Network neutrality

This news report suggests that some cable companies are actively blocking certain kinds of traffic on their networks. The target of such blocking is peer to peer file sharing, in which the subscribers are often sharing very large files like movies and TV shows. From a network operator perspective, what you see is a very small number of your customers using a disproportionately large chunk of your network bandwidth, which can degrade service for other customers and increase costs.

Of course, the whole issue of net neutrality comes into play here, where the argument is that Internet access providers should not block traffic or offer preferential treatment to certain kinds of data over other kinds. But the access providers are on the horns of a dilemma, because the peer to peer sharing does have a measurable impact on their network.

But almost all of the arguments for and against traffic blocking, the rights of access providers to manage their own traffic, and free speech issues are red herrings. The real problem is the outdated and obsolete business model that nearly every access provider is still using.

It made sense, more than a decade ago, to sell bandwidth by the bucket to users because all folks were doing back then was email and some light Web browsing. And the Web in the mid-nineties was most text and a few pictures. Today, the media-rich Web is filled with sound and movie files of all kinds, and everyone uses them--look at the popularity of YouTube.

The current business model does not provide any cost information to consumers; that is, the "cost" of downloading a few emails is exactly the same as the "cost" of downloading an entire movie in DVD format. This is a classic and well-understood economics problem. Current pricing, to users, makes it appear as if there is unlimited supply (of bandwidth), which in turn creates unlimited demand.

The solution is simple. Rather than trying to discourage customers from doing things they want to do, you change the pricing model so that it conveys more information about the real cost of downloading things like movies.

In other words, you move from a business model of networks based on bandwidth, which we know is not working, to a business model based on unlimited bandwidth but where pricing is based on the service you want to use. So users that like to do peer to peer file sharing subscribe not to a bucket of bandwidth but instead subscribe to a service designed specifically to support high performance file sharing, and the price of that service will be based on the real cost of providing the service.

It is simple economics. Communities like Danville, Virginia are already rolling out networks that do this. These multi-service, open networks support real competition and will start driving innovation on the network because the business model support innovation, rather than stifling it.

We know exactly what will happen if the big telecom companies succeed in convincing Congress to let them partition the Internet. We have a perfectly good example of the mess we will be in, and it is called the cellphone industry. Read this article to see how innovation is choked off, small businesses are forced out of the market place, and how consumers end up paying more, much more, for mediocre services.

Right now, anyone with a good idea can start an Internet-based business and know that the service will be available to anyone with an Internet connection. What the telecom companies want is a "two tier" system, but in reality there will be many tiers, and companies that want to sell a service over a Verizon network, as an example, will likely have to pay high up front fees and high monthly fees, before any revenue comes back to the new enterprise. This means most new business ideas will never launch, because the start up costs will be too high, and the next Google or eBay will never have a chance. Let's hope Congress comes to its senses before it is too late.

USA Today has a useful summary of net neutrality, with a two column, side by side comparison of the issues and the players. Congress continues to squabble over this issue, with what appears to be a notable lack of understanding of what is involved. The current legislation is now opposed by nearly every single municipal and county professional organization that represents either local government officials or local government generally, which should be a signal to legislators that something is not quite right. But Congress has never minded stripping communities of decisionmaking and control in the past, so we can only hope the sausage factory we call Congress, in the end, makes something palatable to communities.

If it wasn't enough to be known as the Senator who wanted the bridge to nowhere, Senator Ted Stevens of Alaska has probably secured a permanent place in history, right along with Al "I invented the Internet" Gore, as the Senator who said this:

"They want to deliver vast amounts of information over the internet. And again, the internet is not something you just dump something on. It's not a truck. It's a series of tubes. And if you don't understand those tubes can be filled and if they are filled, when you put your message in, it gets in line and its going to be delayed by anyone that puts into that tube enormous amounts of material, enormous amounts of material."

Senator "The Internet is a series of tubes" Stevens is fast becoming the laughingstock of the Internet with this remark, which sounds suspiciously like how a lobbyist might try to explain it to a lawmaker. There is a place for analogy (I like to use the roads analogy), but when you are making laws that will effect the work and livelihood of hundreds of millions of Americans, you have an obligation to take the time to truly understand the issues.

It is frightening to think this guy is a key lawmaker. Here is a Wired article with more on Stevens and his tubes, but there are already many thousands of comments and commentary on this. Oddly, Stevens may have done all of us a big favor by revealing his deep ignorance of the topic. It may now be much harder to get a pro-telecom bill passed.

And just to be clear, while multimedia does tend to slow things down under certain conditions, that problem does not require massive Federal legislative meddling to fix--Stevens wants to basically hand the keys to the Internet over to the cable and telephone companies. If he thinks the "tube" problem is bad now, wait until the "tubes" are managed by the telephone and cable companies.

Vonage may be the first big casualty of the "Web 2.0" craze. While Voice over IP is technically not a Web 2.0 application, we can use Web 2.0 as shorthand for the same kind of hysteria we saw in 1999 and 2000, when a lot of really bad ideas (from a business perspective) got way too much venture capital funding.

Proving that there is still a sucker born every minute, investors poured nearly half a billion dollars into the VoIP firm's IPO--even though the company has never had a single profitable quarter in its five year life, and in fact has lost nearly half a billion dollars in that time.

The problem for Vonage is that they set the stock price too high (well, the company has lots of problems, but I'm talking about the IPO). The $17 initial price has dropped below $15 in just a few days, and some are predicting it will fall below $10. High flying tech stocks are supposed to shoot upwards in value and make early buyers of the stock big profits.

But wait! There's more!

Vonage offered users of their telephone service an opportunity to buy stock at the initial opening price. That's an attractive offer if the stock value shoots up quickly; you can buy the stock and immediately know you are going to make a profit if you sell right away. But what if the stock price drops? Now you have to buy shares at $17 that the market says are only worth $14.50. What some subscribers are saying is that they are going to renege on their agreement to buy. And Vonage is now suggesting it will force subscribers to honor their purchase commitments.

It can't get much uglier than that.

Stepping back, Vonage has two structural problems. First, the business model for Vonage, in which you can make free calls to other Vonage users and pay to make calls to people not on the Vonage network, is not working--the company is losing money every day.

Second, the big access providers have started playing games with VoIP data traversing their networks so that the quality of the phone calls is much reduced. This is part of the "two tier Internet" issue, where the big providers first "prove" extra fees are needed by monkeying with the way their competitor's data traffic is handled, then claim special fees are needed to make the network work better. Vonage is an early victim of this because they have so many people using their service.

And in fact, heavy VoIP traffic can and does affect networks. But the solution is not to start charging companies like eBay, Vonage, and Google special fees to carry their traffic. The real problem is that the bandwidth model of selling Internet access that we have used for the last decade is badly broken. The two tier Internet "solution" is like putting a band aid on someone having a heart attack.

We need open access digital road systems where bandwidth is free and you pay for services. This allows everyone in the service chain, from customer to service provider, to price or pay for services based on the value of the service, and not on some completely artificial cost of some increment of bandwidth that has no relationship to what people and businesses actually do.

Some communities are already planning open access systems. As they become operational in the U.S., we'll see more and more movement toward them, because they are the only ladder out of the hole we are in. In the meantime, we have to hope our state and Federal legislators don't cave in to the two-tier Internet crowd and really screw things up.

This article talks about Verizon's new claim that net neutrality "limits" the company, and the nothing but a scare tactic of claiming they won't be able to roll out any new services unless they get to erect toll gates.

One thing net neutrality does limit is the ability of one or two big companies from setting up walled gardens that keep consumers locked into a few choices (from, say, Verizon or Comcast). Net neutrality gives consumers and innovative startups a chance to play on a level playing field.

The telcos are way behind the cable companies in broadband customers, and they are desperately trying to get legislators to give them a break. They have cleverly adopted language that makes them sound like they are all for innovation and rolling out new services quickly, but you have to look beyond that to see what the end game is likely to be.

Right now, the picture could get very grim very quickly if legislators fall for all this "We just want to offer great new stuff at great prices." In the short term, we do get some modest competition. But in the long term, communities, their economic future, and local jobs are at stake if all we have is a duopoly with cartel-like pricing and a very limited set of choices for services. A duopoly is not marketplace competition. Vasteras, Sweden has marketplace competition, with 64 service providers selling all kinds of services to local residents and businesses. That's what every community in America ought to have--dozens of providers, not just two.

A distinguished group of technology leaders has begun a Save the Internet campaign, which is intended to provide information to legislators on the network neutrality issue.

Many of the incumbent broadband providers want to start charging differential fees for access to their broadband networks. The effect will be to squeeze much of the innovation and opportunity out of the Internet, leaving only deep pocket companies that can afford to pay the tolls--and that is all they really are.

It's as if our entire Interstate Highway System, formerly free, suddenly had tollbooths at every exit. It would not be good for the economy. And a two tier Internet won't be good for the economy or for communities.

Communities need a stake in the ownership of the Internet; nothing less than their economic future is at stake. If the toll access to the Internet is too high in your community (think rural), companies won't relocate to rural areas. And that means no jobs.

There is ample precedent for communities to take on partial ownership of telecom infrastructure; done correctly, private telecom providers can make even more money, but on a level playing field that is managed for the common good.

Having trouble understanding the issues around network neutrality? Here is a short video that explains it very clearly.

The Christian Science Monitor has an article about the emerging two tier Internet. It is a good overview of the political and technical issues that are driving this problem. The big broadband access companies (e.g. the phone and cable firms) are determined to wrestle control of their customers away from the open Internet.

From their perspective, it makes perfect sense. They built their networks, and companies like Google are making billions by carrying traffic over them--those roads are not free, by the way. Google has to pay huge amounts of money for the bandwidth needed to make all those searches happen quickly. But not enough of it trickles back to the phone and cable companies, in their opinion.

It is unfortunate that the issue has become so polarized. You end having to take the side of the access companies (not entirely admirable firms) or the side of companies like Google, which are also not entirely admirable.

But the real impact is on communities and economic development. What if every road in your community was privately owned? And there were tollboths on every road into town? Everyone and every business that wanted to come into the community had to pay a toll--would that be good for economic development? Of course not. But that's where most communities are right now.

There is another way--build public roads and let all businesses use them. It's a model that has worked for a hundred years.

Doc Searls, one of the tech community's best commentators on technology and its impact on us, has done an outstanding job of explaining network neutrality--what it is, why it has made the Internet successful, and why it needs to be preserved.

He also analyzes the broadband carriers and their dream to turn the Internet into a sophisticated form of cable TV. This is an article that deserves close attention. Here is just one of many key points:

"In fact, the asymmetrical build-outs of service to homes has done enormous harm to market growth by preventing countless small and home Net-based businesses from starting and growing.

Specifically, by provisioning big bandwidth downstream and narrow bandwidth upstream, while blocking ports 25 and 80--in crass violation of the Net's UNIX-derived network model, in addition to the end-to-end principle--the carriers prevent customers from running their own mail and Web servers and whatever server-based businesses might be possible. Again, all the carriers can imagine is Cable TV. That's been their fantasy from the beginning."

The end of network neutrality means the choking off of new engines of economic growth, especially in rural communities and underserved urban neighborhoods. Small businesses and entrepreneurs have been creating jobs at a furious rate over the past decade, fueled in large part by the Internet. If we lose the Internet as we know, to be replaced by glorified TV, communities and neighborhoods lose their future.

Read this article.

The broadband access providers (aka the telephone and cable companies) are shocked, just shocked, that their customers are actually using broadband.

Their response?

According to this article in The Register, the big companies are already installing software that slows down much of what people want to do, to the point of making them give up and/or buying the service from the access provider.

This article talks about Skype, the popular Voice over IP service, and how the cable companies are using software to slow down Skype calls, with the hope that their customers get fed up and buy VoIP from the broadband provider instead.

The two tier Internet is already well underway, and the only cure is to distribute ownership of the network among property owners (us), the community, and the broadband providers. By doing so, we get the ability to set some of the rules. If we simply give up and let the phone and cable companies recapture natural monopolies over broadband, they get to set the rules.

Communities that pursue distributed ownership of the network will become havens for business, because broadband services will be cheaper, better, and more plentiful.