Net Neutrality: A Lose-Lose Situation?

Question?
Question?

Much has been made about net neutrality recently. But what does “net neutrality” really mean? In a nutshell, it’s the idea that Internet Service Providers should not be allowed to discriminate against any type of traffic on their networks, for any reason. While it has many more implications, it has become a hot topic of discussion with the rise of streaming video over the internet, which Netflix and Comcast currently find themselves in the center of the fight.

On the surface, net neutrality seems like a no-brainer, but is it really? The fact of the matter is that net neutrality is a very complex issue, and no matter the outcome, we, as consumers, will be the losers.

I feel there are two distinct sides to the issue, and many people may not be aware of the legitimacy of both arguments. This is America, and information is supposed to flow freely, much like the Freedom of Speech, provided by the Bill of Rights. However, bandwidth is not free, and companies like Netflix essentially make a profit using the property of companies like Comcast. Our great country is also based on Capitalism, and both sides understandably want their share.

A Lose-Lose Situation

Suppose the government steps in and enforces net neutrality upon all ISPs nationwide. That sounds like a dream come true to most people in our 21st Century society. Who wouldn’t want to be able to stream any video over the internet on demand, in the comfort of his or her own home, or even on the road? In many cases, this is the extent of the argument, case closed.

Unfortunately, providing network bandwidth is not free. When it comes to millions of consumers streaming terabytes of video simultaneously, it becomes quite expensive. ISPs have to maintain their networks and buttress their infrastructure in order to support the dramatic load increase brought on by the advances of technology. This increase in cost reduces their profits, while Netflix’s profits soar to unimaginable heights. This is a capitalist society, and the ISPs, unsurprisingly, are not happy when their profits fall. If the ISPs are forced to allow all types of traffic, monthly fees from your friendly neighborhood cable company will go up, in order to cover their losses.

Now suppose the government steps in and says ISPs can discriminate against streaming video services like Netflix. Netflix will have to pay ISPs like Comcast a hefty sum in order to provide their services to us, the consumers. Again, this is a capitalist society we live in, and Netflix would pass the cost on to the consumer. Netflix recently increased the price of their streaming subscription, so I have no reason to believe that they would not do it again.

The Bottom Line

If freedom of information wins, we lose. If ISPs win the fight, we lose as well. I hope I’m missing the third scenario where we win. Maybe I’d settle for a tie, because I’m having a hard time seeing the consumer benefit either way.

Nobody likes higher prices, but the bottom line is that bandwidth is not free, and economics dictates that the cost will be passed on to the consumer. As streaming video technology continues to evolve, with more and more HD video becoming available as we speak, I’d like to hear what you, our readers, think about the issue.

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  • http://twitter.com/0odin Jonathan Paul

    I agree that it’s a lose-lose from an economic standpoint and that is regrettable, but I come down on the side of net neutrality because if we allow ISPs to block Netflix for economic reasons, what’s to stop them from blocking other websites for political or religious reasons. After all, it’s their bandwidth…

    • http://twitter.com/sombaki Bryant Sombke

      I couldn’t agree with you more. I’ve just found that most people don’t put much thought into what the real issue is, and they simply label companies like Comcast as evil and greedy.

    • Rivel_rage1

      just what i was thinking… if the problem is within the ISP’s line of work, then let them be the ones to put up the price, after all, not passing the buck will be cheaper for us, because how long till the ISP wants to start making more profit from bandwidth allocation, and companies wanting to use this as an excuse to put up price to make more money. I’d rather pay the people who have to deal with the problem directly, and in the end, that is cheaper

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  • Anon

    Bandwidth is becoming something similar to roads, running water, and electricity. Many of these have been outsourced to private companies, but the government is invested in making sure they stay available, usable, and affordable to the general public at large.

    Right now, tax money provided to internet service companies for providing internet to rural areas is frequently re-routed to denser communities to improve the infrastructure. If an electric company decided to stop serving a rural area in order to use the tax money on city infrastructure, there would be a riot. The only way we are going to win is, most likely, through an internet infrastructure tax for the purpose of bolstering bandwidth availability at large to the general public. I don’t like taxes, but…this is much more of a case of “roads and electricity” as opposed to “controversial welfare”.

    I think the solution here is to take the laws governing electric provision (keeping it affordable, available, etc) and adjusting them to internet provision, then (and only then!) providing limited guided funding to network upkeep and improvement.

  • Jerryjoh

    I view bandwidth like a utility. The more power I use the higher my electric bill, so why shouldn’t companies like Netflix pay for their increased usage.

    From a consumers point of view, I vote with my wallet. I can’t be without internet service (because of work and communication) but I can survive without Netflix (although I am a subscriber). If one of them is going to raise their rates I would prefer it be Netflix because that is a luxury. Besides, as Netflix ships less and streams more, their costs should go down anyway.

    As for other video streamers, they have to find the right business model to allow them to supply their content and still make a profit. That’s what capitalism’s all about.

    • http://twitter.com/ddahlen Derek Dahlen

      In fact, Netflix does pay an ISP, or CDN to stream their services. So, in effect you are paying your ISP, and they are paying their “ISP”. It’s not a one-way street.

      • http://twitter.com/sombaki Bryant Sombke

        You are correct that it is not a one-way street, and that’s a large part of the issue. Netflix pays the toll to get on the expressway, and now ISPs like Comcast want them to pay another toll to get off the expressway. Comcast wants to charge Netflix a fee in order for Comcast’s subscribers to access Netflix’s services.

        • http://twitter.com/ddahlen Derek Dahlen

          Exactly. Which makes a great case for being on the side of net neutrality. I don’t really see a lose there. If ISPs must pay to enhance their networks they’ll pass the additional expense on to the consumer. The consumer is willing to pay the added expense, they will. Otherwise, the consumer will look to other ISPs offering their services at lower rates.

  • Ryan Melcer

    I’m not sure there is even a problem here. I think those of you referring to Internet access as a utility have the gist of it. Say, for instance, a person’s monthly water usage doubles because they decide to start sprinkling their lawn. The water bill will likewise go up, assuming that the water pipes to the house can handle the additional load.
    However, that is not precisely the same as this situation. I pay a certain amount per month for a certain amount of bandwidth. I don’t charge as I go per megabyte. I don’t have the option to exceed 2 MB/s, it’s capped. If my ISP suddenly doesn’t have the capacity to support that speed, then they shouldn’t be charging me $50, it should be less. They should most certainly not be engaging in practices of selling more bandwidth than they have in total, they cannot rely on the fact that not everyone will use their share at the same time. I really can’t see Comcast/other ISP’s side in this. If they have a rise in demand, they will create a larger supply to meet that demand, just like every other similar business in our economy.
    Water and Electric utilities exist in their state of natural monopoly because their infrastructure is SO costly, but there the cost of another ISP coming to town is relatively small and if the market allows for another ISP to make a profit, there will be someone who starts a business and makes a profit.
    Net Neutrality must win.

    • http://twitter.com/sombaki Bryant Sombke

      I admit this is a way I never thought of it previously, and I do find it rather interesting. I’m not sure I’d consider the internet a utility. Services such as electricity and water are utilities because they are considered vital to maintaining a high quality of life. If I were to suddenly lose electricity and/or water due to the inability to afford it, my quality of life would undoubtedly go down. However, if I were to drop internet service because I cannot afford it, I would just find something else to do with my time.

      Don’t get me wrong, I love the internet, but I find it as more of a luxury than a necessity.

      • Michael Graalum

        Internet access is essential to many people, and it is not just home users who use the internet. Further, being a utility is not predicated upon the importance of its service, but on the ‘engineering’ aspects behind them. Basically a utility is any good/service that requires a large infrastructure investment to begin service, whether that be water, sewer, electricity, roads, rails, cable, or internet.

        • http://twitter.com/sombaki Bryant Sombke

          Point taken :)

  • Gathly

    We should nationalize broadband.

  • http://twitter.com/stevengrey Steven Grey

    Simply articulated. No matter what we loose. However, I think there is one small wrinkle overlooked. If we leave the system as is, which forces netflix to pay for the higher load they cause on ISPs, then there prices will only increase to the point at which they stabilize with other video distribution means. While it not be a perfect price parity, Netflix can only increase their prices to the point that people are willing to pay for it. At this point Netflix is viewed as a secondary television source to augment current cable. People will not be willing to pay 35.99 to stream a limited selection of movies on demand.

    Its a minor point, but I think it is the fairest system. Not everyone wants Netflix and it would be unfair to subsidize the heavy viewing of some and distribute the costs across all broadband subscribers. This would be one of the impacts of Net Neutrality. However our broadband prices will go up, and the investment in infrastructure will produce a faster internet that will bring new services besides HD video streaming.

    However, the smaller ISP will not be able to invest in the infrastructure required and will basically abuse their monopoly position and not offer the ability participate in Internet 2.0.

    Its a difficult issue and a simple fix is not easy to find

  • http://twitter.com/HeroicLife David Veksler

    The Internet is not public property. Telecommunications companies have spent billions of dollars on network infrastructure all over the world. They did so in the hope of selling communications services to customers willing to pay for them. The government has no right to effectively nationalize ISP’s by telling them how run their networks.

    Proponents of net neutrality love to invent hypothetical scenarios of ways companies could abuse customers. It is true that a free society gives people the freedom to be stupid, wrong, and even malicious. The great thing about capitalism is that it also gives people the freedom to decide whom they want to do business with. A socialized Internet takes away that freedom and turn it over to politicians and lobbyists. Why do “net neutrality” advocates ridicule politicians for comparing the Internet to a “series of tubes,” and then trust them to regulate it?

    • Jwfcp

      yeah, we’re paying, we want a fair deal. let the internet providers compete in terms of performance, not some perverse gotcha game of who screws you over less.

      does ups get to charge amazon extra and give people on ebay a discount? in terms of physical goods the concept of what is right and fair is long since settled, but now that its a sparkley new piece of technology everyone feels obliged to forget what they already know and try to reinvent the wheel.

    • Michael Graalum

      What an utterly ignorant statement.

      The law on this has been settled for well over a hundred years, and ISP’s under established law do not and have never had the right to charge who they will what they want. These were the rules when they built the system, and these are the rules that law, justice, and economics demand for a functioning system.

      • Len

        Hooray for socialism!

  • Email

    Bryant, you keep saying bandwidth is not free. Of course it’s not, we’re all paying for it with our monthly cable or phone bills. The fees we are paying are already much higher for slower speeds than in other countries, so where is all that money going? Sorry, but the reason the ISPs do not want net neutrality is greed, plain and simple.

    • http://twitter.com/sombaki Bryant Sombke

      Email, I am saying that it is not free on the ISP’s end as far as providing it to their customers. As technology advances, and web content such as streaming video continue to grow more rampantly across the internet, it takes a much larger chunk of the ISP’s bandwidth, which places a much larger load on their systems. In order to provide a viable service, they then have to continue to grow their architecture and spend more money on routine maintenance, which cuts into their profits. In a capitalist society, nobody wants to see their profits shrink if there’s anything they can do about it.

      Greed or not, higher operating costs require more revenue to offset, and it’s highly likely that prices will rise because of it.

      • Email

        ISPs are in the business of providing data. If changing consumer demands causes the amount of data to increase substantially, that’s a business risk they should be willing to accept and adapt to. They see the amount of money Netflix is making, they say “hey, they’re making all that money by using our network! We should get a piece of that!”. I’m not against ISPs making money, don’t get me wrong. But they are already making plenty of money, they just want to make substantially more by riding the coattails of a successful business plan. Just do what you’re suppose to do, ISPs, and deliver the data.

        • http://twitter.com/sombaki Bryant Sombke

          That’s a completely valid argument; I’m not disagreeing with you. Unfortunately, the world doesn’t work the way that many feel it should, and I feel that either the ISPs will have their way and Netflix will have to raise prices, or Netflix will have its way and ISPs will have to raise prices. They definitely are making “enough” money, but who can really tell a business what “enough” money is? Over time, consumers’ wallets will tell them. Both sides’ business models are very young and still evolving, and I feel us consumers have a bumpy ride ahead of us.

          • Email

            I agree we’re in for a bumpy ride. I still feel net neutrality is the lesser of two evils, mainly because it’s a known commodity. We can guess what will happen without it, but we really don’t know for sure. I see it as a very slippery slope that will bring an end to the internet as we know it. I hope that’s unrealistically pessimistic, but like I said, we really don’t know.

          • Anonymous

            We can tell a business what “enough” money is. And when I say “we”, I mean Government regulation. That’s what Government is, or should be; the collective voice of the people.

            We limit what businesses can get away with already in many areas because any business is essentially psychopathic – they only have one criterion for success; how much profit they can make.

            I severely doubt any ISP will just stop operations if they are reined in and their profits limited, but unchecked they will cheerfully do whatever it takes to make more and more money.

        • Rivel_rage1

          yeah I pretty much thought that… with the amount of money it takes to become an ISP in the first place, they knew when they started that it wasn’t a very profitable business when they started… at least not for the start up price…. Also, I pay the ISP to access massive and diverse databases, lets just say Wikipedia. So they get a lot of traffic i bet, but without net neutrality, sites like that would become either pay sites, or a lot more specialized into one field

  • reallynow?

    I pay my isp to get to netflicks, why do isp’s feel obligated to more?

  • http://pulse.yahoo.com/_OJBOC7MKPAIZV6GNKXZOO4XGJM James Watt

    I agree with your analysis. But, I am going to have to side with net neutrality, because I believe it is the better loss for consumers than the other way around. And here is why:

    Website traffic is not the only type of bandwidth. Many open source and free services utilize bandwidth to distribute their operating systems. You also have video games, torrents, and other (commercial and non commercial) things that utilize bandwidth. In the case of Open Source, you could actually shut down the ability for Ubuntu users to download uploads at a reasonable speed if ISPs required companies to pay them for a faster lane.

    On a consumer end, I don’t care who I am downloading from, I want to hit the speeds I pay to have. It costs me about $109/mo for 50mbit/10mbit Internet at home right now. I pay that because I want to download things, regardless where they are coming from, at that speed.

    I will NEVER be satisfied with an Internet where 1). Me, the end user, pays for a specific speed and 2). the server sending me the data is also paying for a speed great enough to service my request, yet 3) we are both throttled because that server doesn’t belong to the “Internet fast lane”.

    If you are an ISP and you are selling bandwidth to a server: charge them the amount it costs for them to get the speed you claim to give.

    If you are an ISP and you are selling to an end user: charge us the amount it costs for us to get the speed you claim to give.

    You’re controlling both ends, you’re making money on both sides already. I don’t see why there needs to be an additional “speed regulating” middle man telling both sides that they didn’t pay enough. IF WE DIDN’T PAY ENOUGH, DON’T OFFER THAT SPEED AT THAT PRICE.

  • Michael Graalum

    The law on this has actually been settled for over a hundred years, since the anti-trust fights against standard oil. Broadband internet is no different than railroads or pipelines, both of which are considered ‘common carriers’ under the law an are not allowed to price-discriminate among customers. In essence, they practice railroad-neutrality and pipeline-neutrality.

    I’m extremely skeptical of the costs of the physical infrastructure of broadband. I suspect that their infrastructure investment and maintenance costs are probably around 15-20% of their revenue at most, probably smaller than their billing department. The real opposition to net-neutrality is because it prevents ISP’s from instituting much more profitable payment schemes (think mobile phones, bank fees, or credit cards). ISP’s want to be able to flex their monopolist power.

    Abandoning net-neutrality would by most accounts hurt service and support quality, shunt the advancement of technology (streaming video and ‘cloud’ tech would effectively get nuked from orbit), lead to more complicated and expensive billing procedures, and probably cause more of the negotiation problems and service shutdowns that we see in the cable broadcasting industry.

    This is a lose-lose-lose situation for consumers, the only winners would be the ISP’s.

  • Anonymous

    > Unfortunately, providing network bandwidth is not free
    Customers pay the ISP to get access to the network, and your ISP generally pays another ISP and so on. Likewise, Netflix pays its ISP for the bandwidth, and its ISP generally pays another ISP, and so on. The chain of payment for bandwidth meets at tier 1 carriers, who are carriers who are so big that they don’t pay for bandwidth from other tier 1 carriers – because they benefit from sharing bandwidth both ways with each other. All of this is acceptable within net neutrality, won’t be affected by any sane net neutrality laws, and it works perfectly well to pay for the infrastructure – so it is a win-win.

    What isn’t acceptable is if Netflix has to pay my ISP, as well as their ISP, to get preferential treatment for my traffic to get to them, even though Netflix doesn’t receive the traffic directly from my ISP. At this point, the ISP is no longer treating traffic which is legitimately on the network and paid for as equal, and is abusing its position to control access to me. This is a lose-lose, and laws to outlaw deviations from net neutrality are a win for the consumer, a win for startups on the Internet, and in the long run, a win for Internet service providers as innovation on the Internet won’t stagnate.