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Source link: http://archive.mises.org/5163/network-nationalization-net-neutrality-in-action/

Network Nationalization: Net Neutrality In Action

June 9, 2006 by

Many of the columnists at geek-centric websites such as Techdirt, ArsTechnica and BoingBoing have come down in favor of State intervention in the form of “net neutrality.” Ironically however, they also lament other kinds of regulations including censorship and privacy violations. For instance, in the poll currently running on Techdirt’s front page, they ask what concerns you as a netizen the most. In addition to “net neutrality” the idea of “government spying on phone and internet” is also an option.

The irony is that if “net neutrality” as lobbied by many of the PAC’s, content providers, politicians and Slashdot/Digg users is legislated, then the FCC and other agencies will essentially be allowed to spy on all Internet traffic. In fact, the FCC – the same governmental organization charged with censoring media – would have to monitor every data bit in order to determine if any VoIP conversation had lower quality, if all email was routed the most efficiently, if any video had been tampered with by an ISP. Ad infinitum.The double-speak is painfully obvious. The EFF has sued AT&T and other telecoms for allowing the NSA to eavesdrop on all of our phone conversations, emails, instant messages and now even social networks (see Wired magazine’s coverage for more). Yet, to logistically monitor all of the data, the FCC would need to do precisely what privacy advocates have accused the NSA of doing. And oddly enough, the EFF also supports “net neutrality.”

Aside from State intervention in general, the biggest problem surrounding this issue of “net neutrality” is that of economics, and more precisely scarcity. Arguably, the inherent value of price discrimination based upon bandwidth scarcity is no different than the various postage rates used to deliver mail. While the packages are all the same, the speed and quality at which they are delivered is continually affected by the supply and demand of the provider’s capacity. Thus, a multi-level price structure based upon ever-changing variables ensures that both land and wireless providers’ resources are allocated in the most efficient, productive and profitable manner.

The Only Long-Term Solution

It should again be mentioned that the telecom providers are also at fault for having used State-granted monopolies and subsidies to protect their rent-seeking and inefficient business models. And in seeing this injustice, traditionally laissez faire nerds have unfortunately become armchair regulators.

The easiest solution to the quagmire is also the most politically unacceptable: deregulate the entire telecom provider industry, break up the State-enforced monopolies, abolish the FCC and return all communications to the private endeavors of free enterprise.

So while some anti-net neutrality commentators are indeed sycophants of corporate interests, I can assure you that I am not. And in an effort to shine a light on a free-market solution, I would be more than happy to publicly debate this issue with a moderator of your choice.

Note: to quash a couple of urban legends: no, the Internet was not originally developed to survive a disastrous war. Charles Herzfeld, who was director of ARPA at the time, has noted that it was designed to effectively and efficiently manage and utilize relatively scarce computing resources across the country. And contrary to popular history, routing Internet traffic was never a Nirvana that withstood the pressures of business economics (see the spat between Cogent and Level 3).

Inspired by Mike’s latest. See also, Terminating Net Neutrality.

{ 10 comments }

Sean Lynch June 9, 2006 at 12:23 pm

How to get Net Neutrality: destroy the telcos. Their assets should just be sold off to the highest bidder, one piece at a time. Even if they gave the cable plant and right of ways over to *local* governments, we’d have a situation that’s better than the one we have now, with huge corporate behemoths created by government regulation. That’s fascism. Local socialism is better than national socialism. Much easier to move from city to city than from LEC to LEC or nation-state to nation-state.

Vince Daliessio June 9, 2006 at 2:42 pm

Sean,

Your thinking is good overall, but you are perpetuating a kind of “sunk costs fallacy” when you call for a government breakup of the telcos. As big and bad as they are, they are precariously balanced on federal regulation.

Take that regulation away, and they will either re-organize into rational, competitive enterprises, or else collapse from the weight of their archaic non-infrastructure (I’m thinking copper wireline here).

Mike Masnick June 9, 2006 at 4:29 pm

It’s really hard to know where to start on this, but, first and foremost, I’d appreciate it if you didn’t put words in my mouth. I have not “come down in favor of State intervention.” What I have said, repeatedly, is that almost all of the arguments against net neutrality seem to be full of lies and misleading statements — yours being no exception. That doesn’t mean I’m in favor of state intervention. I’m not, directly. I’m in favor of actual competition — which the state has made sure doesn’t really exist (on that point, we agree).

The irony is that if “net neutrality” as lobbied by many of the PAC’s, content providers, politicians and Slashdot/Digg users is legislated, then the FCC and other agencies will essentially be allowed to spy on all Internet traffic.

Um. No. Not even close. If you can’t get the basics right, it’s tough to take you seriously on anything else.

In fact, the FCC – the same governmental organization charged with censoring media – would have to monitor every data bit in order to determine if any VoIP conversation had lower quality, if all email was routed the most efficiently, if any video had been tampered with by an ISP. Ad infinitum.

Wow. This is blatantly false and doesn’t have a ring of truth to it. It’s flat out, 100% false. I’m actually *not* a fan of having regulations over net neutrality at all (despite what you claim), but there is nothing in any of the proposed legislation that even gets into the same zip code as what you wrote above.

Aside from State intervention in general

Yeah, stop signs are bad!

Arguably, the inherent value of price discrimination based upon bandwidth scarcity is no different than the various postage rates used to deliver mail.

Except, that, no. There is no natural monopoly in mail delivery. There is a gov’t supported USPS, but there’s real competition from others, and there is no limitation on others coming into the market, thanks, in large part to the open availability of roads and highways (damn that state intervention in building those!).

Tim Swanson June 9, 2006 at 4:42 pm

Below is my reply to an email from MN:

Hi Tim – I do not understand why or how complete privatization is going to solve this issue – I’m what you’d call a ‘regular consumer’, paying my $45/month. If Comcast was not offering unfettered/untiered internet in the area where I live, east of Seattle, WA – I’d have no other choice (other than DSL, which sucks in terms of speed) for a fast ISP. If Comcast decided to prioritize my traffic, I’d be, in so many words, royally screwed.

Here is an example without further adue – I am using Skype for Voice-Over-IP communication with my mother in Europe. If Comcast decided to prioritize _their_ VOIP traffic packets, this means that Skype traffic will be passing through, albeit at a lower speed. This also means QUALITY of _my_ preferred choice for communication would decrease.

Are you saying that _this_ is fair/open?

While the telecom’s are certainly capable of doing such a thing, and may end up doing it, their “abuse” is not because of a free-market. The only reason they have such leveraging power in the first place is because they were granted regional monopolies. These still continue to this day.

Abolish these protections and new entrants can join the fray. To defend against competitors taking customers from them, the telecom firms would have to compete not only on prices but also features, including the ability to access 3rd party utilities such as Skype. Why? Because in order to lure customers away from the incumbents the new players would have to offer something such as price differentials or features, features that customers want.

Another example is, I’d like to read ANTIWAR.com and Justin Raimondo. If Comcast provides me with their newsfeeds from garbage news sites like CNN – and SLOWS down ANTIWAR.com, should I keep quiet because ‘privatization is the answer’?

Again, the telecom’s are operating a State-protected cartel. While the firms are indeed “private” they do not have to deal with market forces as other non-regulated industries do. Think of the highly regulated energy industry as something similar; sure you have “private” companies running superficially independent of the State, but the State still has a heavy hand in so its business that it is often times difficult to seperate the two (not to mention that the State intervenes and errects barriers to entry, and subsidizes the incumbents by allowing rent-seeking prices).

Your article is very high-level and a 50,000 feet view of what happens on a grand scale – but you have got to think from the grass-roots approach – here’s me, little man, paying for net access – now I can no longer view sites I was able to view unencumbered because Comcast owns the cable infrastructure, and they decided to do what they thought was in THEIR best interest, rather than MINE as well as theirs.

Comcast in part owns it because of regulations, not because of the free-market. And it is my understanding that Comcast is not one of the companies talking about doing this, yet. In fact, they recently boosted the bandwidth speeds of users por gratis.

I don’t understand how complete privatization can have MY interests for what I’m paying (the 45/USD per month) for internet access equally represented and valued as their profitability interests.

Are you suggesting that if everything is completely privatized, then people will abandon comcast if they start hating it, and someone else will dig a trench to my house and build me another internet connection? Who, if any company, has the power/resources to do something like that and cover a major area like the US or the world? Digging up holes in the ground and laying cable is anything but cheap for even the most powerful companies in the world.

A lot of the “dark fiber” surrounding cities today was originally constructed by firms wanting to get into the national ISP business. This “dead” infrastructure (unused fiber optics) are being bought by firms like Google. While it may still be some time until it is fully deployed, Google and many others will ultimately operate wireless clouds throughout cities across America. By doing this, they are ultimately leap-frogging the nasty building permits/regulations that protect landline firms like AT&T from outside competition.

I really do not understand the ‘total privatization’ principle you’re calling for. If you have time, a response would be nice as I’m grappling with this issue for a while now. It directly affects me since I depend on the internet to do my job.

The main thing to keep in mind is that the free-market, one without State regulation, did not create the bureaucratic industry we have today. And regulating the industry even more is certainly not going to solve the problem of State-protected firms. Abolish the subsidies they receive and remove the laws surrounding competition and you will then begin to have more options.

It should also be mentioned that through net neutrality Skype is also trying to use the State to erect barriers to competition as well; by not allowing others, including the telecoms to create their own software. Why can’t other firms, including those that own pipelines create their own applications?

And I’ve mentioned it elsewhere, how come the same proponents of “net neutrality” do not use their reasoning on other “non-egalitarian” markets, such as movie rentals? Where is the ‘Movie Rental Neutrality policy?’

To the chagrin of its power users, Netflix was shown to be throttling “unlimited” rentals earlier this year. Where is the call to arms for a nationalized Movie Rental Neutrality policy? Where are the petitions to prevent Hollywood and Blockbuster video from charging higher rates than Netflix… after all, the DVD’s are all the same, right? And what about those lonely independent kiosks found in grocery stores?

Scott Cleland points out some of these hypocritical absurdities in his blog.

Tim Swanson June 9, 2006 at 5:20 pm

Mike Masnik wrote:

It’s really hard to know where to start on this, but, first and foremost, I’d appreciate it if you didn’t put words in my mouth. I have not “come down in favor of State intervention.” What I have said, repeatedly, is nd off the record, I was not trying to target you perthat almost all of the arguments against net neutrality seem to be full of lies and misleading statements — yours being no exception. That doesn’t mean I’m in favor of state intervention. I’m not, directly. I’m in favor of actual competition — which the state has made sure doesn’t really exist (on that point, we agree).

I agree with your statement that many of the arguments against net neutrality seem to be misleading, more or less because they do not advocate the abolition of barriers to entry or the removal of subsidies for the incumbents.

Wow. This is blatantly false and doesn’t have a ring of truth to it. It’s flat out, 100% false. I’m actually *not* a fan of having regulations over net neutrality at all (despite what you claim), but there is nothing in any of the proposed legislation that even gets into the same zip code as what you wrote above.

While you are right in that the verbage in the bills has not been literally written as such, the fact that in a bill such as HR5252, where someone can complain to the FCC that their VoIP conversation was prematurely truncated or quality was lowered, should raise some alarm. Just as the FCC monitors television and radio transmissions for inappropriate behavior or “abuse” so to could they now monitor electronic transmissions to make sure pipeline owners don’t discriminate. That is fairly vague and open to interpretation.

Yeah, stop signs are bad!

If the State did not subsidize and prevent competition in road construction, both land use and traffic patterns could be very different than today. Private firms, with incentives to provide the fastest and most efficient routes would fight for customers. Intuitive organization and structure would undoubtedly be part of that plan. So I doubt that the almighty Stop Sign would some how disappear just because free enterprise is now making highways.

Except, that, no. There is no natural monopoly in mail delivery. There is a gov’t supported USPS, but there’s real competition from others, and there is no limitation on others coming into the market, thanks, in large part to the open availability of roads and highways (damn that state intervention in building those!).

Exactly. The main reason why the USPS has a monopoly on “First Class” mail is because they are subsidized. Remove the subsidies and either the USPS would go bankrupt (like a normal company) and/or other firms could finally move in and compete against them.

Again, regarding public roads: the current system should truthfully be called road socialism. And as I mentioned in my previous article, one of the chronic problems plaguing public roads is traffic congestion. There is no pricing mechanism to discriminate between off-peak and on-peak times; the roads are a clear illustration of the tragedy of the commons. Internet traffic experiences a parallel phenomenon: throughout the work week, network traffic peaks during the day and declines at night — a cycle also found on public streets.

Sean Lynch June 9, 2006 at 5:53 pm

Vince: You may be right about the precarious situation of the telcos. I really don’t know how the value of their right of ways and plant compare to the ongoing costs. I guess without a government-granted monopoly things should head for equilibrium pretty quick.

Regarding MN’s email: I believe it’s only the telcos, not Comcast, who are the ones talking about charging for preferred access to their customer. Comcast seem to be going out of their way to show how “content neutral” their network is.

Regarding MM’s response, first of all the stop sign thing is such a huge straw man that I don’t think Tim should have bothered responding to it. Plenty of private roads have stop signs and speed limits, and you can be banned from the road for ignoring them.

I’m going to assume you dorks are talking about the USPS, not the United States Patent and Trademark Office. Only specific services are subsidized in the form of the government’s buying USPS services on behalf of the poor and handicapped, and there *are* limitations on entrants: it’s illegal for anyone but the USPS to deliver third class mail. The USPS uses the revenue from this government-granted monopoly to subsidize losing prices on their other services, basically harming the private entrants to the market. So you’ve got a legal barrier to entry for third class mail and a truly-unfair-competition barrier to entry in all other forms of mail.

Joshua Katz June 9, 2006 at 9:10 pm

In response to Mike Masnick:

If I advocate the state handing out money to the poor, I might be accused of supporting taxation. This accusation would be fair, since it is logically necessary that if we are to have welfare, and welfare is needed (so we don’t have sufficient voluntary contributions), then we must have taxation in some form. So, by advocating welfare, I would have advocated putting guns in people’s faces to demand payment. Similarly, you do not directly advocate for what Tim claims you do – but they are necessary consequences of those things that you do advocate for.

Regarding your stop sign comment – we Austrians have learned to have patience, but someone posting on an Austrian board, who makes comments showing themselves to be at least 20 steps behind in the argument, gets tiresome.

William June 10, 2006 at 1:04 pm

Net Neutrality does not and will not exist. There is no mechanism to make it work. Who decides who gets bandwidth? George Bush and his pick for FCC head? Congress? Who decides which new technologies will work best? A panel of academics? The point is that there is force OR competition. The less force the greater the competition and vice versa. I vote for less force and then the competitors will bring the best technology at the cheapest prices to consumers. Otherwise the whole business of providing networks will fall as government takes over for competitors.

galets March 15, 2007 at 9:32 pm

just wanted to share some of my own experiences with you… As it’s often happening is our politicized society, when someone is talking about making the game fair to consumers, it might just mean the opposite. When I hear about consumer protection acts, I actually think: here comes some more legal base to protect big company FROM consumer claims.

but enough observations, just facts: I recently received a message from Skype, which read: “our free calling services to USA and Canada has ended, if you want to call USA and Canada for free, subscribe to a yearly plan”. I thought: this is pretty neat! Plan seems to be fairly cheap and I have a wife in Moscow, Russia. Why not get an unlimited calling plan so that she can be calling me on the cellphone whenever she wants? So, I went to the Skype website and read terms. I felt a little uncomfortable when I noticed that offer is only valid in USA and Canada, but I thought: okay, she might not physically be here, but I am. So as long as I sponsor her purchase, we’re fine. In the end, how will they determine where one comes from – by ip address? No way in hell this is going to happen.

guess what – it DID happen. I started noticing that regardless the unlimited calling plan on account, all of her calls were charged per minute anyway. I contacted the customer service to have charges rolled back and received an answer: “you’re calling from a foreign IP address, we are not providing this service to outside IPs”. This was not mistake – they were dead serious – you can call USA phone for free, but only if your IP is based in USA

Why would that be a case? Skype doesn’t incur any additional costs by connecting call coming from an IP in Russia, nor any other one for the same argument. We’re not in China. Skype has no pressure from government to limit the freedom of communications. There is no geography in the internet – it’s supposed to be one big network where any node freely accesses any other node free of additional cost. So, why is the convenient calling plan being blocked from non-USA ip addresses? The only reasonable explanation is because Skype doesn’t want to allow people use discounted rates when they can charge them full price. When it means revenue, it’s ok to bend concepts to your own advantage.

Now you should see why I take the struggle of “fair” Skype with “wrong” providers with a grain of salt. Skype is as wrong as they are. It just uses our support to bet a bigger piece of pie and once a piece of pie is received it would exploit consumers with the same unfairness as every other big corporation does

averros March 15, 2007 at 10:07 pm

In Russia ISPs charge separately for (or impose restrictions on) international traffic, because its long-haul communications infrastructure is still underdeveloped and overloaded.

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