For a number of weeks I've been itching to write a piece on the revival of the so-called Net Neutrality proceedings by the US FCC. I stalled because I wanted to read Chairman Genachowski's remarks on preserving Internet Freedom and Openness first, and also because it seemed to me that the Level 3 / Comcast dispute might shed some light. It hasn't, but it's allowed my brain to simmer for a while.
The starting point is this: as David Reed brilliantly reasserts in his post Broadband vs. Open Internet, any successful regulation on Net Neutrality must distinguish between broadband and internet access. This is a point that is extremely simple and yet even policy makers seem confused about it. I tried to summarize this through a visual representation:
What this means is that when customers purchase "broadband internet access", what they are actually buying is access to a set of services offered by their provider and separately to a path to the internet. The size of that path may or may not be related to the size of the broadband pipe. That's up to the service provider to decide.
Chairman Genachowski calls for transparency, and I agree that it is crucially necessary. However, I doubt that he is willing to ask for the transparency that would be required, ie. for customers to get what they purchase when it comes to internet (not broadband, remember ?).
Post dial-up internet access has always been a poster child for wrongful advertising. Users never actually get the amount of internet bandwidth they pay for. Ever. So what's transparency in that context ?
Transparency should be a minimum level of guaranteed internet access bandwidth (and should be reflected in advertising). That would solve nearly all of the issues related to the whole net neutrality debate. Instead of purchasing an 'up to 8 Mbps' DSL or Cable broadband service, customers would buy say a '2 Mbps minimum guarantee' internet service. That would mean that no matter which other services the network operator delivers on that line, these services could not eat into those dedicated 2 Mbps (or whatever) of internet service.
That would solve both the transparency, network management and discrimination aspects of Chairman Genachowski's speech. Service Providers would have to provision the internet access part of the service in order to guarantee the minimum bandwidth to each of their customers at any time.
In the current Comcast / Level 3 dispute (read Nate Anderson's excellent piece on the Comcast / Level 3 grudgematch for more on this) some people are arguing that Comcast is engineering the congestion of its internet access to degrade the quality of over-the-top video services that compete with its own. I don't know if that's true or not but I know it's possible. That in turn means that service providers cannot be the ones who decide that the level of congestion justifies discrimination since they can cause that congestion by under-provisioning.
If they had to guarantee a minimal level of service to end-customers, at the very least they wouldn't be able to under-provision too far. It would also make some forms of usage-based pricing more meaningful as customers would finally get what they pay for (and if you needed 4Mbps guaranteed to enjoy netflix then you'd upgrade from your 2Mbps guaranteed). But I'll come back to that in a minute.
I fear that this is not where Chairman Genachowski is going. His take on transparency is probably more aligned with: you (the service provider) are free to discriminate when the network is congested as long as you say so and explain your policies to do so. Most likely he even won't require service providers to be transparent on their overall network policies and provisioning (wouldn't it be at least interesting to have reliable data on contention ratios ?)
But publishing only network management rules (and even contention ratios) would serve no purpose in ensuring even watered down Net Neutrality. Worse, in a duopoly market it's most likely that the two players in the market will align their policies, thus making customer arbitration on that basis pointless.
In other words, I'm not optimistic about the right thing being done. I was even more worried about the mention of usage-based pricing in Chairman Genachowski's speech. As far as I understand it, nothing in US Telecom regulation precludes a service provider from offering different pricing mechanisms for internet connectivity than flat fee. In actual fact many of them do.
Usage-based pricing is a terribly vague terminology. In fact, in its purest sense it should be something that service providers would hate since it would mean that people who use the internet very little would pay very little. The virtue of flat fee pricing when it was introduced was that even casual users paid the full price. Again we're back to people not getting what they paid for. There's a trend here…
Anyway, let's try and clarify. There are essentially three models of "usage-based pricing" that have different characteristics:
- capacity-based flat-fee: this already exists in the market, it's a form of tiered pricing where you buy a certain capacity (2 Mbps, 8 Mbps, etc.) that is theoretically delivered to you (but as shown above, in practice never is…) You then use as much traffic as you want (unless you breach fair use policies written in tiny letters in your contract).
- capacity based flat fee with overage: this is also already in place in the market. Basically, you buy a certain capacity for a flat fee, and that capacity comes with a maximum amount of data you can download and/or upload in a month. If you go beyond that point, you start paying by the MB or you get throttled on all your traffic (both models exist).
- fully-variable: this isn't in place in the market anymore, but it has been (especially in mobile broadband and previously in dial-up). This model limits the usage of top-end users (they pay more) but also limits the spending of casual users. It is thought to have an adverse psychological effect on customers both for subscription and usage.
So I'm back to being puzzled and worried as to why this was mentioned by Chairman Genachowski. The models that the service providers might favor already exist on the market, and the one model that doesn't exist they don't want.
The only reason that I can think of for including that in the speech is a little sinister: the issue with capacity-based flat-fee with overage is that the first player to introduce it in a competitive market might lose customers to other service providers who decide not to introduce it. In other words, there's a first-mover disadvantage to introduce it. But if all players introduce it at the same time, that will look suspisciously like price collusion which is illegal. Is Chairman Genachowski giving the service providers on the market an opportunity to all make the move at the same time saying "the FCC recommended it?"
I know that sounds a little like a conspiracy theory, so I'd like to hear other explanations as to why the Chairman of the FCC recommends pricing schemes to service providers who have the full freedom of implementing those without a regulatory benediction.
All in all, I'm not optimistic about what will be announced on Dec. 21st.