June 14, 2006
Paying For Quality
David Isenberg replied to my "Against Net Neutrality" post with "Welcome to the Stupid Internet". He quotes Senate testimony from Internet2 researchers at Bell Labs claiming that with enough bandwidth you don't need to prioritize packets and that it is cheaper to add bandwidth than it is to add QoS.
If we assume that is the case, then we have to ask why the ISPs would object to laws requiring net neutrality and why people like David worry that telco's might choose to implement QoS rather than simply provision more capacity. David and Russ Nelson in the comments to my prior post argue that the ISPs are only doing QoS because it allows tem to take maximal advantage of limited competition to extract money from content providers that they can't get from their users.
So they must believe:
- end-users are willing to purchase only a finite amount of bandwidth at a given price to reach content providers.
- content providers are willing to supplement end-user payments for additional bandwidth.
In other words, the total amount of bandwidth on the system is the sum of the capacity for which end users are willing to pay and the capacity for which content providers are willing to pay. That means that the only way to achieve maximum Internet bandwidth is if content providers pay for some of it. Since the content providers are only willing to pay for QoS bandwidth and Net Neutrality laws would ban the sale of that sort of bandwidth, Net Neutrality laws will result in less Internet bandwidth. Since more bandwidth is good, net neutrality must be bad. Q.E.D
Note 1: I am not taking a position on whether the ISPs are extracting monopoly rents. They may very well be doing so. I am only observing that regardless of whether they are doing so, it is clearly the case that net neutrality laws will result in a slower internet.
Note 2: If ISPs really are monopoly then there may be legitimate concern that they will extact monopoly profit from content providers and that the absence of net neutrality will mean that we are trading a faster internet for a lower quality one (as profits to content providers decline). I don't buy this argument because at the head of the power curve, I think Google, Disney, Microsoft, et al or more than able to defend themselves. In the long tail, distribution costs are too small a fraction of total cost and profits are rarely financial. There is perhaps an argument here about the middle, but the regulatory hassle from Net Neutrality would be equally bothersome so it seems like a wash.
Posted by Alex at 06:43 PM | Comments (7) | TrackBack (1)
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Comments
Is the overall mechanical performance of the Internet the only issue at hand?
What about justice? And I mean in a Rawlesian sense.
Posted by: Adam at June 18, 2006 10:29 PM
I don't think I understand the argument. Can you expand on it a bit?
Posted by: Alex at June 19, 2006 10:49 AM
I'm having trouble understanding the words you put in my mouth. Internet provision has the problem of asymmetric information. The ISP knows full well exactly how congrested his links are, and exactly why. They can easily tell users that Google is slow because Google hasn't bought enough bandwidth, and tell Google that the user is complaining because Google hasn't bought enough bandwidth. In the meantime, the problem can be that the ISP has oversold his bandwidth to too many customers. In this manner, they can, without paying for one bit/second more bandwidth, charge both Google and the user for more bandwidth. Do you now understand why it can be economically more efficient to buy more bandwidth, but more profitable to the ISP to sell the same bandwidth to yet another party?
Even if you don't assume fraud, an ISP may act irrationally, preferring to bill their users and pay higher costs at the same time. In a free competitive market, you can ignore irrationality since it will be competed away over time. Broadband provision to the home is neither a free market, nor is it particularly competitive. Barriers to entry include sunk capital costs and political barriers.
Posted by: Russell Nelson at June 20, 2006 02:32 PM
The informational asymmetry point is actually an argument against net neutrality not an argument for it. Even if you assume that users can't tell if the connection to Google is slow because of Google or because of the ISP*, you also have to assume that Google can. Therefore Google is in a better position to buy bandwidth than the end user and is likely to buy more because it knows exactly what it is getting!
* An end user can use tools like traceroute to discover where the congested links actually are so I am not sure how good information asymmetry argument actually is.
Posted by: Alex Jacobson at June 21, 2006 12:33 AM
"you also have to assume that Google can."
I do have to assume that? Why should I start with an incorrect assumption? I sit at a knowledge confluence of Internet provision and economics. I fear from your answers that you do not.
Posted by: Russell Nelson at June 21, 2006 11:01 AM
Oh, also, I want to be clear that I think a completely deregulated market would function better than any legislated consumer protection. The problem is that we ALREADY have interference in market processes. While I can wish that it would go away, I know that wishes and fishes are in scarce supply. So, being realistic here, the question is not: legislation or market processes, but is instead: legislation or legislation.
Posted by: Russell Nelson at June 21, 2006 11:04 AM
By definition, network neutrality advocates are trying to stop ISPs from charging content providers like Google for QoS. However, ISPs can only charge content providers if they are willing to pay. Their willingness to pay would obviously be contingent on some way of measuring what they were getting. Therefore, if you are advocating network neutrality, you have to assume that Google et. al. can measure the QoS they receive from an ISP. QED
Posted by: Alex Jacobson at June 21, 2006 11:30 AM
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