We don’t need net neutrality; we need competition

The minutiae of network topology and infrastructure are not traditional topics for comedians; seeing them discussed on late-night TV proves that the debate over network neutrality has truly made it into the mainstream. This is perhaps not surprising, thanks to some truly alarmist headlines, but also to the sheer importance of the Internet to modern life. Anything that could cause the “death of the Internet” surely concerns us all, doesn’t it?

But the network neutrality debate is a muddy one at best, with different people using the term in different ways. Regulatory enforcement of the idea would at best prove inadequate to achieve what people want. At worst, it might even prove harmful to innovation and progress, potentially outlawing existing widespread and harmless practices.

In addition, the current fixation on network neutrality happens to work to the advantage of the large incumbent Internet Service Providers (ISPs). While they may oppose network neutrality regulations (or, indeed, any legislative or regulatory limitations on their business at all), so long as the debate centers around network neutrality, the largest ISPs can be confident that nothing will challenge their dominant market positions.

There is another way. Proven “unbundled access” schemes can provide the same perceived advantages as the “network neutrality” idea while avoiding the difficulties that network neutrality regulations could impose. The approach has been used around the world to establish competitive markets that ultimately rely on market forces rather than regulation to ensure that ISPs provide a quality service.

What’s wrong with network neutrality?

Network neutrality, as traditionally described, is a straightforward proposition: ISP networks should not treat different traffic differently. For example, an ISP should not degrade the quality of Skype calls in order to promote the usage of its own landline or VoIP service. This kind of issue does crop up from time to time; Comcast, for example, agreed to pay $16 million to customers after it interfered with BitTorrent traffic to reduce the performance of the peer-to-peer file sharing program.

Until February of this year, the FCC had rules that required this kind of network neutrality. ISPs were prohibited from blocking services and from offering paid prioritization. Verizon fought against these rules in court and substantially prevailed.

However, the longstanding fight between Netflix and the ISPs has given rise to a broader (and less accurate) use of “network neutrality.” ISPs do not merely connect to a singular “Internet.” Instead, they have a range of connections to other network providers such as Level 3 and Cogent that provide connections between consumer ISPs, datacenters, and other providers all around the world. Some of these connections are free, others are paid.

These are joined by hosting and content delivery network (CDN) arrangements, under which ISPs let companies attach their servers directly to the ISP network to ensure low latency, high bandwidth access to customers—for a fee.

Netflix performance on both Comcast and Verizon has suffered because these connections have become congested. The ISPs want Netflix (or the providers that Netflix uses) to pay to upgrade those congested connections or pay to colocate CDN servers within the ISP networks. Netflix cried foul and complained, but it ultimately capitulated, agreeing to pay both Comcast and Verizon.

This issue has been seized on by net neutrality advocates. Although the Internet has long had paid agreements of this kind, and has thrived in their presence, there has been concern that this situation is in some sense a violation of net neutrality—it functions as a kind of paid prioritization.

Some fast lanes are fine. Others, not so much

Since its court defeat, the FCC has been working on new net neutrality rules. The current proposals would prohibit outright blocks of traffic but potentially allow paid prioritization, though nothing is final yet, and with the FCC speaking out against paid prioritization in the past, it’s by no means certain that such provisions will make it into the final rules.

These rules are also unlikely to have any influence on the connections between ISPs and other providers—the external connectivity that was the cause of so much squabbling between Netflix and others. The FCC may ultimately choose not to allow explicit paid prioritization, but the same CDN and peering agreements that have existed for many years will amount to the same thing.

It’s not obvious that the FCC can create rules about this behavior. Even if it were to somehow ban CDNs and paid peering, mere neglect on the part of the ISPs can be enough to cause problems for services like Netflix; if an ISP wants to promote its own streaming media solution ahead of a third-party one, it can simply choose to not upgrade capacity to Netflix’s providers. Prohibiting these agreements and mandating upgrades would be necessary to truly put an end to this kind of “non-neutrality,” but it’s not obvious that the FCC has either the authority or the will to enforce such rules.

However, even the rules that the FCC can create, to enforce neutrality within the ISP network, aren’t obviously desirable. Of course there are downsides to ISP interference, as the Comcast/BitTorrent case demonstrated. ISP tampering can be harmful to the end-user experience.

But one can imagine services that aren’t so harmful. For example, an ISP could offer a paid service to let end-users pay to prioritize, say, VoIP and multiplayer game traffic, to ensure the lowest possible latency. This would likely fall foul of network neutrality rules, but should it? That’s not at all clear; the latency impact on these services is real, and improving that latency is surely a legitimate action.

Other schemes might also fall foul of a strict net neutrality rule. In 2012, Comcast exempted traffic from its Xbox 360 streaming media service from being charged against data caps. Just this month, T-Mobile launched a new feature whereby traffic from some streaming music services isn’t charged against the monthly data cap. The effect is clearly to make some services more attractive to their customers than others; in Comcast’s case, it gives an advantage to Comcast’s own services, in T-Mobile’s it gives an advantage to third-party services. Is this neutral? Arguably not. Is it bad for ISP customers? Not obviously. Should network neutrality rules prohibit one or both of these things?

Network neutrality regulations cannot readily prevent the kind of ISP actions that have caused so many issues for Netflix and its customers, and they will tend to be over-restrictive, preventing the harmless as well as the harmful.

The real problem is competition

All these questions, however, dance around the real issue. The reason that these ISP policies are so troublesome, and the concerns over network neutrality so grave, is that the ISP market in the US is remarkably uncompetitive. It wouldn’t be a big deal if Verizon’s Netflix performance were suffering so long as Verizon’s DSL and FiOS customers had abundant ISP alternatives offering similar performance. Indeed, such competitive pressure would probably prevent Verizon’s Netflix performance from dropping in the first place.

While appeals to the power of “competition” can tend toward the hypothetical, that’s not really the case here. We have some evidence from the global bandwidth providers, the ones to whom ISPs like Comcast and Verizon connect, who have to operate in a range of markets. Some of those markets, such as the UK, are competitive. Others, such as the US, are not.

Last month, Level 3 wrote that consistently congested network connections were solely found in markets where a consumer broadband operator dominated. Level 3 has six congested peering arrangements that have remained congested for a year or more, with the consumer ISP refusing to expand capacity. All are connections with locally dominant broadband operators, and five of the six were in the US.

Competition works, and competition sidesteps the difficulties of drawing up the right regulations to ensure neutrality. In a competitive market, the root cause of poor performance doesn’t really matter. Regulators don’t need to concern themselves with the difference between prioritization on the ISP’s network and congestion at the edge of the ISP’s network. Market pressure alone will penalize ISPs that suffer poor performance and promote those that do not. Even if some ISPs choose to engage in non-neutral behavior, Internet users will have alternatives that do not.

Net neutrality protects the dominant ISPs

Network neutrality rules, however, do nothing to create this market pressure. The entire debate appears to take the uncompetitive market for granted: given that the ISP market in America is uncompetitive, substantially dominated by large providers with a range of local monopolies, how can we ensure that they do not abuse these monopolies too much?

The solution is to attack the monopolies head on. The incumbent ISPs obviously have a huge advantage over any putative challengers: they’ve laid hundreds of thousands of miles of copper, coaxial cable, and fiber to homes and businesses across the country. This last mile network would cost many billions of dollars to replicate, not to mention causing substantial disruption every time a road has to be dug up.

But the solution to this is well-known and practiced in a number of countries around the world—including, at one time, the US: decouple Internet service provision from the last mile network. This is perhaps most abundant in the EU, where it goes by the name Local Loop Unbundling. The wired telecommunications market in Europe was largely dominated by a series of national monopoly phone companies. In order to promote competition, the EU required that these incumbent operators provide third parties access to parts of its infrastructure, in particular the “last mile.”

Case study: The UK

The UK is one of the markets that Level 3 explicitly named as competitive; as a Brit, it’s also the one with which I am most familiar. The country’s phone market was dominated by British Telecom (BT), the once publicly owned national phone company. To meet EU and UK competition demands, BT’s infrastructure—in particular, the phone exchanges, last mile copper and fiber, and street cabinets—were placed into a division called Openreach. Another division, BT Wholesale, offers Internet services ranging from ADSL and ADSL2+ to FTTP on top of the OpenReach infrastructure.

With these services, BT Wholesale leases to ISPs both the last mile connectivity (including the relevant hardware in the exchange) and the aggregated bandwidth from the phone exchange to one of 20 aggregation points around the UK. Each ISP leasing lines from BT is then responsible for connecting from these aggregation points to the Internet. This is where ISPs connect to the networks of companies like Level 3 and Cogent. BT Wholesale sells to a range of ISPs, including BT’s own.

Providers can also skip BT Wholesale and deal with Openreach directly. They can get direct access to the copper last mile, installing their own DSLAMs in phone exchanges and providing their own backbone infrastructure. For fiber customers, Openreach provides Ethernet connectivity within the exchange, again with the ISP providing its own backbone infrastructure.

In this way, a range of competitive options is available. ISPs offer their own connectivity to the Internet itself, which means that BT isn’t in a position to limit access to any particular Internet services, and ISPs can make their own decisions about, for example, the use of quality of service among their users.

In my phone exchange, for example, I had a selection of eight different ISPs that installed their hardware directly onto the last mile (leasing directly from Openreach), along with something on the order of fifty to one hundred ISPs selling services backed by BT Wholesale’s products. Prices range from about $25/month for ADSL2+ (capable of up to 24Mbps or so) to about $50/month for 80Mbps FTTC.

A proven approach

The result, as Level 3 notes, is that there isn’t any major long-term congestion (though of course short-term issues can arise, as new connections can take a few weeks to establish). And as one might expect from competitive markets, the cost for end users is lower than it is in the US.

One concern of this kind of regulation is that it can discourage investment in the phone network. After all, if every company gets access to the upgraded network, the incumbent operator cannot achieve any competitive advantage by making upgrades. It’s unclear how much influence this has in practice—some countries that use unbundling schemes have higher average Internet speeds than the US. It seems likely that with a little finesse—for example, allowing the incumbent a limited exclusivity period on any substantial new infrastructure—the impetus to invest in the network can be maintained.

This is a model for telecommunications regulation that works. It provides the safeguards against poor performance and ISPs trying to promote their own services (or punishing competing ones) that the net neutrality proponents want, and it uses market power to do so. It permits innovative or experimental new services to be offered, while ensuring that customers will be able to choose the kind of Internet connectivity that they prefer. It does this while avoiding sticky questions about where the “non-neutral” parts may be, or endless tedious debate about whether a particular service constitutes a paid “fast lane,” mere paid peering, or something else entirely.

It does not do away with the need for legislation and regulations, of course, but by limiting the scope to the last mile, it makes that framework considerably simpler.

All it requires is the right mix of legislation and regulation.

Turning back the clock

Can that exist in the US? It has before. The Telecommunications Act of 1996 was passed to break up the local monopolies held by the Baby Bells. It required the various incumbent phone companies to provide access to exchanges and the local loop so that competing services could be established. This allowed competitors to the incumbent operators not only to provide voice telephone services, but also DSL, without having to install their own copper lines. The FCC was empowered to oversee this and decide exactly how this unbundling should occur.