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    Here begins your journey into the mind of everybody's favorite asian, and I don't mean Jet Li.
What follows is the somewhat inane, mostly irrelevant, and self-important ramblings of a man on the brink of madness.
Welcome... to the Chu.

Thursday, June 15, 2006
 Net Neutrality or Free Market Neutrality?    [L]

I wasn't planning on posting on Net Neutrality, but given how... vigorous the debate has been over at Abs' blog, I figure I might as well post on it here. After all, it'd be a shame to let so many words go to waste.

The heart of the matter: Should ISPs be able to provide different levels of speed by prioritizing internet traffic for certain customers? (They would do this with specialized hardware and by charging a higher price for this service). Or should the government step in and mandate that all traffic must be treated the same, and go at the same speed?

My take: get the government the heck out of the way, and leave it up to the invisible hand of the free market. Read on to find out why.

Abs starts out:
I have been following up Net Neutrality amendment for the past couple weeks on one of my blogs. In a one line summary, it is an ammendment that was supported by democrats to support neutrality on the web. Some broadband providers are providing higher speeds to some websites that pay them well. This causes partiality on the web. The websites which have more financial backing are successful as compared to good content websites. I have even set up an online petition which has around 4000 signatures so far. Here is a list of house representatives who voted in the recent net neutrality amendment. See where the Ohio representative stands on this issue.
Joel responds:
Sorry Abs. I’m going to have to sit this one out. As much as it sounds “unjust”, think about the principles of capitalism. What you are promoting is equality across the board, essentially a socialistic mindset of fairness, not the free-market mentality that the United States economy has always been based upon.

If a company can find ways to make more money, that is what causes jobs to expand, companies to grow and our market to continue to be the best there is. Through government regulation and interference, the free-market is hindered, if not hurt.

If I’m a little guy, of course I don’t want preferential treatment for my larger competitor, but the truth be known if I don’t have the funds to compete, I’m in the wrong market, and if I do have the funds, it is only fair, in a free-market, to be able to get what you pay for. More investment should equal better rewards.

I say, let companies continue to do what they do best: turn a profit. As long as it is within lawful means, ingenuity should never be stifled by government interference.

I’m sure you don’t see eye to eye with me on this. That is fine. It’s a different world view on economics.
Abs replies:
Joel, I understand you point of view. Good job being really clear…

But the problem here is that web publishers like me who can’t afford to spend awful lot of money feel cheated on by the Government if the net neutrality doesn’t come into effect. We feel that a website has to succeed because of its content and not anything else.

Democrats have the right vision when it comes to Net Neutrality and I am supporting them 100%.

Internet shouldn’t be a place where money should call the shots. The only place money be dealt with is in the backend and in marketing only…
Joel answers:
You stated:
“feel cheated on by the Government…”

This is the point I was attempting to make from the beginning. In a free market, the Government should play a very very minor role. The less the government has it’s hands in a market (thus making it more free) the more successful it will be. Take any other country out there that has even more government involvement in economic matters, and you’ll easily see the benefits of capitalism.

The Internet is unquestionably the way to do business. There is nothing (marketing, backend, supply chain, sales) that are independent of the internet anymore. If the Internet is so regulated as to prevent ingenuity and free-market advancement, we will begin to see oppression on those who would otherwise succeed.

I understand your dilemma. I do see where you are at a disadvantage. That’s where the entrepreneur in you has to take over and find a better way — that is not via running to the government for a “handout”. That may fix things for the near term, but it will not create a strong economy based on technology for the future.

I guess we’ll agree to disagree on this. I do sympathize with your situation. I just don’t empathize. There’s more at stake than the little man in this agreement.
I chime in:
Joel’s right, Abs.

Another thing to consider is ownership. In this case, who owns the internet backbone? Who is laying the cable? Who is deciding to spend more on high-bandwidth fiber-optic rather than a slower, cheaper, pipe? Who is paying for this?

The answer is not the government. The answer is the private companies that provide internet service for millions of private consumers and thousands of businesses.


Ever wonder why ISPs charge for different levels of service? Why they charge higher prices for higher bandwidths? Makes sense, right? The more you pay, the more service you get.

Net neutrality will basically take bandwidth from the high-paying business to give to the regular consumer. While that may appeal to many regular consumers as a good thing, those who have eyes to see identify it as a thinly-veiled attempt to implement internet socialism.

Much like socialism, if net neutrality is forced upon private businesses, then you will have
1) a lack of innovation and new technological development, because there’s no financial benefit
2) a lack of supply, as ISPs decide it’s not worth it to build an infrastructure which isn’t profitable
3) even more governmental intrusion in business, which I can assure you will have negative long-term effects.

I realize that many of the ideas that Joel and I promote are going to be foreign to you, well, simply because you are a foreigner. I don’t have much knowledge on what kind of government you have grown up with, although I can guess with some certainty that it, like a lot of european governments, is probably a lot more socialistic than America’s - hence your initial favorable impression of net neutrality and all it represents.

But once you get past all the feel-good hyperbole and start considering what is good for businesses AND consumers (rather than what is good for just the consumers) then you will start to see why free-market capitalism is simply the best way to do business.
Jason is confused:
I feel that the whole idea of the Internet itself being a market isn’t the right point of view. I was born and raised in America so I understand capitalism and how free markets benefit us, however I don’t believe that dividing up the internet into those sites who can pay and those sites who cannot will benefit the end user at all. One concern was that there would be less innovation and technological development because there’s not profit in it, but for the past decade Net Neutrality was in place, but almost everyone has shifted from a 56k connection to a high speed broadband connection. Wouldn’t you categorize this as a innovation or a technological development? The reason the ISPs developed broadband was because the end users wanted to access the internet faster and therein lay a market for high speed access. In regards to a lack of infrastructure, I guarantee that if an ultra-high speed broadband connection was made feasible and cost efficient at least one ISP would adopt it and make the necessary changes because then its customers would have access to it and pay a premium for this new service, and in order for the other ISPs to stay in the game they would adopt the new infrastructure as well, if only to keep pace with technology. And to address the third problem, the government is not intruding into the market any more than it already has, and passing the neutrality act will merely maintain the status quo, which is pretty pleasing I’d say. But that’s just my two cents.
Bob is greedy:
Don’t fix something that aint broke.

Leave the internet as is, as it always has been. If I am gonna pay Time Warner $50/mo. then they better be laying fiber optic cable. I want my 5Mpbps regardless of what site I’m visiting; I dont like the idea that some companies can just buy out the internet.
John is a foreigner:
I’m afraid I have to disagree with you, I fully understand the argument and, being an economics graduate in the UK I can see how your argument is a logical one.

However, I do resent the way that you slate socialism and say that ‘Take any other country out there that has even more government involvement in economic matters, and you’ll easily see the benefits of capitalism’. Other countries are economically stable and some of the best performing economies in the world currently (the UK, Sweden, Denmark as examples) have more state intervention in markets than the US.

However my main disagreement is with your idea of the internet as a money making machine where companies are of primary importance. The internet staying neutral will allow small companies to cheaply advertise and sell their products. This is a good thing for the market! This will mean that other companies will have to attempt to cut costs and become more efficient too. All your ideas seem to say that the large, powerful and established firms should have the advantages, why do you want to try and help these incumbent companies anyways? With net neutrality you are allowing the free market to work even better in my opinion and I think this idea of a tiered internet service would simply make things worse.

The internet should be about the free share of information in my opinion anyways but I would enjoy a reply to find out your opinions on the matter and to see if my ramblings make any sense!
Joel empathizes:
John,

Your insights are understandable. I don’t discredit your take on government involvement, based on the perspective that you know better than I do. With that in mind, the US market is one quite different from any other in the world. It may not be as “stable” as some may view stability, but it is by far the largest, most flexible and for the sake of argument, one of the most free (re: government involvement).

I do understand the plite of the little guy, but government intervention is not the solution. I am not a proponent of big-business monopolies or power hoarding. What I am in favor of is giving those who have worked hard to established themselves in the market the freedom to expand their operations.

Remember the Microsoft’s, Apple’s, Google’s and Amazon’s of the USA all started off as ideas in someone’s head. Despite the odds of success, which are indeed many, those founders stuck it out, lived through the tight times, and fought hard to make a way in a very very competitive market. How’d they do this? Through innovation, ingenuity, resourcefulness, and the help of a free market that didn’t hinder their abilities to prosper.

Putting everyone on an equal playing field in terms of the internet may happen by default of technology or business limitations (ie. 56k modems prior to broadband). That is fine. Those are ceilings that are not imposed, rather only temporary restrictions till the next innovation emerges based on someone’s inspiration. Imposing restrictions through governmental regulations is an artifical ceiling and one that will possibly help for the short term, but as Chublogga said it will ultimately hurt because everyone (the little guy or the big business) will hit that ceiling sooner or later and have no motivation or reason to expand — financial benefit based on investment will be marginalized or stifled.


Finally, time for my $1.05!

Jason
One concern was that there would be less innovation and technological development because there’s not profit in it, but for the past decade Net Neutrality was in place, but almost everyone has shifted from a 56k connection to a high speed broadband connection. The reason the ISPs developed broadband was because the end users wanted to access the internet faster and therein lay a market for high speed access.
Point 1: Net Neutrality is not currently law, and is not universal - look at any companies' intranet, you will find that a lot of them will have different priorities for different traffic. That's pretty normal.
Point 2: You pay a different amount for dialup than you do for broadband, don't you (or at least, there was a different price between the two)? Back when broadband was just beginning to come around, what would have been the effect if the government stepped in with regulation that ISPs couldn't charge more for broadband than they did for dialup? The effect would be that ISPs wouldn't even have provided broadband, as it would have been unprofitable, resulting in a broadband shortage. But instead, now that broadband is ubiquitous, the prices have stabilized, resulting in affordable broadband for everyone.
In regards to a lack of infrastructure, I guarantee that if an ultra-high speed broadband connection was made feasible and cost efficient at least one ISP would adopt it and make the necessary changes because then its customers would have access to it and pay a premium for this new service, and in order for the other ISPs to stay in the game they would adopt the new infrastructure as well, if only to keep pace with technology.
You're making my point here: "feasible and cost efficient", "pay a premium", imply profitability, which means that the ISPs are going to charge a higher rate for it. If the government steps in with meddlesome Net Neutrality laws regulating profit, then no company is going to want to do it. Providers aren't going to take a hit for altruism or charity's sake, not when they can avoid losing money altogether.
And to address the third problem, the government is not intruding into the market any more than it already has, and passing the neutrality act will merely maintain the status quo, which is pretty pleasing I’d say.
How do you think the government is going to "maintain the status quo" - by meddling even more with the market! Of course they're intruding into the market even more, otherwise there wouldn't be any need for legislation, right?

Bob
Leave the internet as is, as it always has been. If I am gonna pay Time Warner $50/mo. then they better be laying fiber optic cable. I want my 5Mpbps regardless of what site I’m visiting; I dont like the idea that some companies can just buy out the internet.
Oh, i'm sorry, did you buy the internet? I didn't realize it was yours. Bob, you don't own the internet. We the people do not own the internet. The government does not own the internet. ISPs paid for and own their own individual slices of the internet. Everyone who uses their networks basically rents the internet from them. Let me put it this way: "Leave the apartment as is, as it always has been. If I am gonna pay my landlord $500/mo. then they better give me the biggest room. I want my 200 sqft. regardless of whose apartment i'm in; I dont like the idea that some landlords can just own their own land." Sounds silly doesn't it? Rightfully so.

John
However, I do resent the way that you slate socialism and say that ‘Take any other country out there that has even more government involvement in economic matters, and you’ll easily see the benefits of capitalism’. Other countries are economically stable and some of the best performing economies in the world currently (the UK, Sweden, Denmark as examples) have more state intervention in markets than the US.
I'm not saying that it's impossible for to do good business because of government involvement - but rather, if the government weren't involved, business would be vastly better! Oh, and FYI, 2005 GDP growth figures: US 3.5%, UK 1.8%, Sweden 2.7%, Denmark 3.4%. Your example economies seem to be lagging a bit behind the US, eh?
However my main disagreement is with your idea of the internet as a money making machine where companies are of primary importance. The internet staying neutral will allow small companies to cheaply advertise and sell their products. This is a good thing for the market! This will mean that other companies will have to attempt to cut costs and become more efficient too. All your ideas seem to say that the large, powerful and established firms should have the advantages, why do you want to try and help these incumbent companies anyways? With net neutrality you are allowing the free market to work even better in my opinion and I think this idea of a tiered internet service would simply make things worse.
Tell me, what would be the result of your government stepping in and mandating that all vehicles travel at 100 mph? That would be highway neutrality. Many auto companies would go out of business - the cheaper vehicles can't go that fast, so the companies would just stop producing them altogether, limiting availability to the less-than-well-off. They would stop manufacturing the high-end components, because if everything goes the mandated speed, then what's the point of buying a Porsche, or a Ferrari? And if there's less supply, then prices go up. If there's less competition, then prices go up. Instead of more companies, we'll have less. Instead of cheaper prices, we'll have higher prices. EVERY SINGLE TIME the government implements some sort of price control scheme IT HAS THE EXACT OPPOSITE EFFECT. Hawaiian gasoline in 2003. German bromide in the early 1900s. Floridian construction work since 2000. Any job in France in the past decade. Price controls (which would be the heart of Net Neutrality regulation) always end up hurting those it tries to help. It is downright silly that it continues to be an option in this day and age when we have mountains of evidence against it.

UPDATE 12:54PM

Abs fires back:
If anybody wants to invest money in a website, let them pour it into design and a good server. Let the big money websites have mirrors all over the world. Who cares. But, let the internet be free of certain prioritized lines. The internet belongs to everyone, not just a few folks here and there…

Net Neutrality Amendment should come into force and the only way that can happen is by voting Democrats in.
bling:
Remember when AT&T was going “under” and selling off their different branches? Remember when AT&T borrowed from the government to purchase the fiber they have? Dont tell me the phone and cable companies own their lines. Its bullshit. The AT&T is in bed with the government. These companies are making enough money that the CEO’s can just kick off a couple million in bonuses to allow these companies to put in these lines. LEAVE THE INTERNET ALONE!!!

I find mockery and sarcasm to be an important tool for debate.

Abs:
The internet belongs to everyone, not just a few folks here and there…
Oh really! Show me the physical hardware you own. Show me the lines you paid to have run. Show me your business receipts for the hubs and switches. YOU RENT. YOU DON’T OWN.

bling:
Remember when AT&T was going “under” and selling off their different branches? Remember when AT&T borrowed from the government to purchase the fiber they have? Dont tell me the phone and cable companies own their lines. Its bullshit. The AT&T is in bed with the government.
Oh, so AT&T didn’t have to pay that money back with interest, they just got that money for free. I guess I need to get into the telecom business for all the free money. By your definition of being in bed with the government, I guess that means colleges, artists, defense contractors, auto companies, airlines, welfare recipients, senior citizens, farms and dairies are all owned by the government.

John Hawkins of RWN wrote last week:
In order to get a better idea of the industry perspective, earlier today, I talked to David Fish and Mike McKeehan from Verizon. Incidentally, this is completely off topic, but whatever they're paying these guys to deal with the media isn't enough. They were both extremely sharp, on message, and did a great job of explaining their point of view.

To begin with, they said the idea that the big companies would block, slow-up, or harm in any way, websites like Google, Ebay, or Move-On was nuts. They said that as is, if there's a problem with any sort of popular website, they get inundated with complaints. So, in order to keep their customers happy, they have to make sure they can get to these websites. On this point, I found them to be extremely convincing.

On the other hand, I wasn't as convinced by their explanation of why they'd never try to take out a small ISP or VOIP competitor. They said that the moment they tried to do something like that, the FCC and the public would jump down their throats -- which is probably true. On the other hand, if they can find a way to hurt their competitors, it has the potential to inflate their bottom line. So, I find it hard to believe that companies like AT&T, Verizon, etc., wouldn't lower the boom on their direct competitors if they can find a way to get away with it.

Then there's the issue of why they oppose net neutrality. Again, they made a strong case here. Fish pointed out that they want to build these massive new networks that are capable of handling not just the internet, but also telephony, video services (TV over the net), and wireless. He said that some of the net neutrality bills that Congress is looking at are written in such a way that they'd make the video services impossible to do and that without that component, suddenly these big new pipes don't work financially and they'll have to go in a different direction. That makes perfect sense.


UPDATE 3:44PM

Jason has questions:
Chu

You pointed out that many companies intranet allows relegates different priorites to different traffic. I don’t see how that can be universalized into the current issue, it’s not like the different departments need to pay in order for them to get faster access to the information they need. It’s a private network and as such the administrators can do whatever they want.

Second you made a few points about how users are charged more for broadband. I’m not debating that broadband charges more. The point I was trying to make was that websites did not have to pay to get ISPs to load their pages faster, and broadband STILL came about. You said that technology would stagnate because for some reason there wouldn’t be a need for ISPs to remain competitive and I’m saying even if Net Neutrality were to be introduced they would still be innovating.

I don’t quite understand what you say when you said “Providers aren’t going to take a hit for altruism or charity’s sake, not when they can avoid losing money altogether”. The money spent by ISPs to develop new technologies isn’t charity it’s called Research and Development, and Net Neutrality isn’t regulating profits.

By maintaining the status quo I mean currently internet websites dot no pay ISPs for them to allow faster access to their websites and so passing Net Neutrality would keep it like that.

Futhermore, I disagree when you say that ISPs own their own little slice of the internet. If by slice you mean their corporate website then yes they do, but if not I believe you’re mistaken. The ISPs merely provide the means to access the internet and as such should not have any say in what a person should be able to view or how quickly they can view it.

Finally I believe your highway neutrality argument isn’t really accurate. Currently the general speed limit (in California) is 65mph. I’d say the government has already “intruded” in the highway system, but then again the highways were built by the government and as such the government owns them and can do whatever they like. However, a more similar description of Highway Neutrality would be like the government lowering the speed limit to 35mph on the 10 freeway going to Los Angeles, and if Los Angeles wanted the speed limit to go up the city would have to pay something to the government in order to up the speed limit. Does that make sense?

And in response to your claim that auto manufacturers will no longer make faster (slower) cars based on speed limits, there are speed limits everywhere in the U.S. But that doesn’t stop people from buying sports cars that can easily surpass the local speed limits. The reason they’re expensive is because they’re high end cars, not because of speed limits. If speed limits suddenly disappeared, sports cars would still cost more than commuter cars.


Time to shine the light of reason.
You pointed out that many companies intranet allows relegates different priorites to different traffic. I don’t see how that can be universalized into the current issue, it’s not like the different departments need to pay in order for them to get faster access to the information they need. It’s a private network and as such the administrators can do whatever they want.
It’s not that relevant, I was simply stating the fact that Net Neutrality doesn’t exist in a lot of places. But you’re absolutely right that administrators can do whatever they want on their private networks. How are you connected to the internet? Through a lot of private networks which allow you access because you’re a paying customer. But it’s still their network, not yours, not the government’s, which allows them to do whatever they want. If you don’t like their service, you have many other providers you can choose.
The point I was trying to make was that websites did not have to pay to get ISPs to load their pages faster
Well, they kinda do. You go with a big hosting company with a big pipe, and your pages will load faster. Of course, you’ll pay a price premium for that. Or, you could with some fly-by-night company with a small pipe for cheaper. The more you spend, the better service you get. So there is a tangible difference in levels of service, and the differences entail a higher price.
You said that technology would stagnate because for some reason there wouldn’t be a need for ISPs to remain competitive and I’m saying even if Net Neutrality were to be introduced they would still be innovating.
I have no doubt innovation would continue, regardless of Net Neutrality’s passage. However, decreased profitability decreases such innovation.
I don’t quite understand what you say when you said “Providers aren’t going to take a hit for altruism or charity’s sake, not when they can avoid losing money altogether”.
Companies like Verizon “want to build these massive new networks that are capable of handling not just the internet, but also telephony, video services (TV over the net), and wireless. […]Some of the net neutrality bills that Congress is looking at are written in such a way that they’d make the video services impossible to do and that without that component, suddenly these big new pipes don’t work financially and they’ll have to go in a different direction.” What I was saying is that unless these companies stand to gain financially from offering these increased services and abilities, they won’t do it. (Successful) Companies exist for one reason, and that is to make money for their shareholders. With few exceptions, they’re not going to lose money out of a vague sense of public duty or fairness. They’d rather do nothing at all and maintain the status quo than lose money.
Futhermore, I disagree when you say that ISPs own their own little slice of the internet. If by slice you mean their corporate website then yes they do, but if not I believe you’re mistaken. The ISPs merely provide the means to access the internet and as such should not have any say in what a person should be able to view or how quickly they can view it.
Perhaps I was technically incorrect when I stated that ISPs own their slice of the internet - but nevertheless SOMEONE owns the network, someone owns the hardware, and if and when new high-bandwidth pipes get laid down, rest assured someone will own those, and charge for access.
Finally I believe your highway neutrality argument isn’t really accurate.
It isn’t when you put it like that. That’s why my analogy targeted automobiles rather than highways. Highway Neutrality was a misnomer. You are correct in shooting down the analogy you presented - however it was not my analogy. I analogized cars, you did highways. In mine, I mandated a car’s constant speed, you mandated a highway speed limit. While your analogy certainly fits better with the overall Net Neutrality argument, it fails in one respect - the government may own the highway (toll roads notwithstanding), however, THE GOVERNMENT DOES NOT OWN THE INTERNET. And I believe it’s in our best interests to keep it that way.

Keep the government off the internet!

Abs is beginning to see the light:
Hmm… I just thought about this and makes more sense…. Since the customer is the one who is actually paying for his / her broadband, he should have the choice of calling the shots. The customer should be able to specify which websites he needs to be faster.

Real life example : I am Abhinav and there are 5 websites that I go to regularly and I want those to be faster than others. So, its not partiality anymore since I am paying for my broadband.

So, in the same light, if broadband companies can give us free internet, they can make any website they wish to be faster than others. The irony is that we are paying for the internet and they still call the shots…
You are beginning to see!

Ok, if ISP A offers faster google service than ISP B, you can always switch! Think about it - what if some companies laid down bigger pipe so they could have higher bandwidth, and they prioritized their network so that youtube and google video had priority? Wouldn’t you sign on with that ISP? Or if one specialized in game bandwidth? Or if one charged a slightly higher price, yet offered everything at super-high-speeds?

Free Market competition. Best taken without Government. Apply daily.



This is a great post that covers a lot of bases. For whatever it may be worth, I'll go with the free market because I'm generally against the government getting involved in anything that has always been based on the free market.

However, one minor quibble I have is that broadband is not ubiquitous. There are still many rural areas where broadband is very expensive or not available at all. For example, the only way I could get it is by satellite, and it would cost me $500 worth of equipment before I even started paying $60 per month subscription.

I think that if this "net neutrality" were to go into effect, it would actually increase the cost of my simple dial-up connection so that the cost of broadband could be lowered for those people who have it. My service wouldn't change, I would just suddenly have to pay more for it so the powers-that-be can come out even on the lowered cost of broadband.

By Blogger AlanDP, at 6/15/2006 05:29:00 PM      


^^^ speak up ^^^