Holman W. Jenkins Jr. has an op ed in the Wall Street Journal today arguing against net neutrality. He positions himself as someone defending innovation and particularly startups against incumbents like Google. For example, he says:
What if some startup Google sought to achieve the same goal by outsourcing its data management to the telcos, say, by mounting servers in their premises to help deliver Web applications more quickly? This would be a win-win for both parties. Data that travels within a carrier’s system is cheaper to deliver than data that must be handed off between two or more carriers. Would such an arrangement be a violation of net neutrality? Google would likely shriek so.
Huh? Pretty much every startup I know does host their web apps at telcos. My company Hunch, for example, hosts at Level 3. The 20 or so startups I’ve invested in all do as well. I’ve never heard any net neutrality advocate argue against this practice. It also sounds like he’s unfamiliar with CDNs like Akamai. In my experience those only tend to be affordable by large, international companies, so hardly favor startups.
He also seems unaware that there is already metered pricing on the internet today – it’s just paid for on the server side, by Google, Microsoft, my company, etc.
The greatest fear of Microsoft, Amazon, eBay and Yahoo is having to plumb their deep pockets and offer competing payments to broadband carriers to speed their bits to consumers.
I’m happy to show Mr Jenkin’s our Hunch bandwidth bill or he could just go look, for example, at Rackspace’s pricing page. Apparently he wants websites to pay twice, once to the hosting provider and again to the ISP. At any rate, I can’t imagine how “the more you pay, the faster your site runs” could possibly favor startups over cash rich incumbents like Google and Microsoft.
On the ISP side, he repeats the common anti-net neutrality assertion that there is genuine competition between ISPs. Maybe there is where he lives. Where I live in Brooklyn there is only one viable choice (Time Warner Cable). Maybe once Verizon FIOS comes to my area this will change but for now I can’t get it. At my office in Manhattan we couldn’t get T-1 service in our building, the Verizon DSL had atrocious quality of service and we ended up with only one viable choice – Towerstream WiMax beamed from the Empire State Building.
Finally, he argues that Google, Microsoft et al are just looking after their own interests:
But usage-based pricing that would give consumers a reason to think twice before clicking on a Google-sponsored ad? It would be the end of Google’s business model.
I agree this would be the end of Google’s business model. But it would also be the end of the business models of pretty much every startup that is ad based – the vast majority of consumer internet startups today.
Personally, I tend to think net neutrality legislation is unnecessary as true competition in the ISP space is likely and will prevent any use-based pricing from gaining traction. I am quite sure, however, that use-based pricing by ISPs would be disastrous for internet innovation, and especially for internet startups.
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An excerpt from my post today http://j.mp/3SLAS2 :
Iif the broadband/cable provider industry really wants to preserve the right to block, ration, govern and monitor internet activity on an a la carte basis, by all means, don’t be hypocrites and extend that privilege to everyone across all your services: Give your customers the choice of cable on an a la carte basis, such that I pay for only that which I use.
Open up the choice wide and let the free market decide.
* If customers are going to pay for all-you-can-eat cable or broadband, it should include full On-Demand access to every channel, DVR’d remotely and cached for say 60 days – if I want to watch 20 shows all broadcast at the same time in succession, give me the right to time-shift to my heart’s content.
* Rationed broadband access, benefiting the provider in terms of traffic optimization, would be less expensive than a net neutral provider
* A la carte cable would reflect people’s desire to pay for quality (demand represented by actual usage) vs. quantity (providers’ supply of 1000+ channels)
* Increased competition among providers based upon quality, not quantity, results in product differentiation and pricing segmentation that has been largely lost since the days when small ISPs competed with the big boys
It’s time to bust up the regulated monopolies and duopolies in the local broadband and cable access industry, discourage homogenized bundling, embrace choice and encourage competition.
You are a better man than me.
I can't even read the wsj op-ed.
The WSJ op ed is ill-informed to say the least. And yes, I partly agree to what you say – Legislation is a secondary issue. As long as the spirit of open internet lives on, innovation will continue to thrive. However, for true competition, you'd need more than two providers. In Bangalore, I get to choose from at least 4 pureplay ISPs (one of them a govt. owned telecom), excluding TVcable+ISP operators. As gbattle puts it, two ISPs would mean a duopoly. As you know, concerted price rigging is not uncommon when the number of competitors is small.
Nice post. Interesting arguments.
thank you,
Luis
Yeah, I agree. True competition would be the best of all outcomes. But when it comes to running wires to houses that's often hard to do. Maybe wireless will be the savior?
I had to stop myself before I read this post to read Jenkins' column first. You picked it apart, thoroughly.
Stupid question. Do we agree that serving bandwidth hogs and bandwidth mice equally may erode Comcast/TWC/VZ/ATT profitability at the margins? Won't this undermine incentives to build new pipes to your office (let alone upgrading existing pipes)?
This is the *only* issue I can see with net neutrality – honestly, I thought this would be points a, b, and c for Jenkins. But he didn't touch it. Am I missing something?
Yeah, I agree with you that ISPs should be able to throttle bandwidth hogs. I think most people including net neutrality advocates agree. I think most ISPs do this already. I know where I live Time Warner does gives you “burst” speeds of 30 megabits for web pages but then throttles down to much lower for big file downloads.
This isn't about capacity balancing. What the ISPs (in theory) want is to “do-commodotize” themselves by charging based on activity, the way mobile providers charge different rates for SMS, web browsing etc. So for example they could look at who is profitable (e.g. Google) and charge Google more for that activity.
Good smack-down. Happy someone is replying
I thought I took Holmen Jr out the the shed but was disappointed by the lack of comments and retweets. Maybe the tech world has already given up on the WSJ.
So, if I owned an ISP, I would be very concerned about the commoditization of my services. Because the more my services become commodities, the less I can charge, and the less profit I can earn.
And if I can't earn a profit on my current operations, why would I invest a dime to expand operations? If I'm an ISP, what's in it for me if I run a T3 pipe into Chris Dixon's office and I can't put his feet to the fire if he maxes out that bandwidth?
I highly favor allowing open, equal access. I'm just trying to reconcile this objective with ISP profitability, without which I don't see how we can ever get you a T3 line, let alone get broadband competition into Vermont, Kentucky, etc.
Good point. That's what this is really about. Commodotization and not bandwidth throttling etc. I am sympathetic to the ISPs but I would also say as an internet entrepreneur everyone I know thinks about starting internet businesses and not mobile businesses (iPhone may be a new exception) because the internet is much more of a “level playing field.”. Changing consumer pricing to be use-based raises alarm bells in the startup world – suggesting that the ISPs are trying to make the internet like the US mobile ecosysten, which is a terrible place for startups and consumers (although we are all hoping the iPhone might shift the power from the carriers to a semi-open handset platform).
Wireless being the saviour: Your guess is a good as mine. WiMax is widely deployed here in Indian metros. But it has its issues [my neighbour's WiMax antenna seems to insist on having a LoS with the tower!]. And I am not betting heavily on large scale adoption of broadband 3G data services. Not yet.
Yes, I can see how that would be a major cause for concern.
As you can probably tell, I'm looking for a way to fulfill the interests of both the ISPs and the next gen of internet entrepreneurs.
It's difficult, though, to see a future where ISP's aren't utilities. Or worse, utilities facing stiff competition.
Thanks for helping me think through my stupid question.
“Maybe the tech world has already given up on the WSJ.”
Yes. It's probably a great read if you take a series of tubes view of things. Also, the prior art of the WSJ walled garden, and the taste it leaves in tech world mouths, does not engender avid commenting. You can probably double your money on a bet that the lack of numerous comments actually supports some relic in a corner office that scoffed at the idea and concept of /comments/ in the first place.
Sounds like we should move towards a model of everyone paying, say, $100 for car gas each month, no matter how much they use.
Sophisticated counter argument. You must be a WSJ op ed fan.
Sometimes I am. I think net neutrality is a silly concept to worry about – from both the regulators' and users' point of view. The ISPs are basically utilities and should be paid accordingly- my gas analogy. The net is anarchy personified. – many issues here. And who will pay for it? Even the WSJ hasn't it figured out.
Keep in mind, though, that Internet service has *always* been a commodity market, since its inception. I accept that service providers would like for that to stop being the case, but keep in mind that the *change* is for bandwidth to *stop* being a commodity.
I don't quite understand your position as in one paragraph you say there's not enough competition but you conclude that the legislation is unnecessary because competition is likely.
Personally I think there's plenty of competition to choose between if you're a startup and can put your servers in any data center around the country, but there's a big lack of competition at the “last mile” level in many homes. So I'm fine with usage based pricing for data centers (which there already is), but I think we need legislation to prevent my only home ISP options from controlling what (legal) content I'm able to access on the Internet.
What's inconsistent about saying we need competition for last mile ISPs but the market seems to be taking care of it (clearwire, fios etc) hence legislation is probably unnecessary? Perfectly consistent to me.
What's inconsistent about saying we need competition for last mile ISPs but the market seems to be taking care of it (clearwire, fios etc) hence legislation is probably unnecessary? Perfectly consistent to me.