Net Neutrality (Open Internet): The Real Issues and Resolutions

February 20, 2015
By: TMCnet Special Guest
John Wind

So, what’s all the fuss about with Net Neutrality you’re hearing about? On February 26th, the FCC may change the game and screw it up for everybody…

Let me start with this. The reason there are so many successful Internet companies such as Google, Facebook (News - Alert), Netflix, etc., is that they started with a blank slate and created a new and better way to create and deliver products and services. They didn’t try to amend an 80 year-old FCC law. They had a fresh start. And that’s where this paper will take us. But to get there, you need to understand some of the true issues and complexities of what happens when new business and old business models collide.

Simply put, Net Neutrality supporters argue that their ISP (Comcast) will either charge more for their broadband connection (or) limit speeds from heavy traffic websites such as Netflix. The reason is because of a gross imbalance of traffic that Comcast has to deliver without being paid for it by either their customer or by Netflix. And the Net Neutrality proponents and the FCC want Comcast to simply ignore their costs and provide equal service to all. Is that fare? Maybe but there’s a lot more to it…

True, Comcast is trying to hold onto a revenue model that’s on life support by trying to limit Netflix overwhelming traffic in favor of Comcast’s content and on-demand services. But why? Nobody ever asks that one now do they?

In the early days of cable (and still in existence today), Comcast doesn’t own the content you are paying to watch. They are nothing but “content aggregators”. The media owner (say, Paramount, or NBC) owned the content and paid Comcast to deliver the media on their cable network. Revenue was derived in two main ways. 1- Paramount or NBC would earn ad revenues from commercials and 2- Comcast charged their customers cable fees and some ad revenue. Pretty simple right? But then came broadband connections and streaming media. Now the content owner can deliver their programming directly to the consumer without paying Comcast. What’s wrong with that? Oh, I forgot to mention, Comcast does realize this, that’s why they bought NBC.

What’s at stake?

A lot… I’m pretty sure that most people want an “open Internet” at least that’s what we are hearing. I for one am for an “open, fair and stable” Internet. Please follow along; it will start to make sense.

  1. If we let the FCC assign Title II status (explained below), they will screw it up for everyone. They can’t govern the global issue and there are too many moving parts that are changing too rapidly for them to effectively regulate.
  2. If we let the ISP’s go unchecked with how they prioritize bandwidth, consumers and Web services and programming providers will get strangled until they hit the mat and call Uncle.
  3. If we do nothing, the next tech bubble burst (which is inevitable) will have rippling effects that are too dark to even want to think about here.

Ok, so what’s the real problem?

Money. Operating a broadband network is expensive and capitally intensive. The real problem is simple and complicated and as always, follows the money! Here it goes… The Cable Operators, and large last-mile services providers (AT&T, Verizon (News - Alert), Comcast, Time Warner to name the biggest in the USA) are desperately trying to hang onto a customer relationship and revenue model that is on life support and will never return. But there are reasons for that too. They need to make money on their services. If they don’t, they fail and the Internet as we know and love it breaks. It’s similar to the entertainment industry that made fortunes with a media distribution model that is already dead but they just are too upset to admit it. There, I said it!

What drives this in the USA?

As unpopular as this might make me, here it goes… It’s the American consumer that demands cheap products and cheap services, instantly. Oh, did I mention cheap? That’s right and it’s an attitude throughout the economy from gas to retail goods too. (Funny, it holds far less true with smartphones)!

Let’s back up a minute and get one thing perfectly straight…

The Internet is not “owned” by anybody. The only reason that it even exists is because around 50 global IP network providers have agreed to connect their networks together in order to be able to originate and terminate (deliver) their customer’s traffic. They do this through what are known as Peering Agreements.

These networks are all terrestrial-based (landlines). Should one of these networks deliver traffic to a wireless customer, they hand off that traffic from their peered networks and the owner of the wireless last-mile (let’s use AT&T Wireless for the example) has to deliver the traffic to the wireless customer. The more traffic that goes across a wireless network (which has its technical limitations) the more AT&T has in expenses and network upgrade (infrastructure) costs.

So, if you have two backbone providers, one with a huge traffic load (Level3) and one with far less (NTT/Verio) exchanging traffic between each other and say Level3 is carrying four times the amount of traffic in their relationship with NTT, they have what are known as “settlements,” which is where they settle up on charges for the imbalanced traffic. (Nothing is free).

I’ll tell you exactly what is wrong with that and also how to fix this…

Consumers want choices; cheap choices for rich entertainment. Netflix, Hulu (News - Alert) and other players are charging $8.00 or so per month to deliver a vast library of programming and the consumers love it. This programming is delivered over the Comcast network but totally bypasses any revenue for Comcast. So, is there a problem here?

Yes, there is a problem, a big one, but the American consumer is driving it. Here it goes… Comcast has an enormous cost in delivering broadband Internet services. For years they have offset that cost with relatively low monthly fees ($19.95 to $49.95 depending on the speed and programming package) and made up the difference with their programming fees (packages). When their consumer customers demand faster, more expensive broadband services and they disconnect from the Comcast’s programming (in favor of Netflix), Comcast’s costs go up and their revenue goes down. If Comcast’s average revenue per subscriber were $100/month with Internet and programming and it drops to $50/month (or less) for only broadband services, the model breaks and they can’t support their network, much less invest in upgrades. Yes, that is a very big problem for everyone, and I do mean everyone.

I have long been a supporter of unbundling broadband and programming. Let me pay $100/month for the fastest broadband possible, let me get my programming from the Internet and don’t penalize my programming providers. So, Comcast, you are now only an Internet pipe to my home and you can make money on that without impeding quality of service or consumer choice. That’s it!

What are the Netflix’s of the world doing wrong?

Nothing. They realized that they push an overwhelming amount of traffic to Comcast across the public Internet and deliver it to the Comcast network. So, what if Netflix (not an ISP) connected to Comcast’s network directly with a large “pipe” and paid them for the traffic? Oh, right. They just did that last year and there is nothing wrong with that. Comcast offsets their dwindling programming revenue, Netflix is contributing the overall wellbeing of the origination and termination model put in place under Title II many years ago and the consumer gets what they want—cheap, high quality service with the power to choose.

What role are the FCC and the Net Neutrality proponents trying to play?

A very dangerous role in my opinion. The Obama administration is “encouraging” the FCC to assign “Utility Provider” status under Title II of the Communications Act of 1934 (as amended several times) to ISP’s just like the terrestrial telephone companies and the electric utilities. What does history tell us if they do that?

  1. Broad oversight on regulating fees.
  2. Dangerous oversight with security be it the NSA or CALEA for law enforcement.
  3. Taxation at every level, including federal taxes on purchases and any other transaction that occurs across the regulated utility. Remember, the Federal Excise Tax on your phone bill was suppose to be a temporary tax to help fund the Spanish American war over 115-years ago. (It was never repealed).
  4. It’s important to note that the current regulated utilities under Title II own the originating and terminating points of their network. Huh? Ok, the phone company provides dial tone and they originate and terminate phone calls. The electric companies generate their own power and deliver it to their customers. That is not how the Internet works… Not even similar.

So, what is Title II?

Briefly, Title II imposed many rules for landline telephone service. The same held true with these telephone carriers. It’s called “Ingress and Egress” which is the rights for common carriers to originate and terminate phone calls to each other’s networks to ensure that calls were not held hostage by any one prevailingly incumbent carrier. The FCC regulated what fees carriers could charge for these services among themselves. These were called “Settlements”. Sound familiar?

Understand this is NOT a U.S.-based issue. To understand the implications (and relative authority the U.S. Government has on ISP’s), it is very important to understand the global players and that the backbone of the Internet is really provided by dozens of carriers on a global basis.

So, who and what needs to be protected AND held accountable?

I’ll start with what should already be obvious at this point. Keep Title II as far away from ISP’s as possible. This is a global issue.

  1. We need to protect ISP’s so they profit and can continue to provide best-of-class service or the entire Internet breaks. The ISP’s should NOT be allowed to “block ports” to deny the delivery of Web services or entertainment. They need to be held accountable and cooperate with Web services providers.
  2. We need to protect the consumers so they can make their own choices and maintain best-in-class service.
  3. We need to protect the Web service providers that give us all of the programming (Netflix) as well as cloud and application services.
  4. We need to protect the growth of Wi-Fi, which is dependent on terrestrial broadband services.

How do we fix the problem and please everybody?

As I pointed out earlier, ISP’s interconnect their networks through private Peering Agreements. Regardless of the FCC and lobbying efforts, this has been done since the early days of the Internet and the original public Metropolitan Access Exchange (MAE) points in Washington DC., Chicago and Los Angeles.

Let’s be clear and honest here.

The Internet of today and tomorrow affects virtually every aspect of our lives globally. From healthcare to finance, education, business and consumer services to housing markets and more. Every point must balance or the consequences are life-changing.

As pointed out earlier, there are three main players across a very broad and complex arena of services.

  1. ISP’s, cable operators and backbone service providers.
  2. Consumers and everything they use the Internet for (not just entertainment).
  3. Web service providers that give us all of the programming (Netflix) as well as cloud and application services.

The Solution.

That said, I propose a very bold approach to oversight that protects all parties, reduces government influence and insures prosperity and security in the event of failures in the system. Here it goes…

Create an independent Internet Board of Governors.

Take the World Bank as an example (sort of)… The creation of an Internet Board of Governors that is backed and supported by initially the U.S. Government and then pushed on globally to be supported by the G-7 countries and expanded globally through the EAU, LATAM, Asia, etc..

The Board of Governors would consist of elected members each being the representative of critical areas that the Internet affects. Each of the following would be committees with internal and external professionals providing experience, oversight and recommendations to do with “everything Internet.”

Each country’s Board would have their own Chairman and counterpart in other countries.

Pretty bold but what would they oversee?

As the World Bank and various Federal Reserve Boards are responsible for currencies and fiscal policies, they would primarily provide oversight and resolution for the following policies.

Summary

I for one am a large proponent of the Internet and everything that it has to offer the world. I am not a proponent of the current FCC approach to regulate ISP’s under Title II. It is very short sighted and doesn’t begin to address the real issues and the overall global impact of the Internet.

We have the chance to affect change that really impacts the important issues. The world won’t start nor stop if my Netflix connection slows down. Nor will it change most lives if your monthly fees get unbundled so you have more choices.

Addressing the world as a whole and what makes the Internet tick and the unparalleled affect is has on every aspect of life could be within our reach. It takes some bold thinking and starting with a “blank slate”.

The FCC and Net Neutrality is NOT the right answer. Let’s get it right this time!

About the author: John Wind has been a guest speaker at many national trade show conferences, he is a published author of marketing strategies and has been a founding member of major Internet innovations, including the The NAP of The Americas in Miami, with Florida Governor Jeb Bush’s Internet Task Force. John has also served as the Marketing Co-Chairman of the IMS Forum [Formerly the International Packet Communications (News - Alert) Consortium] and has been an active participant in major industry associations and trade show organizations including The VON Coalition (News - Alert), Internet Telephony and CompTel/ALTS. He can be reached at info@jwicom.com and his personal profile is at http://jw3.me

Images via Shutterstock




Edited by Maurice Nagle