Friday, November 13, 2009

Still Thinking about Net Neutrality

I just watched a debate on the topic of "Network Neutrality" at Forbes, and I think it's generally good food for thought, but each time the advocates of Net Neutrality make their arguments, the more certain I become that they are attacking a potential symptom of a completely different problem.

Here are the videos - They're kind of stupidly broken up, so sorry about that:

In Part 7, Larry Lessig asks the question; "[If the problem is that there's an engineering problem in limited bandwidth] ...Then why aren't they [ISPs] pushing for eliminating licensing entirely?"

Well... I AM!

Lessig's position, I think, is wrong overall - but when he stumbled upon that point, it should have given him pause. He really should stop and think about what he's saying here... Lessig isn't arguing for eliminating licensing by the FCC either - and he should. In fact, he should do that instead of trying to pass price control laws.

I agree with the other panelists that the fundamental issue with respect to Net Neutrality is that the internet - or rather bandwidth - is limited. It is a scarce resource, and like all scarce resources, the only way to maximize the efficiency of their allocation is through a freely moving price structure and competitive bidding. Those who need more of the scarce resource and those who's needs are more primary to their livelihoods will pay more for it than those who value it at a lower level.

The idea that we can simply write a law imposing a price control - which is exactly what Net Neutrality is - on some aspects of the market for that limited bandwidth suffers from the same logical flaws that have made every socialist plan fail.

Looking at all this from the perspective of incentives, many things are pretty clear:

First, any internet service provider company which tries to limit the content accessible to consumers is asking to be abandoned. Time Warner did something to that effect to me just a week ago, and I am now an AT&T DSL customer... Not only that, when Time Warner called me to see if they could retain or reacquire my business as a customer, I told them unequivocally NO. I'm sure that I'm not alone in this requirement. So the idea that a company is simply going to start mucking about with their customer's content experience (which is what many Net Neutrality supporters seem to believe), simply has no basis in economic reality. It's a death warrant for any ISP to do something like that. A network that bars you from accessing the full internet is bound to fail.

Secondly, there is incentive (and probably important ones) for ISPs to charge more or less for prioritizing packets and handing over large chunks of bandwidth... However, why is this a bad thing? Again, the "tubes" are finite... Limited... Scarce. ISPs prioritize certain packets of information now - they have to actually - so why not allow companies that need or use more of it to pay more?

The argument Lessig is primarily making here is that the point of Net Neutrality laws would be to prevent companies from "picking" winners & losers in the market by charging higher premiums to different companies. He uses the example of YouTube vs. Google Video - the idea being that if say, Google & YouTube had been competing, and YouTube, as a start-up was required to pay a higher fee for access to the conduit as Google (the billion dollar giant with lots of money to throw around), YouTube would have never made it off the ground. However, there's a basic flaw in this argument. ALL entrepreneurial ventures are risky and require sacrifices to be made of the small competitor that the established corporations don't have to deal with. However, because market-success is determined by offering products that consumers want, and because internet revenue is largely predicated on page-views & advertising, the web offers an unparalleled market equality and low barriers to entry for all participants.

If Google Video has to pay a ton for bandwidth, but their product isn't as widely used as YouTube, it's actually to their disadvantage to be paying high costs for access as their revenue doesn't justify it. The only way this would be a problem as Larry Lessig suggest, is if Google & YouTube were both only able to access the internet through ONE monopoly provider - let's say "Verizon", as that's the example used - and if that provider arbitrarily selected Google to get a special deal and required that YouTube pay more than their competitor while their respective bandwidth usage was actually identical, then Verizon would be inhibiting YouTube in anti-competitive ways.

So the solution is to write a law (knowing that no one has EVER found their way around a law before) to stop them?

No. It's not... The real solution is to open up the market so that there aren't so many barriers to entry anymore - thus improving competition and providing YouTube with a myriad of non-Verizon options with which to make their own deals. Price controls will not only exacerbate current problems, they will undoubtedly create an investment environment that is incredibly hostile to building more infrastructure - and that is exceedingly bad for everyone.


Julien Couvreur said...

Broken videos can be stitched together by using playlists. Honestly, YouTube makes this unnecessarily difficult, but once you figure out how to do, it works ok.

Julien Couvreur said...

I made a playlist of this debate.

Thanks for pointing to tis debate. I really like Lessig, but I'm finding his arguments on this rather unconvincing. There is nothing fundamentally different about internet, compared to other goods, that explains Lessig's concerns about market-based services. If anything, the problems we see today are probably due to past regulations :-S