A couple of months ago, Jeremy Geelan at SYS-CON asked me for my predictions
about the tech industry in 2008. They just published my predictions in their
end-of-year issue, highlighting the prediction that "Network Neutrality Will Take an
Even Worse Beating in 2008". You can see my other predictions on their
site, but I'd like to go into more detail about network neutrality here. After
reading this post, you should have a clear picture of how network neutrality
affects you, and how Microsoft and others in the industry think about network
neutrality and the upcoming 700MHz spectrum auctions.
What is Network Neutrality?
Any time you read a blog post, send a twitter, or check your e-mail, you're
depending on two very different types of businesses:
- Software or content businesses write the services or create
content for you to enjoy. A few random examples include Wordpress, Yahoo!
Finance, XBox Live, and Twitter. Since software and content can easily be
created and copied, these businesses need to be creative about how they protect
against competition. New competitors can pop up any time. Example strategies
for protection include copyright and patents, hiding the software behind a
service or inside hardware, or establishing moats based on profile data.
- Bandwidth providers enable you to access to the services
and content. Verizon and Comcast are examples. Bandwidth is a scarce physical
good similar to real estate, limited by basic
laws of physics. New competitors cannot create bandwidth the way they can
create software or content. If you want to connect from a certain place, you
need to connect through the person who owns the bandwidth. Obviously, making
profit from a physically scarce good is very different that making profit from
software or content.
You are just a serf on the bandwidth provider's land. Every time you read a
web page, you are using a physical good which they own. Every time you
put up a new web site for others to enjoy, you're relying on the bandwidth
provider's largess. Of course, the bandwidth providers wouldn't make much
money without cool services and people to use them, but the point is that it's
their bandwidth -- not yours, not Microsoft's, and not Google's.
Now, when you own a piece of property, you want to control how it's
used. For example, you might happily let your neighbor plant flowers in your
yard, but you might charge him for the right to grow a vegetable garden, and
you'd just say "no" if he asked to raise pigs in your yard. Likewise, the
bandwidth providers want the kind of traffic that's the most convenient and
profitable for them -- and they want to exclude or charge a premium for traffic
that is less convenient.
Since companies like Microsoft, Google, and Yahoo make a living on the
bandwidth providers' land, we depend on them being as "neutral" as possible
toward us. We ask two primary things of bandwidth owners:
- Do not discriminate against data traffic based on the
source, application, or company. For example, if Comcast developed a
proprietary e-mail system, and then started charging triple for all web-based
e-mail traffic, that would be bad for Hotmail. If a backbone provider in China
found it profitable to redirect all Google search traffic crossing their network
to Baidu, that would be bad for Google.
- Offer access as uniformly and universally as possible, and
don't exclude people in rural areas. Bandwidth is infrastructure service, like
mail or electricity. American history would have been rather different if
people in rural areas had to pay more to
receive mail, or if the government had not subsidized deployment of
telephone and electric transmission to rural areas.
Microsoft and Google are pretty
much on the same page regarding network neutrality. So, besides pleading
and cajoling, what are Microsoft and Google doing about network neutrality? To
answer that question, you need to understand the upcoming 700MHz wireless
spectrum auction.
The 700MHz Auction
When the FCC recently announced that it would be auctioning off a huge chunk
of 700MHz spectrum, people were excited. This is probably the last
big auction of bandwidth, beginning in a couple of weeks and shortly after.
People became even more excited when Google announced intentions to bid on the
spectrum. In fact, Microsoft
has been lobbying Congress to open up this spectrum, specifically because
700MHz can be used to provide broadband in rural areas.
Microsoft's interest in the spectrum, followed by Google's interest, has led
many
to speculate that our companies want to become bandwidth owners. While
Microsoft's motives were less ambiguous, many are still convinced
that Google intends to win some serious spectrum in the auction. Only in my
wildest dreams would Google actually bid high enough to win, and then be saddled
with a business they know nothing about. Not long after I sent my predictions
to SYS-CON, Om
Malik got it right, explaining that Google doesn't actually intend to win in
this auction.
Google's bid was essentially a PR stunt engineered to get the FCC to impose
neutrality constraints on whoever wins the auction (likely Verizon will be a big
winner). The stunt worked, sort-of. First, the FCC agreed
to some of the constraints. Then, Verizon
announced that they would pledge to adhere to some neutrality principles on
their own.
So, if the 700MHz auction bodes well for rural broadband, and if Google
succeeded in driving some modest pledges of neutrality in the 700MHz auction,
why do I say that things aren't getting better?
Trending Away from Neutrality
It's true that things could have been worse, but the gap between bandwidth
haves and have-nots will only get worse from now, and discrimination based on
traffic type will only increase. Note that this analysis is U.S.-centric, but
there is some applicability to international as well.
For starters, this is the last big auction, and thus the last opportunity for
the FCC to intervene in this way. And the federal government seems to have less
interest in pushing rural bandwidth than they had in rural electricity and
telephone. Distributing ultra-fast fiber in densely-populated urban areas is
far cheaper than deploying fiber to rural areas, so companies like Verizon are
being very selective about where they deploy this capability. Today, if you are
a banker in Manhattan or a computer engineer in Seattle, you can get high-speed
FiOS at a price that would bankrupt a poor Mississippi farmer -- but if the
fiber ever makes it out to the Mississippi farmer, it will cost him a LOT more
than it costs you.
And even within urban areas, the penalty for being poor is high. Let's say
that you pay $120 per month for the "unlimited" data plan on your cell phone.
You'll probably use 1GB of data for that $120. In contrast, people paying
per-SMS message are paying somewhere between $500 and $2000 per 1MB of data
transfer. This is more than 5,000x the rate that you pay for your mobile data.
The same sort of disparity will emerge as fiber is selectively deployed to
people who can afford it.
In addition to the growing gap between haves and have-nots, the bandwidth
owners are becoming more
bold about hijacking services like search, and many bandwidth owners are
already engaging in tricks to slow down
people who use protocols like bittorrent. The bandwidth owners have no
responsibility to tell you if they are doing this, and the techniques are
designed to be pretty much undetectable. Your downloads just run slower or
crash frequently, and you eventually get frustrated and do something else.
The bandwidth providers argue that such "traffic shaping" is necessary for
the continued survival of the Internet, and seem to have convinced at least
one "cute" reporter at the Economist. But it's difficult to see what the
content and service providers can do about it anyway. There is a limited amount
of bandwidth available, and the moment that people watching mobile video on
their iPhones (for 12 cents per megabyte) start to compete for traffic with SMS
(which makes $500 per megabyte), the iPhone video is going to suddenly get
really unreliable. People who use large amounts of bandwidth to download
movies, while paying the same amount as the guy next door who uses 1/10th the
bandwidth, will have to get used to an unreliable connection or else upgrade to
FiOS.
Other than an occasional PR stunt or congressional hearing, I don't see any
major changes on the horizon; so we can expect things to continue on the current
trend for at least the next year.
