Net Neutrality: The Mainstream's still unconscious

The newspaper of record in our nation's capital, The Washington Post, correctly observes that the rhetoric around net neutrality "has concealed more than it has illuminated." However the reporter, Jeffrey Birnbaum, parrots elements of the carrier's arguments in his column, "No Neutral Ground in This Internet Battle." He fails to provide both sides of the argument in full, suggesting repeatedly that the carriers' are the aggreived parties.

Let's begin with his definition of net neutrality:

Net neutrality, which is shorthand for network neutrality, is one of two possible answers to the following legislative question: Should cable and telephone companies be allowed to charge add-on fees to others for access to their networks.

Under a net-neutral system, the answer would be "no." If net neutrality were to lose, the answer would be "yes."

A very different definition of net neutrality than mine: "Any data packet will be equal to every ohter data packet, regardless of what kind of data it carries or where it came from." That's a technical definition. Birnbaum's definition is predicated on who gets paid. The carriers get paid quite well now.

The carriers already charge for access to their networks. In fact, they enjoy monopoly or duopoly control of both ends of "their networks." Customers on both ends pay fixed fees for a given throughput. If a content or Web services provider wants to be able to serve more customers, they pay for more throughput and guaranteed levels of service at their end of the network. With that kind of price control—try to demand slower broadband connections than your carrier offers if you don't expect to use all the capacity, watch them laugh at you—the carriers are not unable to recoup their capital investments.

The carriers have every reason to push more traffic through the network in order to boost fees from end-users and content/Web services users at either end. They should welcome more traffic, it makes the folks at home want upgrades. Service providers who don't upgrade will be slower than their competitors. Carriers benefit immensely from the "problem" of increased traffic.

Growing traffic is only good for the carriers, but they and Birnbaum treat traffic growth like it is a tax. Birnbaum goes on:

Put another way, if net neutrality passes, the AT&Ts of the world will be forced to pay for all of their equipment upgrades themselves and could not subsidize that effort by imposing premium fees for premium services. If net neutrality fails, they will be able to recoup more of those costs than they can now from the likes of Google Inc., Microsoft Corp. and other major users of the World Wide Web.

At its heart, then, the battle is commercial -- over who pays how much for improvements to the Internet that we all use and sometimes love.

The heart of the matter is, indeed, commercial, but it is a question of fairness that preserves the value of access to the network for the startups and growing companies that continue to increase demand for throughput. It is not the case that, having already got control of the pricing for the last mile at both ends of the network, carriers will be unable to pay for "improvements to the Internet that we all use and sometimes love." Mushy stuff, and mistaken.

J.P. Rangaswami, CIO of Dresdner Kleinwort Wasserstein, provided a simple explanation of the carriers's argument at Supernova last week. Right now, you are required to buy a connection to the Web that costs the same whether you are using all or none of it at any time. Imagine you could send physical goods over that network, that you could deliver a ton of lead or gold over the Internet by turning it into bits. You have paid for a "ton" of throughput at your hosting facility and your customers have paid for a "ton" of throughput to their homes or offices. Under net neutrality, the cost for the throughput would be the same for lead or gold, even though gold is more valuable.

Federal Express would not charge more for gold than lead, though you would be free to pay for insurance on the gold, which is analogous to the quality of service (QoS) agreements content and Web services companies pay for. But you would not pay more for the weight, even if you were making more money shipping gold if FedEx never unwrapped the packages. Weight is the same for both tons of metal.

Today, bits are bits from the perspective of the routers forwarding them to their destination. The network only needs to know where they are going. If you start unwrapping every one of them, you add to the latency in the network. The carriers would actually have to redeploy capital investments to provide these "tiered services" and away from building more capacity. Their costs would soar on a per-bit basis. Guess who would be paying the cost of paying more for some traffic?

If you start billing differently for every packet based on the contents, the network itself breaks because it is no longer able to support new applications without extensive pre-negotiation. Imagine if VoIP providers had had to go to the carriers—their competition for voice business—and said "Hey, we want to take away your voice business. What's it going to cost?"

Birnbaum writes: "I concede that something more than mere pricing may well be on the line here. After all, consumers will be affected -- one way or the other." This is grossly understating the consequences of what may be a commercial argument. The question to be answered is whether the network will be a field for innovation and entrepreneurship or a closely held and tightly controlled carrier asset. 

The message from K Street, where the nation's lobbyists clump like bugs, is that carriers face a future of unprofitability. And you'd think from Birnbaum's K Street Confidential column he believes the lobbyists. Here are the facts, AT&T earned a 10.81 percent proit margin on every one of the $49.45 billion it earned last year. Verizon enjoyed 9.13 percent profit margin on $79.68 billion in revenue. The return on assets at both companies was above 15 percent a year. 

The only thing the carriers should do is keep out of the way of the business growing over networks. It has benefitted them immensely and will continue to do so, unless they are so foolish as to actually pass this legislation. Carriers, however, have never been particularly enlightened, fighting change at every step despite the benefits of that change to their bottom lines.