I don't see how a normally libertarian-leaning group of people have embraced regulation rather than deregulation as to this issue. Why do local ISP markets tend towards monopoly, even though it has been illegal since 1992 to grant local cable monopolies? Two words: universal access.
It's the same principle that led municipalities to grant taxicab monopolies, of the kind that stifle companies like Uber today. The idea is that in a free market, providers would only focus on the profitable parts of the city, leaving the lower-income areas without service.
Universal access is why it's impossible to "disrupt" the market for local internet. A new entrant can't just come into the market and pick off the most desirable customers or the ones that are cheapest to service. They have to be prepared to service everyone, even many customers who can only be served at a loss, in order to be allowed to operate at all. Additional regulation in this space isn't going to eliminate the underlying problem, it will just make infrastructure construction a more unattractive business and decrease investment.
There is no free lunch. You can have: neutrality, universal access, or a mostly privately-funded telecom infrastructure, but you only get to pick two. If you think universal access is important, and net neutrality is important, you have to be willing to publicly subsidize the construction of telecom infrastructure.
PS. Some folks have mentioned BT OpenReach, but it's important to understand what did and did not happen there. First, BT was originally a government-owned corporation before it was privatized, so the government was in a position to set the terms of the privatization. Second, the government used a fairly generous "RPI - X" price cap to certain of BT's services. Between monopoly pricing power and a relatively generous price cap, BT made very healthy returns on investment. See: http://www.academia.edu/3399930/LESSONS_OF_PRIVATISATION_IN_... (p. 28-9).
In the U.S., unbundled DSL was a failure. First, it got caught up in litigation because the infrastructure was never public at any point. Second, it was an almost pure losing proposition for the telecom companies. The FCC mandated a not-very-generous cost-based price control (TELRIC), which made further investments in DSL infrastructure unattractive.
> I don't see how a normally libertarian-leaning group of people have embraced regulation rather than deregulation as to this issue.
Presumably because there is a difference between "libertarian-leaning" (to the extent that is an accurate description of the group described) and "having a blind, kneejerk preference for deregulation".
> Why do local ISP markets tend towards monopoly, even though it has been illegal since 1992 to grant local cable monopolies?
Because incumbents that got infrastructure built with government support in acquiring property for infrastructure as monopolies have an insurmountable advantage as a result of the access they acquired then, and effectively leveraged that cable infrastructure to internet infrastructure, whereas without direct government support that comes with that, its pretty much impossible for anyone else to build the necessary infrastructure because property rights.
> You can have: neutrality, universal access, or a mostly privately-funded telecom infrastructure, but you only get to pick two.
Okay.
> you have to be willing to publicly subsidize the construction of telecom infrastructure.
There are extensive public subsidies that have been given in the US for telecom -- and specifically broadband -- infrastructure [1]. So can we have our neutrality and universal access already?
>There are extensive public subsidies that have been given in the US for telecom -- and specifically broadband -- infrastructure [1]. So can we have our neutrality and universal access already?
Where do you live that you do not have universal access and net neutrality?
I don't see how internet is any less a natural monopoly than electricity. Picture a residential street with 100 completely separate fiber optic networks vs 10 vs 1, now which seems more efficient. It's not like everyone connects to a different Hacker News.
It's not obvious whether it's really a bad idea to have several independent fiber networks in the same geographic area. Choice is good. And it would also necessarily imply more total capacity, which is also good.
So deciding the "right" number of network operators in one place is subjective, and comes down to what consumers are willing to pay for. Or at least it would, if competition weren't illegal. There's nothing "natural" about the monopolies we have now.
And even if it turns out that a single network is the best arrangement, it should still be possible for municipalities to choose to own their own last mile fiber and buy transit at competitive rates. Which is also generally illegal in most of the US, thanks to the lobbying efforts of the big incumbents.
And it's also absurd that we're still letting analog-era regulations govern our use of wireless spectrum. We should really have ultra wideband wireless ISPs by now.
They do the same with the fibre network in Singapore, too.
I think the British rail network might work on similar lines? The German electricity companies emphatically do not work on those segregated lines. There are some politically pushes every once in a while---Germany has some biggest price differentials between domestic and wholesale electricity prices (and some of the highest domestic prices), but the regulatory capture seems to be too much to overcome.
Choice and redundant infrastructure are different things.
If you have one wide, dumb pipe, and you paid an ISP to route your traffic from some other point on said local pipe into the backbone, you would have tons of ISP choices. The only reason more ISPs do not exist is because of the infrastructure costs.
And those won't change. You will never be in a climate where it is haphazard to rip up roads or peoples lawns or add more mess to the overhead lines to run fiber channel everywhere. In terms of cost, the fiber cable itself is not even expensive - it is the manual labor installing it all.
> we're still letting analog-era regulations govern our use of wireless spectrum.
It isn't ideology, it is the current incumbent owners of spectrum like having artificial superpowers over the future of communication.
Because with electricity, everyone gets the same power. You're tied to the same grid; your provider just meters your usage, bills you, then pays wholesale prices for the power you used. But the system as a whole only measures inputs (from power generators) and outputs (consumers). It works for something like electric power where a volt is a volt and a kilowatt is a kilowatt.
With Internet access, you're looking for SPECIFIC packets. Those packets have to be routed in a certain way and delivered over a shared, multicast last mile infrastructure. If you want the ability to choose your ISP, then while it may be the same Hacker News, the route the packets take to get there might be very different.
> With Internet access, you're looking for SPECIFIC packets. Those packets have to be routed in a certain way and delivered over a shared, multicast last mile infrastructure. If you want the ability to choose your ISP, then while it may be the same Hacker News, the route the packets take to get there might be very different.
That is only really true in the parts of the network that don't matter for network neutrality. If you want to send or receive 500MB worth of data, the last mile doesn't care whether you're communicating with Hacker News or Google or Amazon, it's all going over the physical wire that comes into your house. It's only after you cross the last mile and get into the central office that the paths of packets diverge in every direction, but those are the parts of the network that have competition.
Your ISP does not give a shit where your packets are going to or where packets directed towards you are coming from. That is the backbones problem, and most ISPs do not manage it at all. For an ISP, it is effectively electricity - the cost to route a packet is always constant, assuming they don't have meterage deals with different backbone routers depending on the destination. To them, they just care where the packet is going, to just send it in the right direction either way. And maybe billing for data usage is a valid business model, but the real world per unit costs of packets are magnitudes lower than the per unit costs of even electricity in traditional measures like kwh. IE, the modern "pricing schema" for data, where a gigabyte costs multiple dollars, is an insanely unrealistic measure - if you are not paying for the wires in the dirt.
> assuming they don't have meterage deals with different backbone routers depending on the destination.
That's a big assumption, and an incorrect one at that. Most content delivered to large ISPs is delivered by CDNs over paid interconnects (and it's been that way for a decade or more). They either pay the ISPs directly or for transit at a peering point.
> IE, the modern "pricing schema" for data, where a gigabyte costs multiple dollars, is an insanely unrealistic measure - if you are not paying for the wires in the dirt.
If you're expecting pricing to be tied to cost, you're gonna have a bad time. That's just not how modern product pricing works for ANY product. You pay as much as the service is worth to you; if it wasn't worth it, you wouldn't pay it.
> Similarly, with electricity you're not looking for SPECIFIC electrons.
Actually, I am, though its more the source of those electrons. I pay more specifically to get as much power from wind/solar sources. This is an option on my power bill that I explicitly support. I would pay more for internet access that isn't comcast and isn't tied to their stupid bs.
>I pay more specifically to get as much power from wind/solar sources.
And you are able to do this because there is a grid network, which allows your alternative energy provider to enter the market simply by connecting themselves to it, instead of having to run cables to your house.
Actually not really, there is only one electric provider here, they just give you the option of choosing to prefer power generated with renewables or not.
I don't think the actual electrons come from there its just a budgeting trick I expect.
Of course it's a trick. If you're anywhere other than an island that has no transmission lines running to it and you pay for electrical service, you're connected to the same grid everybody else is. Your power comes from the same place everybody else's does. You don't actually have a choice of where your "electrons" come from (they come from the wires, by the way, generating stations just make them move around).
Your "preference" is nothing more than providing an extra subsidy to generating stations that make the electrons wiggle via renewable energy sources.
First, regulations regarding universal access have little in common with net neutrality regulations except that both are simply examples of regulation. A person might support one but not the other without crossing some logical event horizon.
Secondly, it's not clear that the implied solution in your comment ("more competition") would lead to firmer protections for net neutrality. Any changes to open the market to competition would take many years to come to fruition while current ISPs would jump at the chance to discriminate traffic immediately. By the time competition arrived, it is likely that the idea of traffic discrimination (and extortion) would have become so standard and endemic that it would no longer be a point of competition for these new competitors (especially true given how hard it is to explain net neutrality to laypersons).
It's for these reasons that I support both strengthening net neutrality regulation and loosening universal access restrictions (although, to be honest, I would rather have a government ISP with a universal access responsibility, similar to USPS).
Universal access is usually implemented as build-out requirements in an ISP or cable provider's franchise agreement. The exact terms vary by municipality, but build-out requirements are the general rule.
Statewide franchise agreements are usually layered. For example, there is a Delaware cable franchise agreement, but the City of Wilmington has its own provisions. Also, e.g., many places in Maryland have granted Verizon FIOS franchises, but in Baltimore there is no FIOS because the parties got stuck on a build out provision.
Not necessarily -- if a net-neutral infrastructure as a whole is profitable to operate, then it can be constructed and operated by profit-making businesses without subsidies. But in that case, you need regulation if you want to keep net neutrality -- which is what YC is asking the FCC for.
Merely being profitable is good enough if you're happy to maintain the status quo. If you want companies to invest billions of dollars of new capital to upgrade the infrastructure, you have to make that investment not just profitable, but an attractive one relative to other opportunities.
Simple question: Silicon Valley talks a lot about the problems with the telecom industry, but why does nobody want to actually invest money building telecom infrastructure? Google is the only one doing it, and they're only doing it on the condition of not abiding by any build-out requirements. See: https://news.ycombinator.com/item?id=7889163.
> Silicon Valley talks a lot about the problems with the telecom industry, but why does nobody want to actually invest money building telecom infrastructure?
The incumbent--descendants of local/regional/national monopoly telephone or cable--providers have little competitive pressure to do so, and other people face intrinsic (largely non-regulatory, except to the extent that real property rights are "regulatory", though there are some regulatory burdens as well) barriers to entering the market, which make it enormously expensive with very little chance of any positive return for most players.
But don't telcos face the same issue: enormous capital costs with limited prospects for attractive returns? E.g. FiOS is profitable, but the margins have been quite disappointing to shareholders. Indeed, observers have been skeptical about the value proposition of FiOS since the beginning: http://bits.blogs.nytimes.com/2008/08/19/a-bear-speaks-why-v.... Note that this article was written in 2008. As of 2014, Verizon is still below the 40% penetration rate assumed in the article: http://www.dslreports.com/shownews/Verizons-FiOS-Growth-Slow....
At the end of the day, the math has to work out. Everyone assumes, arguendo, that the value proposition of building out fiber is there, but if telcos continue to be required to offer universal service, and if they are forced to operate in a regulatory regime where they can't capture some of the money generated by services running on top of their infrastructure, it's not at all clear that the enormous investment into fiber is going to be justifiable for the shareholders of telecom companies.
Nobody's asking them to build this stuff out for free. I'm cutting a check north of $100 to Verizon every month, last I checked. And that IS them capturing some of the money generated by services running on their infrastructure.
If they're not getting enough money to continue building, first off, I find that hard to believe, second off, they should just charge more to consumers, either additional $/month or an additional fee per GB.
Orrrrrr we could have a crazy system where they manage 50,000 unpublicized relationships with different websites, charge them, pay the people to manage those relationships, and the websites charge more to consumers, hiding the pricing information about network connectivity in the process. That sounds way more 'free market', not to mention more efficient.
What's so anti-competitive and backward thinking about "I pay you $ for bytes, cough up the bytes"?
Please see the NYT article I linked. The per-subscriber capital investment into FiOS is almost $4,000, assuming that 40% of potential subscribers actually sign-up (Verizon is almost there, but still below that benchmark). Now, you're cutting a $100 check to Verizon every month, but how much of that goes to: advertising,[1] maintenance, paying for video content, etc? FiOS is about 70% of Verizon's wireline business, and Verizon's operating margin in that segment is about 22%, so let's assume the margin in FiOS alone is 25%. What's the value of a $25 payment discounted by 5% over 15 years? About $3,200.
As the author of the article above concluded, Verizon might not even come out ahead on each customer with FiOS.
[1] You can ask "why spend so much on advertising?" and the reason is that you want to maximize uptake, otherwise you spend a lot of money running fiber past houses that don't actually subscribe.
First off, most of the things you're taking out of the monthly were already factored into the fronted cost in the linked article. Second off, if Verizon does that shitty of a job of cost control compared to foreign government bureaucracies, maybe we should consider nationalizing them.
But back to my actual point -- It costs money to deliver the service? Charge more for the service if you can't deliver it profitably. That's fine, I even suggested that in my comment, charitably allowing for 2 different ways they can do it.
I'm going to pay anyways, whether it's a check to verizon or additional costs on my amazon streaming -- I'd rather pay up front for the service I'm consuming than f-up the marketplace with a bunch of submerged hidden transactions. That's why libertarians are on board with liberals on this, they believe in market transparency.
What's your objection to our actual point? Remember, raising the price for the service they deliver to their customers is ok, we're not arguing they should provide it at a loss. You'd rather the costs of the network were hidden in a bunch of backroom deals? You think that netflix paying comcast won't ultimately come out of consumer pockets anyways?
> First off, most of the things you're taking out of the monthly were already factored into the fronted cost in the linked article.
No they're not. They cover, e.g., marketing to get you to hook up in the first place, but not, e.g., marketing to keep you from switching to Comcast a year later. They account for the cost of hookup, but not, e.g., ongoing maintenance.
As to your other point, charging up front is not the same as charging services that operate on top. The former effectively creates a cross-subsidy: my parents who just want fast-loading web pages end up subsidizing Netflix junkies. Now you can charge per-GB, but Netflix really doesn't want to go in that direction. They're quite happy with this implicit cross-subsidy.
"Market transparency" is a red herring. You pay $10 per month to Netflix, because that's the value of that content to you. You don't care if some of that money goes to Verizon any more than you care that some of it goes to the studios that own the content. Indeed, the "backroom deals" ultimately have the effect of allowing Verizon to capture the costs from the people who derive the most value from the infrastructure, because the consumer value represented by one GB is not equal across services.
I must be doing a really bad job of writing, because you're not addressing the point I was trying to make at all.
I'm ok with paying $100 for internet access (well, not really, but still). If $100 cannot get me internet access at the advertised speeds, I'm ok with paying 120, or whatever additional cost per GB.
What I'm not ok with, is if $100 doesn't do it, Verizon goes out and shakes down the companies I do business with on the internet connection that I ostensibly paid for, who then raise their prices (gotta pay the bills) for reasons I don't understand. I'm still going to pay, there's no such thing as a free lunch. And not only does this obscure information about the real cost of my connection and the services I use (and that does matter), not only does it open the door to all kinds of anti-competitive practices around who gets the best deal with comcast/verizon, it's guaranteed to be less efficient than just upgrading the network and charging me for what it costs. Now I'm paying for all the hotel rooms and buffet spreads that went into that deal being struck? In addition to the cost of the fiber? Just build the fiber, and charge the customer (me) for it.
This is shared infrastructure. If it costs you $16,000 to build out to a neighborhood of 10 people, then you have to set the price at a point where you can amortize that cost over the maximum number of subscribers. The Netflix junkie may be willing to pay $130/month, but if he's the only one that signs up, your cost per subscriber explodes. Thus, if you're a provider, the amount of money you are willing to spend on telecom infrastructure is going to be dictated by how much that, say, 60th percentile customer is willing to pay, not how much the 90th percentile customer is willing to pay.
Now, you can ameliorate this somewhat based on per-GB charges, but people have an irrational hatred of that. The business deals on the backend are obscure, but at the end of the day, how much a customer spends on services on top of their internet connection is a decent proxy for how much utility they derive from that connection.
Why not just price it as $/month for X transfer, with $/GB above that rate? That'd be simple, transparent, no damage to the market structure of internet businesses, no future anti-trust cases, and we're straight-up paying for the infrastructure that we, as consumers, are using.
Is your case that more money would go to network improvements with the backroom deal routine? Have you considered that the backroom deal routine allows a lot more room for pocketing money and not really investing in the network?
I'm about as ok with paying $100 for internet as I am with paying $4/gallon for gas during the summer. Read: not very.
But that's what it costs. Make it clear to the consumer what things cost and they'll either curtail their usage or cough up the money. Maybe they should have a charge per GB of transfer over some monthly limit. I don't know. But obscuring it through a bunch of additional business deals on the back-end isn't going to make those costs go away, it's just a way to hide them and delay the day when ISPs compete with each other on actual cost per GB delivered.
> "Market transparency" is a red herring. You pay $10 per month to Netflix, because that's the value of that content to you. You don't care if some of that money goes to Verizon any more than you care that some of it goes to the studios that own the content.
If he's on $OTHER_ISP, I'm sure he's not thrilled that some of that money is going to Comcast and Verizon.
"If they're not getting enough money to continue building, first off, I find that hard to believe"
Entirely possible that they are getting enough money to continue but they want to take a break to inhale some excess profits not hindered by more expansion. Get something in the bank. (Kind of opposite of what Amazon is doing I guess.)
> If you think universal access is important, and net neutrality is important, you have to be willing to publicly subsidize the construction of telecom infrastructure.
Indeed, why isn't anyone willing to take this logic as far as it should go? Publicly funded highways have facilitated trillions of dollars of economic activity. How much more growth could be enabled via publicly subsidized gigabit fiber?
Your arguments suggest workarounds instead of a stable system. Libertarian mostly believe free market is a stable system, where things get evaluated very quickly and errors fixed without exception handling.
A good metaphor would be government trying to do try/catch all on entry point solving every little problem we have. While we should have explicit exceptions such as use of violence, fraud etc. We should not try to fix every little problem. When user enters data into a form, a password into the email field and an email into the password field. Sure you can make a change in code that would allow both cases. But now you have tons of other vulnerabilities exposed this very instant.
Thus. Neutrality means bandwidth cannot be manipulated by companies, well I remember 90s when we had LAN and private internet bandwidth shared with LAN. Bandwidth had to be chopped, http protocol had to get guaranteed bandwidth otherwise bunch of leechers would destroy vital internet access with their kazaaa, emule, napsters and what not. So Neutrality is not a necessity. While its not a big problem nowadays it was a problem back then and imposing this solution would have made it worse.
Universal access. Well I can easily argue that. There is a bunch of irresponsible people who build house in complete desserts. I know some people like that and they can that but society now has to fund them access to water, electricity and internet. I mean its their choosing. They can build their property closer to the city limits where they would get access to those for significantly less amount of money, they chose otherwise and they are free to do so. So should be I to not help them with their life choices. Problem only escalates as they start to demand shop/grocery access, leisure facilities, public transport etc. By making guarantees of those services we essentially lead to inefficient land usage.
> Why do local ISP markets tend towards monopoly, even though it has been illegal since 1992 to grant local cable monopolies? Two words: universal access.
It's true that universal access is what causes networks in major cities to lack competition. But getting rid of it wouldn't solve the problem anywhere else, because there are still millions of people who live in areas that couldn't economically justify more than one ISP. The only way those areas can justify the investment is if the ISP can collect revenue from a majority of the customers (and/or not compete aggressively on price), meaning that a competitor entering the market would cause both ISPs to become unprofitable and so no rational investor will be the second to service that market. Those geographical areas are natural monopolies. There is very little realistic alternative to utility regulations in those markets, short of massive government subsidies to create market conditions that can sustain multiple competitors.
> There is no free lunch. You can have: neutrality, universal access, or a mostly privately-funded telecom infrastructure, but you only get to pick two. If you think universal access is important, and net neutrality is important, you have to be willing to publicly subsidize the construction of telecom infrastructure.
That isn't necessarily true. What it means is that without public investment, the subscription fees for internet service have to be sufficient to justify private investment. It isn't at all clear that they aren't already at that level. The lack of investment in many markets is at least in significant part attributable to the fact that neither competition nor regulation currently provides a large incentive to make infrastructure improvements. But there is no reason that in markets with insufficient competition, regulations could not be made to create that incentive, e.g. allowing ISPs to charge higher rates only if they provide higher speeds and then over time increasing the required speed for a given rate. And ironically the rates required to justify a given level of investment would be lower if we had less competition, because the cost to wire a street is in large part proportional to the number of miles of road rather than the number of subscribers, so Verizon and Comcast having to build parallel networks each with half the total number of subscribers causes each to be significantly less profitable and that much less likely to make future investments. "More competition" is not a panacea.
And more than that, why is public investment in infrastructure a controversial position? We have public roads, what's wrong with public last mile networks?
> But getting rid of it wouldn't solve the problem anywhere else, because there are still millions of people who live in areas that couldn't economically justify more than one ISP.
So city dwellers have to subsidise the country folks?
> So city dwellers have to subsidise the country folks?
No, build out requirements are actually very stupid and we should get rid of them. It's just that getting rid of them doesn't magically create broadband competition in unattractive geographies.
It's the same principle that led municipalities to grant taxicab monopolies, of the kind that stifle companies like Uber today. The idea is that in a free market, providers would only focus on the profitable parts of the city, leaving the lower-income areas without service.
Universal access is why it's impossible to "disrupt" the market for local internet. A new entrant can't just come into the market and pick off the most desirable customers or the ones that are cheapest to service. They have to be prepared to service everyone, even many customers who can only be served at a loss, in order to be allowed to operate at all. Additional regulation in this space isn't going to eliminate the underlying problem, it will just make infrastructure construction a more unattractive business and decrease investment.
There is no free lunch. You can have: neutrality, universal access, or a mostly privately-funded telecom infrastructure, but you only get to pick two. If you think universal access is important, and net neutrality is important, you have to be willing to publicly subsidize the construction of telecom infrastructure.
PS. Some folks have mentioned BT OpenReach, but it's important to understand what did and did not happen there. First, BT was originally a government-owned corporation before it was privatized, so the government was in a position to set the terms of the privatization. Second, the government used a fairly generous "RPI - X" price cap to certain of BT's services. Between monopoly pricing power and a relatively generous price cap, BT made very healthy returns on investment. See: http://www.academia.edu/3399930/LESSONS_OF_PRIVATISATION_IN_... (p. 28-9).
In the U.S., unbundled DSL was a failure. First, it got caught up in litigation because the infrastructure was never public at any point. Second, it was an almost pure losing proposition for the telecom companies. The FCC mandated a not-very-generous cost-based price control (TELRIC), which made further investments in DSL infrastructure unattractive.