Want a faster Internet? Then the FCC's new net neutrality focus is good news for you. Because net neutrality - another name for common carrier - means a faster Internet for all.
This discussion focuses on your local Internet service provider, be it Comcast or AT&T. Content providers already pay to get on the Internet, so the core issue is what your local ISP does.
Gee, that isn't what ComCast said!
According to Comcast if they can't charge content providers for priority service they won't be able to invest to expand capacity. But using game theory we find that offering priority services makes Comcast more profitable while offering you worse service and more expensive for content providers.
Oh, that's why the telcos doesn't like net neutrality.
How that works
Let's say a telco like Comcast strikes a deal with Google to offer 10 Mbit/sec priority service for YouTube. Non-payers, like Hulu, are stuck at 2 Mbit/sec, giving YouTube a 5x advantage.
As YouTube videos are faster, more people watch YouTube, which consumes more network capacity. Hulu slows down along with email, web surfing, video conferencing and all other non-priority apps.
Comcast and YouTube are happy, but all your other services have slowed down. So what does Comcast do when you complain?
Do they invest in more bandwidth so all apps can run at 5 Mbit/sec, reducing YouTube's advantage to 2x? Or do they simply go to other app providers and sell them "priority" service?
The latter will generate more revenue for Comcast and less performance for the remaining Internet services. Good for Comcast; bad for content providers and bad for you.
How net neutrality works
Under net neutrality your service provider only gets revenue from you, the customer. Your ISP has a clear goal: keep you buying.
Now the ISP is incented to invest in higher quality service or a competitor may come in with a better deal. The free market at work!
In the real world
Game theory is well and good, but does the ISP market really play out this way? In Japan, where net neutrality is the rule, ISP compete fiercely to offer the best service. Japan has had download speeds in excess of 100 Mbit/sec for the last 5 years, with lower prices than we have in the US.
That is only a dream for us in the US, the country that invented the Internet. What's wrong with this picture?
The Storage Bits take
Aligning private incentives to serve the public good is why we have a government empowered to set rules. When the rules are set wrong or not enforced - as the last 25 years of financial de-regulation has disastrously proved - almost all of us end up worse off.
The few who benefit, be they Wall Street i-bankers, MRI-owning doctors or duopolistic telcos, argue for their "right" to damage the rest of us. But just as our military sacrifices to defend our nation and everyone pays taxes, the privileged can sacrifice some profit potential for the greater good.
As game theory demonstrates, America as a whole will be better off with net neutrality, when ISPs focus on serving customers instead of chiseling money from content providers. Free markets work best when the incentives are aligned to create lasting wealth for us all.
Comments welcome, of course. I've drawn heavily from the work of Professors Hsing Kenneth Cheng, Subhajyoti Bandyopadhyay and Hong Guo. Here is a brief, non-technical introduction to their work. Serious econ gearheads will like their recent 55 page, algebra-heavy paper The Debate on Net Neutrality: A Policy Perspective.
See also: FCC unanimously approves next steps toward Net Neutrality