Selling the internet

Milena Popova looks at both sides of the net neutrality debate

Image: CC-AT Flickr: drumzo (Jonathan Rashad)

One of the three things I learned from my economics & politics degree (I'll tell you the other two some other time) is neatly summarised by the following stat: out of said three-year degree, we spent one week learning how the free market worked, and the remaining time learning about all the ways in which it doesn't.

Having grown up in communist Bulgaria, I have a known for a long time that the state is just as unworthy of our trust as the market. I find the example of net neutrality illustrates both points beautifully, so here’s a little look at the economics and politics of net neutrality.

The story so far: net neutrality is the idea that internet service providers (ISPs) should treat all traffic equally, as zeroes and ones, rather than differentiate based on the content those zeroes and ones represent.

Proponents of net neutrality believe that all users should have equal access to the net, regardless of the type of content they are viewing, the sites they are visiting, the platform or device they are using. If I can install Linux on a badger and want to use it to indulge my kink for Hansard, then I should be able to do that, without interference from my ISP.

Opponents of net neutrality, on the other hand, believe that ISPs should be able to discriminate against or prioritise certain traffic based on content or other factors. This would allow ISPs, for instance, to prioritise traffic from certain content providers, or to sell different packages based on content (much, for instance, like Sky TV does).

They argue that the free market will work it all out in a way that is fair and efficient, that there is no need for regulation. My colleague @robcoh has a fun model for this. He calls it the RyanAir principle: if you don't have checked luggage, or use the toilet on the plane, why should you pay for it?

Equally, if there is a part of the internet you don't use, why should you pay your ISP for access to it? Rob would quite like a Sky-style internet access package. Other customers may have a need for other types of packages - demand and supply will sort all of that out.

Here are just a few reasons why I am firmly in the camp of net neutrality proponents. Firstly, ISPs aren't content providers. They are infrastructure providers. If you're an online gamer, an iTunes customer or a Netflix user, you are already paying the content provider.

ISPs implementing Rob's Sky TV/Ryan Air model would be a bit like the council (which maintains the roads) charging you extra for your road usage depending on whether you're going to the cinema or to the shopping mall.

Now, there are good reasons why that is an incredibly attractive thought for ISPs. Infrastructure is a commodity, and commodities don't exactly carry a lot of profit with them. Bandwidth from TalkTalk and bandwidth from BT are pretty much identical, so the lowest price wins. Content, on the other hand, is "value add" - you can differentiate your product based on content and therefore charge a premium.

Secondly, if your ISP drops net neutrality in order to give some companies preferential traffic, you are being ripped off. You are paying for your broadband. The content provider is also paying your ISP for the privilege of delivering their content to you faster. One of these payments is pure profit for the ISP. That is very far from the free market as defined by economists.

Thirdly, there are issues with anti-competitiveness here. Let's say Sky - which is both an ISP and a content provider - decides that its ISP arm will prioritise traffic from its content arm over other content. That is clearly anti-competitive - a bit like Microsoft bundling Internet Explorer in with Windows, for those of us old enough to remember.

In a more general case, it also creates barriers to entry and innovation. If the next-big-thing in Web 3.0 can't get off the ground because it can't afford to pay ISPs to prioritise its traffic, you have a serious issue that has negative impacts well beyond just that one service.

Now, there is a flip side to all this. Broadband, like infrastructure investment of any kind, doesn't come cheap. I am told by people who work in the industry that the major ISPs who put out for the actual physical infrastructure are still waiting to make their money back on investments from the 1980s. This is partly why they're so reluctant to lay any new cable and therefore means there are still large chunks of rural Britain on dial-up.

One of the major economic issues here is that there are massive positive externalities (a form of market failure) associated with having a proper broadband infrastructure. That is, lots of knock-on benefits for all kinds of people and society as a whole which are so indirect and dispersed that ISPs can't monetise them.

There are entire new industries which could not exist without that infrastructure, but it's difficult to make everyone who benefits just from the fact that broadband exists (rather than from their specific usage of it) pay for those benefits. So in some ways ISPs carry the cost, while the rest of us reap the rewards.

Finally, there's a public interest argument here too. Connectivity is rapidly becoming a utility, an essential part of our infrastructure, like water, electricity, gas and transportation. Some countries in Europe are actually going as far as legally defining internet access as a human right.

These days, the internet is a key tool for accessing education, employment, government services, and for participating in society and democracy. Compromising net neutrality would jeopardise all of those things. You can call me a communist if you want, but those are not things I'm prepared to just auction off to the highest bidder. Or would you think it's okay for the water company in an emergency to prioritise supply to those who can afford to pay more?

The recent events in Egypt in particular have for me further highlighted that threats to net neutrality don’t just come from commercial interests – they can come from the state too.

On January 25th, Egyptians took to the streets to protest against their government. On January 27th, seeing that protestors were using online communications to facilitate protests, Egypt shut down the Internet. Twitter, Facebook and BlackBerry users reported major disruptions, and the next day the disruptions extended to general Internet access and text messaging. The Internet did not come back up in Egypt until February 2nd.

The significance of the Egypt Internet shutdown is not be underestimated. China, Iran and Tunisia all have used different forms of restrictions, for example on the content users can view, or the speed of the connection. But for a week in late January and early February, Egypt joined North Korea on a very short list of countries completely cut off from the Internet.

This is not the kind of thing you want to put on your CV as a leader of a country. The cost is enormous: the internet enables and supports business models which are impossible to sustain without it. Near-instantaneous information exchange is fundamental for modern financial markets - one possible reason why the ISP hosting the Egyptian stock exchange stayed online slightly longer than the others.

But it’s not just lost productivity that contributes to the cost: the main fibre-optic cables which connect Europe to Asia run through Egypt, and while those services remained unaffected, the uncertainty and speculation generated by the shutdown of the rest of the Internet in the country were not cheap. Some analysts even believe that the downgrading of Egypt’s credit rating was partly prompted by the disconnection.

Looking at the economic arguments alone it would seem there is a good case for the state to step in and regulate access to the internet in some way, in order to deal with the market failures I’ve described above. Looking at the lessons from Egypt, on the other hand, in some ways you want the state as far away from regulation of the internet as possible.

I don’t have an answer to this dilemma – but I do believe we should start asking the questions. And while we’re at it, we should be looking for answers from as many varied sources as possible: networking and technology experts, economists, lawyers, law makers, and activists - the kinds of people in short whom ORG is so good at bringing together. That way, maybe we can build a Web 3.0 that is truly open, neutral and robust.

 

Milena is an economics & politics graduate, an IT manager, and a campaigner for digital rights, electoral reform and women's rights. She tweets as @elmyra