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[ NNSquad ] Re: Why the Open Internet proposal needs to be improved - views from a start up and a VC

On 12/13/2010 10:35 AM, Barbara van Schewick wrote: 
Dear all,

I thought you might find this interesting.

Everybody has heard that the FCC's current proposal does not sufficiently
protect innovators, but for many, this is just an abstract argument. On
Saturday, a start-up video company from Silicon Valley called Zediva filed a
letter with the FCC that explains what the Chairman's current proposal would
mean for them. The letter does a great job of showing how different
proposals for network neutrality rules can provide very different
protections for innovative start ups and where the current proposal needs to
be improved. It really lets the problems come to live.

I wrote about the letter on my blog and asked Zediva for permission to post
it there. You can find the blog post here:
http://bit.ly/fNTCtD
http://netarchitecture.org/2010/12/start-up-video-company-files-concerns-about-fcc-open-internet-proposal/.

Zediva's comments strikes directly at the root of the matter: there is an inherent conflict of interest when an ISP is also a content provider. We saw the same thing with phone service in the 1960s. Phone companies (ILECs) provided transmission (phone lines) but also sold equipment. So they did their best to stop customers from connecting anybody else's equipment to their phone lines -- the sale of add-on equipment like fancy phones, answering machines, etc. was _much_ more profitable than a providing service where the state regulator set the rates to provide a guaranteed (but not very high) return.

The same thing seems likely to happen with internet service. "There's no money in providing cable TV". The corollary of that is, the only way for cablecos to make a lot of money is to provide "extra" services: premium channels, video on demand, phone service, and of course Internet service.

But if Netflix, Zediva, etc. can provide movies over the Internet, that cuts into the potential sales of video on demand and other premium products that the cablecos sell. So they have every incentive to block or slow down those competing products.

Let's assume a "best case": the FCC enacts strong NN regulations requiring them to treat all traffic the same, except where they can show a legitimate traffic management reason to do otherwise (e.g., blocking DDOS attacks). Let's also assume that they actually comply with the rule, and don't try to hide anti-competitive measures as "traffic management" -- as was done with P2P traffic a couple of years ago.

That still leaves the cablecos an easy way to slow down the competition: delay building out additional bandwidth. That way, they can say, "There isn't enough bandwidth, and we have to slow down _everybody_ who uses a lot of bandwidth." Which, by a remarkable coincidence, is mostly the buyers of various kinds of video.

I mean, pretend you were a cableco and deciding how to allocate the bandwidth on your cable. You have (say) 400Gb/sec available to each distribution point (the place where data to/from individual subscribers is multiplexed/demultiplexed). You're currently provisioning (say) 100Gb/sec for Internet usage. You can
a) triple the allocation to 300Gb/sec, leaving a "measly" 100Gb/sec for your own high-profit services. THis might someday mean somebody would have to wait 5 minutes to view the video they want. Or,
b) leave the IP allocation at 100Gb/sec, and devote the remaining 300GB/sec to your VoD service. Of course, if your IP is a little slow, your users might be a little unhappy. But they really have only one other choice: the local telco. WHich _also_ provides content over their cables and has the exact same conflict of interest.

I've tended to lean toward the libertarian side for about 40 years, but this is such an obvious "market failure" that I think the only possible solution is to completely separate content sales from transport, and make everybody pay the transport company. Once that is accomplished, I think the transport companies should have a lot of freedom to set their own rate structure: as long as the rates are the same for everybody: if you sell him 20Gb/sec for $40/month, then you should sell _me_ 20GB/sec for $40/month as well.