Wednesday, January 5, 2011

netflix, level3, comcast & 'network neutrality'

This Gizmodo story captures perfectly all of my issues with network neutrality.  It starts out with the usual hysteria,  claiming that there's some giant threat to the Internet from Evil Corporations.  (Hey, remember the days of "OMG they are gonna tax our emails!").

After some time to ponder the issue, however, Gizmodo groks the situation:

Indeed, recent reports suggest that Netflix is responsible for a fairly absurd amount of bandwidth, and as Wired points out, the contracts that dictate who is responsible for carrying what traffic are largely left undisclosed to the public. Comcast's statements (unsurprisingly) shift the debate from one of net neutrality to the esoteric and largely uninteresting business of service providers negotiations.

But let me 'cast' this situation in a slightly different light.  Let's imagine that 20% of Comcast's bandwith is being gobbled up by Netflix users.  Now, the infrastructure that Comcast has to build out is expensive stuff.  Under 'network neutrality' regulations, Comcast is no longer allowed to pass on any of this cost to Netflix.  What happens?  Does Netflix's business continue to grow?  No.  Does Comcast build out additional network to support services like Netflix?  No.  At least not as quickly as they might have.  And if they do, who pays for it?  Well, all of Comcast's customers pay for that buildout.  Including the ones that don't use Netflix.

Even if Netflix realizes that this is bad for their business, they are not allowed to voluntarily give Comcast money to help defray the cost.

In an unregulated environment, Netflix helps defray Comcast's costs, and the users that actually gobble up all that bandwidth help to pay for it.

So which situation is preferable:

1) network neutrality: netflix is not a viable business model, because the bandwidth to support it is not there.
2) network neutrality: netflix still works, but all of Comcast's customers are forced to subsidize those customers that use it.
3) unregulated: netflix works and grows, and comcast grows.  Everybody wins.

Notice that I haven't yet mentioned the fact that bittorrent traffic probably consumes even more bandwidth.  Once again, all of the ISP's customers are forced to subsidize the minority that are saturating the network with (mostly pirated) bittorrent content.  This is actually an interesting problem, because although bittorrent itself is relatively easy to block, its successors will not be.  Newer protocols will almost certainly involve some kind of cloaking/encryption, which will be deliberately indistinguishable from legitimate encrypted content.

Services like Netflix and iTunes represent legitimate high-bandwidth services, the kind that will eventually make pirating less attractive.  So we are in the midst of a shift of traffic from bittorrent to netflix/hulu/itunes/etc, and I think most people will agree that is a Good Thing.  But network neutrality regulations may well stifle this transformation.  I don't know about you, but I don't like paying $100+/month to subsidize johnny-down-the-block's massive porn collection.

But oops, you have no choice.  Because network neutrality means that Comcast isn't allowed to filter out bittorrent, even if it consumes 80% of their bandwidth.  So $80/month goes to johnny-down-the-block, and $20 goes to your own connection.  Yea! The Internet is Saved!


  1. The whole debate is silly, because the real problem is lack of competition on the last mile.

    If we had true competition, then in an unregulated environment if Comcast wanted to do something stupid like redirect all traffic from Google to Bing, then you'd swap providers and the market would instill some semblance of fairness.

    The current situation is trying to dance around the competition problem by handcuffing the ISPs.

    There's no doubt in my mind that Comcast will protect it's cable business over it's internet business, because it knows that it's got a last mile lock on the market. So we're going to see some odd behavior from Comcast over the next few years as it desperately tries to hold on to it's cable revenues. Net neutrality is an admittedly misguided attempt to hedge against that future.

  2. In your example, the pipe provider could charge by bandwidth. No need to discriminate by content.

  3. I think bandwidth-filtering and content-filtering are entwined issues. And your subtle understanding of the issues will not survive once the ink hits the regulatory paper. Legislation has a way of enshrining historical artifacts... imagine all the modem-related regulations that we probably avoided by the previous hands-off policy.

    Another example. Two kinds of 'futures' are currently forbidden by SEC: onions and movies. The ban on movie futures was a blatant gift to the MPAA, and only happened last year. But the onion-futures ban dates back to the 50's.

    But yes, you have uncovered my true position. I think we should 'let' ISP's do *whatever the hell they want*, whether that means filtering out any mention of LGBT's, or any mention of Tiananmen, or replacing all pictures of Paris Hilton with pictures of Hedy Lamarr. Our job as consumers is to not let them get away with it. We have the ultimate power, which is the power to walk away from the deal.

    It's nice to imagine that you can ask the government to preserve network neutrality, but in the real world it just won't work. The law will just get co-opted by vested interests.