowest way that solves your problem, and go broader if that doesn't fix it."

[publius]

I think we probably agree on 80% here. I'm completely for disclosure, crowd-sourcing, etc. (though under Comcast's legal arguments, FCC currently lacks power even to require disclosure).

For me, though, I think a stronger signal is needed to avoid a larger arms races, transaction cost increase, etc. I mean, there's testimony in the Comcast record that equity groups are explicitly bringing up fears of network blocking to startups.

I guess it comes down to "on what side should we err?" -- and on that, we part ways a bit i think

[Marty]

"I mean, there's testimony in the Comcast record that equity groups are explicitly bringing up fears of network blocking to startups."

Yes they are, but it is the wrong question (as I remind them). The question is a cost question, money will buy access in those cases where blocking is a real possibility.

[Turbulence]

Yes they are, but it is the wrong question (as I remind them). The question is a cost question, money will buy access in those cases where blocking is a real possibility.

So, how much money would Apple have to pay Comcast to gain permission to stream video to Comcast customers? I mean, if Comcast wants to degrade Apple iTunes performance because it threatens their business, why should they set the cost to less than the existing value of their TV business?

In some sense, you can always say "money will buy access" but when blocking is anticompetitive, the price will be so high as to make financial remediation infeasible.

[JustMe]

The question is a cost question, money will buy access in those cases where blocking is a real possibility.

Which is what makes net neutrality necessary and why violating net neutrality is almost by definition an attempt to strangle innovation and act as gatekeepers for what is and isn't available to Comcast subscribers, who are ostensibly signing up for "internet access."

Comcast should not be shaking down other companies for sending packets to Comcast customers simply because those packets come from company A rather than company B. Comcast customers pay for their bandwidth. Companies with servers pay for their internet access from their providers. When it comes to delivering packets, Comcast should not go around demanding money from anyone other than their customers.

[Carleton Wu]

The question is a cost question, money will buy access in those cases where blocking is a real possibility.

Not that increasing the cost of innovation is a good idea(!), but this ignores cases where the startup competes directly with services already offered by the carriers or their partners. In those cases, the best choice for the carrier might be to just block innovation.

[Marty]

"So, how much money would Apple have to pay Comcast to gain permission to stream video to Comcast customers? I mean, if Comcast wants to degrade Apple iTunes performance because it threatens their business, why should they set the cost to less than the existing value of their TV business?

In some sense, you can always say "money will buy access" but when blocking is anticompetitive, the price will be so high as to make financial remediation infeasible."

Well, yes, maybe. There is always that revenue Comcast wouldn't get if they blocked it to offset the revenue they might lose if they don't.

iTunes seems a no brainer, Comcast should have a business interest in recognizing the size of that market they can't own, they don't block Netflix (yet) but they might look for a way.

It just doesn't upset me. The solution may be to allow the last milers to get paid for the "neutrality", maybe as reduction in cost from the other tier vendors.

But I just don't think we can ignore the huge capital expense, initial and ongoing, that they incur without them retaining some advantage for their investment.

[Turbulence]

But I just don't think we can ignore the huge capital expense, initial and ongoing, that they incur without them retaining some advantage for their investment.

Why don't they recoup their huge capital expense by charging their subscribers? I mean, they already send their subscribers a bill, so surely it would be simpler to just charge their customers a little more than to try and cut complex new deals with every new market entrant, right?

[Turbulence]

Also, Marty, can you explain if it would be OK for Google to start charging Comcast based on the number of Comcast users that hit Google servers. I mean, Google, like Comcast, spends a great deal of money to build and maintain an internal network for the benefit of its customers. Comcast does not pay Google even though Comcast packets traverse Google's network. Logically, Google should charge Comcast rather than just charging every single Comcast user. Don't you agree?

[Marty]

"Logically, Google should charge Comcast rather than just charging every single Comcast user. Don't you agree?"

Since Google's business model primarily depends on how many people actually hit its servers that would seem counter-productive. I am sure Bing would be happy to handle that traffic without charging Comcast for it.

[hairshirthedonist]

Comcast's profit motive goes beyond simply making some money (like most for-profit enterprises). It's motive is to make as much money as it can, regardless of the overall effects on the marketplace or customers. They would love to be a full-blown monopoly, so long as being one would make them more money. Now it's possible that they could screw up things so much that they would actually make less money than in an overall more healthy marketplace, but I don't think they want that. They might simply miscalculate the end results of their actions.

The thing is, they're making money. There is plenty of money to be made in their business. Maybe the day will come where there isn't, and maybe that will be, in part, due to the rules put in place that restrict how discriminatory they can be with their networks. But, if that day does come, and there's something better for consumers and for the market and for innovation, let Comcast find another way to make money in that environment.

If your goal is to assure that Comcast gets to make as much money as it can for as long as it can, then I guess Marty's point of view makes perfect sense.

If your goal is for consumers to have better choices and for an open, competitive marketplace, not so much.

How is it that Comcast can't recoup its capital investments in its infrastructure? And, if they can't, who is forcing them to make such capital investments? Why should protecting Comcast, or further, benefiting Comcast, be such a high priority, higher than ensuring open competition for services on a historically highly subsidized and/or competition-limited network?

I don't get it.

[Turbulence]

Google can easily survive without Comcast. Comcast cannot survive if Comcast customers can't get access to their Google mail and Google docs and Google calendar and Google chat and youtube videos. Last time I checked, Bing didn't provide users access to their GMail accounts, but perhaps that's changed.

You still haven't explained why Comcast should try to bill every new market entrant on the internet rather than just charge their own customers for the cost of building and maintaining the network they use.

[Jesurgislac]

Marty: It just doesn't upset me.

Always odd to me how conservatives invariably go with supporting corporate profits over free market choice.

Marty, it may not upset you to have your ISP decide for you which sites and services you will be allowed to use: but it ruddy well would upset me to be so restricted... and it appears that the prospect of being denied choice also upsets others.

What makes defense of corporate profiteering so special to you that you so willingly give up your freedom of choice on the Internet to it? It won't benefit you in any way: even if you never access your right to choose between one service and other, but are content to go with whatever services the corporate monopoly decides you should have, surely you can appreciate that others prefer to decide for themselves?

[Marty]

"If your goal is for consumers to have better choices and for an open, competitive marketplace, not so much."

All of this discussion is in definition of a "competitive" marketplace. reducing the competitiveness of one player, a successful one usually, doesn't create an open, competitive marketplace. In absence of true monopoly, which doesn't exist, it is often just punishment of the successful.

I would like to have better choices for buying a Ferrari, but i just can't find that vendor selling them for 15k.

[Marty]

"You still haven't explained why Comcast should try to bill every new market entrant on the internet rather than just charge their own customers for the cost of building and maintaining the network they use"

Yes I did

[Marty]

"What makes defense of corporate profiteering so special to you that you so willingly give up your freedom of choice on the Internet to it?"

Because this isn't an actual political discussion, it is a business model discussion. We aren't discussing the rights of individuals, we are discussing the rights of competing corporate entities. So defending the profiteering corporations is being done on both sides.

Which corporations get to profit is what is being decided, under the guise of "individual liberty".

[Turbulence]

"You still haven't explained why Comcast should try to bill every new market entrant on the internet rather than just charge their own customers for the cost of building and maintaining the network they use"

Marty, if you did, I must have missed it. Can you point to where you did so?

[hairshirthedonist]

I would like to have better choices for buying a Ferrari, but i just can't find that vendor selling them for 15k.

No, but you can buy myriad other cars at various price levels with various features. And no one is stopping Ferrari from making a $15K car. They just don't want to.

Now, if Ferrari were in a position to buy up all the methods of delivery of cars to the marketplace and deny all other car manufacturers the ability to sell cars, you might have no choice but to buy a Ferrari costing hundreds of thousands of dollars. Would you like that?

[Marty]

"Marty, if you did, I must have missed it. Can you point to where you did so?"

Sorry Turb, I lost that one in the bit bucket. I have to get back to this later though, sorry.

[JustMe]

I just don't think we can ignore the huge capital expense, initial and ongoing, that they incur without them retaining some advantage for their investment.

Pretty straightforward, really: Comcast claims to offer a service that allows customers to receive data, usually with a charge for the amount of bandwidth they get/consume. Google pays the same charges to its service providers. Comcast is merely trying to get Google to pay for something that Comcast does not actually own. If Comcast does not want to offer the product of delivering packets to people, then they should find another business. Offering internet service is an agreement to carry data addressed to and from the customers of the ISP. If you're not their customer, they shouldn't be charging you. They know this, but they want to change the rules to find a way to extract more money out of people. No one is forcing the shareholders of Comcast to own an internet service provider. They can start a proprietary radio communication service and charge anyone they want to use it if that is the business they want. The question is whether we want internet service to continue being what it is or whether we want to see people like Comcast turn it into something else without making the investments in creating their own protocols and own networks and own technologies.

[hairshirthedonist]

Which corporations get to profit is what is being decided, under the guise of "individual liberty".

Is this true? Wouldn't the rules apply to everyone? If Google decided to become an ISP, they wouldn't be allowed to favor their content traffic.

Comcast and Verizon are allowed to compete (well, there's minimal competition, so it's better for them) for providing end-user residential and business internet access. No one is stopping them from making money as ISPs.

They can also compete with everyone else out there for providing content.

What they aren't (and what no one else is) allowed to do is use their role as an ISP to gain an advantage, unfair or not, as a content provider. It's not a Comcast or Verizon restriction. They just happen to be the big players (who, not coincidentally, have benefited from local monopolies and duopolies for years) right now. (And they've benefited from the government-subsidized internet infrastructure for years, so they should stop crying. Not that our national infrastructure was sufficiently invested in, but that meager investment was subsidized.)

Standard Oil bought rail lines and containers so that no one else could sell oil. The government put a stop to it because it was bad for everyone except Standard Oil. Was that wrong, too, Marty?

[Marty]

""You still haven't explained why Comcast should try to bill every new market entrant on the internet rather than just charge their own customers for the cost of building and maintaining the network they use""

Because they would be accused of constantly raising prices and monopolistic behavior(oh too late), driven by the requirements that are imposed on them.

(It was more complete the first time.)

Standard Oil bought rail lines and containers so that no one else could sell oil. The government put a stop to it because it was bad for everyone except Standard Oil. Was that wrong, too, Marty?

I don't know. Did it help consumers or other companies? Did it control pricing by expanding competition while retaining Standard Oils investment? Did Standard Oil get compensated for transporting other people's oil?

I don't know is the answer.

[Turbulence]

Because they would be accused of constantly raising prices and monopolistic behavior(oh too late), driven by the requirements that are imposed on them.

This makes no sense. If it costs more money to maintain Comcast's network than they're charging subscribers, no on is going to accuse them of monopolistic behavior for charging their subscribers what operating the network actually costs them. Now, subscribers may decide to look elsewhere, but that's always a possibility.

Besides that, Comcast has not changed its behavior when people accused it of monopolistic behavior now, so I don't see why they would instantly do so if people accused them of such behavior after raising prices.