Network neutrality or bulk rate discount?

Just read a crazy article trying to inflame people to be against network neutrality. Study: Google uses 21X more bandwidth than it pays for. The study essentially states that Google pays a lot less for its bandwidth than regular Internet users, and uses much more of it. The implication of the story is that because of Net Neutrality, Google isn't paying its fair share of the costs of the Internet, and the poor ISPs just want to be able to make the biggest companies pay more.

Let's dissect this a bit.

• What is Network Neutrality?
• Why is Google paying less?
• What are the real costs of the Internet?

What is Network Neutrality?

First of all, Network Neutrality is a political issue related to the fundamental ways we're charged to use the Internet. The EFF, most software and services companies, and most content providers are in favor of Net Neutrality.

People are charged for connecting to the Internet through a series of ISPs, and the ISPs pay telecommunications companies to connect to the wires and fiber optics that make up the Internet. On the Web, there are always two ends to Internet traffic--the web site you're visiting, and you. The Internet routes all the traffic between you and the web site. You pay for your connection to the Internet, and the web site owner pays a web host or a data center or an ISP to be connected to the Internet. For every web site you visit, two people pay: you, and the web site owner.

Network Neutrality is an attempt to keep this model of paying for the Internet, essentially by putting a toll booth at the onramp and offramp. Proponents of Network Neutrality (which includes me) think this is enough, and do not want to see other revenue streams going to support the basic wires, because it opens up a huge conflict of interest. Charging for the pipe to your house, charging for the bandwidth you use, these are fair systems for paying for the Internet.

Opponents to Network Neutrality include mostly telecom companies like AT&T, Verizon, Sprint, and many others. What they want to change is they want to put surcharges on particular types of traffic. The specific underlying cause for this is VoIP--with the rise of services like Vonage, Skype, and dozens of other VoIP providers have cut into the revenue of the traditional phone companies. So instead of raising fees to ISPs and allowing this traffic to flow unimpeded, they want to preserve their old revenue model, and discriminate against voice traffic that goes over data.

If we looked at this as a highway, with tollbooths at all the on- and off-ramps, the telecom companies would argue that they just want to be able to charge more for semis hauling trailers, so that those activities that take up more space on the road would get charged more than individuals who are just driving a family car. Sounds good, right?

Except that's not quite what they want to do. To extend our metaphor to fit, we'd need to add a high-speed train that the same companies also run. And then notice that they actually aren't charging the trucks as much as they're charging buses or electric cars or any other type of vehicle that might compete with their train service.

Network Neutrality does not prohibit telecom companies from charging whatever they want for traffic through their pipes. All it does is protect them from discriminating arbitrarily against different types of traffic. They could change from their current consumer all-you-can-eat for one monthly rate plan to charge by the GB of traffic, and none of the network neutrality folks would complain. Bigger bandwidth users will pay more for it. That's neutral. But saying that VoIP, or Bittorrent, or video calling, or instant messaging, or email, should be charged at a different rate than web traffic only serves to protect monopolies and inhibit innovation.

Why is Google paying less?

Quite simply, they pay less per giga-byte of transfer because they're buying it in huge bulk quantities. Regular home users do not get the best deal per giga-byte of traffic because most buy a flat unlimited plan, and never get close to the capacity they're actually paying for. Back in the dial-up days, you used to pay more to get more hours online. Now you can be online 24x7, but you're certainly not using all your bandwidth. That's why you're paying a higher rate.

Bandwidth does cost. Popular web sites pay high charges to get enough traffic to their servers, compared to home users. I'm sure Google's Internet charges are well into the millions of dollars, probably tens of millions. Divided by the giga-byte they're getting a great deal compared to home users. That is all this study is saying.

What are the real costs of the Internet?

Senator Ted Stevens did get it right in this respect: the Internet is a series of tubes. Think of the water system in any major city: Internet routers are like a pump station. An Internet backbone is like a water main between two pump stations. The copper wires or fiber-optic strands are quite like pipes, although data passes in both directions. As the pipes (the copper) comes out to your house, they get smaller and smaller, capable of carrying less data. Instead of water flowing over the pipes, it's data, which is really just a tiny amount of precisely regulated pulses of electricity (or light, in the case of fiber). And instead of there being a big reservoir that is the source of the water, the data flows both ways, so all end points can also be the data source.

Creating the Internet took a huge amount of capital investment, to lay the wires and fiber across the country. The telecom companies largely built this system. But once it's all built, there's very little cost to operate it--just a relatively small amount of electricity and a bit of maintenance when things break. Extending the Internet to new communities, laying faster fiber to existing places, improving the technology along the way, these are the places your dollars go. That, and into the pockets of the companies that made the initial investment (mostly by piggybacking on the copper and profits of the previous phone system). These companies obviously should be rewarded for making the investment, but now that the infrastructure is largely in place, paying them more doesn't necessarily result in further benefit to us.

The Internet should be managed like the rest of our infrastructure: our highways, our electrical systems, our water systems, etc. They should be managed like a utility, and not favor some interests over others. If their old business model of landlines is no longer viable, they shouldn't be allowed to crush more innovative competitors by limiting access to the wires we all need to share.

One of my clients has suggested that phone companies should be split in two, with the part responsible for the actual infrastructure treated like a public utility, granted a monopoly on that infrastructure but not allowed to compete with services that depend on fair access to that infrastructure. It's the very principle behind the idea of anti-trust, and I think it's a great approach. What do you think?