[iDC] Net Neutrality

Danny Butt db at dannybutt.net
Wed Jun 21 07:29:28 EDT 2006

Kia ora all,

I thought that with all the recent coverage on Net Neutrality that  
this list may find the following comment piece/summary of issues  
might be of interest, would be interested in feedback from this group.

Best regards,



Net Neutrality: No Easy Answers

Comment piece for Media International Australia, June 2006. http:// 
Pre-print, please do not cite or quote without permission.

Danny Butt, Suma Media Consulting

The concept of "Network Neutrality" has received a great deal of  
attention in the press recently, mostly due to so-far unsuccessful US  
telecommunications legislation proposals that required Internet  
Service Providers (ISPs) to carry any and all Internet traffic  
equally, rather than being able to prioritise certain traffic or  
charge differential rates for different kinds of content.

For the proponents of Net Neutrality, there has been and should be a  
clear separation between the provision of physical network  
infrastructure and the provision of content. Much as in the telephone  
system, the ISPs should be treated as "common carriers" which are in  
the business of providing access to all content on the Internet. In  
the U.S., for example, legislation until recently required cable  
television providers to carry all content packages and provide the  
latest technologies in all areas they served, even if it would be  
more economically efficient to provide only those content packages  
with which they had direct relationships. The policy justification  
for legislating for this openness springs from the limited  
competition in the telco/ISP/broadband area, meaning that users don't  
have true competition due to high switching costs and limited choice.

Net Neutrality proponents wish to see something similar for the  
Internet: a requirement that all ISPs provide access to all content  
on the Internet without different charges or reduced performance for  
content not approved or owned by the ISP itself. They want to see  
ISPs continue to charge purely on speed and volume rather than  
providing some services for free/cheap and making others more expensive.

At first glance, the issue seems like a straightforward benefit for  
consumers, worthy of public policy interventions. But for the ISPs  
and the providers of network services, different issues are at play  
that make it less simple. The Internet has transformed from a  
research network focussed on text and file transfer, to a highly  
flexible media and communications platform capable of emulating both  
the phone system and cable television. There are business pressures  
for ISPs to implement differential provision policies for Internet  
traffic for two reasons.

Firstly, Quality of Service (QoS) policies are required to prioritise  
important, time-sensitive traffic over less important traffic, when  
there are more requests than there is bandwidth available. For  
example, if you are video-conferencing, where maintenance of a  
certain data rate is necessary for uninterrupted viewing, under busy  
traffic conditions ISPs would like to be able to ensure you can see  
your conference uninterrupted, even if it slows down the person  
downloading a copy of a software programme next door. Similarly, if  
you are using Skype or a similar Voice-over-IP application to have an  
audio conversation, you would like to think that this could work even  
if you next door neighbour is downloading movies via a peer-to-peer  
file sharing application, where a few seconds delay is not going to  
make a difference to their experience. In Australia and New Zealand,  
a number of ISPs have already undertaken "bandwidth shaping" trials,  
or limiting the availability of bandwidth to traffic on common  
"ports" used by peer-to-peer applications.

In these examples, "non-neutral policies" that prioritise some types  
of traffic over others are an essential part of giving the customer  
what they want. The problem is that what constitutes benefit for the  
customer and benefit for the ISP's bottom line becomes blurred. This  
is the case when, for example, the ISP is also a telecommunications  
provider, and the extensive use of VoIP may be cannibalising their  
phone revenues, and the suppression of this traffic for "QoS  
purposes" just happens to reduce take up of VoIP. Or the ISP has a  
relationship with a content producer (e.g. major record labels), in  
which case preventing peer-to-peer traffic may play a role in  
encouraging users to download the music content on the ISP's website.

Differentiating between QoS discrimination for valid or anti- 
competitive reasons becomes even more difficult when next generation  
networks offer a "triple play" of voice, Internet, and movies from  
one provider. In this case, the ability to deliver specialised  
content services becomes part of the value proposition for the  
network, and motivates the consumer to purchase these services. Some  
ISPs argue that without the ability to guarantee certain use patterns  
they will not be able to fund the new networks and innovative  
services. For example, they would say, if you were considering  
signing up with ISP X for voice/Internet/movies, but read a review  
that their reliability on voice was not 100%, this would inhibit  
takeup of these new services.

While many small producers and consumer rights advocates (and large  
web companies who are not reliant on deals with highly branded  
content industries) have promoted Net Neutrality as equivalent to the  
deals between cable television networks and content providers, there  
are more complex interactions between content and infrastructure as  
intensive interactive traffic becomes the norm. In particular some of  
the new functionality such as that found in interactive television  
and gaming relies on a sophisticated relationship between content and  

A useful analogy can be seen in the gaming console market, where the  
console manufacturers need to innovate at a hardware level as well as  
negotiate deals with content providers to create a portfolio of  
available titles [1]. By maintaining licensing control over who can  
develop titles, console manufacturers are able to capture up to a  
third of the retail value of each game sold, and this is integral to  
their profits. This is crucial because price pressure on consoles  
means that the profit margin on the hardware console is low. For  
console manufacturers, a suggestion that they should all be able to  
play each others' games is infeasible.

The Internet, and the World Wide Web in particular was developed  
around a separation of traffic protocols, user environment, and  
content formats. Part of what made the web so ubiquitous was that you  
could view content on any operating system (Windows, Unix, Mac), via  
any browser (Netscape, Internet Explorer), over any kind of Internet  
connection (modem, LAN, wireless). This is what allowed the network  
to have a sense of neutrality.

However, the shift in the web from a predominantly text-based  
asynchronous information exchange platform, to sophisticated real- 
time applications (audio-visual media in particular), have resulted  
in more diverse, often proprietary platforms that link content,  
transport, and interface in new ways. Examples include Windows Media  
Center, or Apples FairPlay DRM format/iPod hardware/iTunes software.  
This shift is driven by a combination of user-experience requirements  
(users expect integration) and an attempt to gain control of the  
hardware-software environment for areas of growth content to allow  
multiple revenue streams and brand control, along the lines of the  
console model. The degree to which this is a prerequisite for network  
innovation or constitutes anti-competitive behaviour is an policy  
question whose dimensions are complex and with remedies which are  

A further complicating factor is that the highly branded content  
(music, movies) that is driving uptake of high-speed data services  
predominantly comes from offline sources where distributors not only  
controlled, but usually financed production. This is a very different  
model from the early Internet, where content was sometimes funded by  
ecommerce or advertising, but more commonly produced on a non- 
commercial basis. Or to put it another way, you can't charge people a  
premium for much of the text-only internet, but you can for episodes  
of Desperate Housewives. And if you're an ISP charging for access to  
those episodes, you're probably paying a lot of money for the rights  
to show them, so you are going to want to prioritise access to those  
over other video content.

The question of what viable economic models will look like under next- 
generation networks is central to the Net Neutrality debate. On one  
hand, it seems unrealistic to expect that the vertically integrated  
content & distribution model has no place on the Internet - to  
exclude it by legal means will probably delay the introduction of  
new, efficient distribution models that users want (see, for example,  
the role of iTunes in kick-starting the digital music downloads  
business). But it is also true that the public policy implications of  
Internet and telephone connectivity are much more substantial than  
those of a console operator or movie theatre: when people discuss the  
importance of information-literacy they are not usually talking about  
access to playing games on an X-Box or being able to watch a Disney  
film. There is a genuine public need for effective access to email  
and Internet communications.

Yet in the new Internet networks all these kinds of information are  
delivered through the same mechanism. A large part of the problem is  
that people in the US (in particular) assumed that the Internet was  
public because the protocol for transferring information is public.  
But the actual physical networks are owned primarily by private  
entities who interconnect via market transactions and they have many  
incentives to recoup their investment/seek profit by tying their  
access offering to what people actually want, i.e. content.  
Especially when, as Richard Bennett has noted, there is no money to  
be made in being an ISP without those services, and the Internet  
backbone providers are almost always telcos who are offsetting their  
costs with voice services [2].

The business models were different back in the early 1990s when it  
was primarily research institutions who owned the pipes, but that's  
not "neutral" or "public" in the way a government service is public.  
At least part of the blame for the current predicament can be laid at  
the feet of the "traditional Internet folks" who avoided government  
involvement in the Internet like the plague, and believed that a free  
market was the only way of preserving freedom of expression. A review  
of the history of other public utilities shows that in a market  
environment, governments might be the only mechanism that can  
realistically be subject to effective political influence in the  
public interest.

In summary, the Net Neutrality issue is not as simple as it might  
first appear. There could be genuine suppression of innovation from  
simplistic anti-discrimination legislation, yet imperfect competition  
is a feature of these networks which requires public policy remedies.  
The most important activity over the next few years will be  
clarifying what the most important public benefits of network access  
are, and developing mechanisms for supporting those benefits. In a  
rapidly changing network environment, these will need to be more  
sophisticated than simply arguing for a status quo, or worse,  
implementing poor legislation that is unresponsive to the business  
models that will shape the Internet's future.

Danny Butt  <http://www.dannybutt.net> is a consultant in new media,  
culture, and development, and partner at Suma Media Consulting  

[1] For an excellent overview of the value chains in this sector, see  
Johns J. (2006)"Video games production networks: value capture, power  
relations and embeddedness." Journal of Economic Geography 6(2): 
151-180; doi:10.1093/jeg/lbi001

[2] See comment on Tim Berners-Lee's weblog: Berners-Lee, T. (2006)  
"Neutrality of the Net" , Accessed 27th May 2006.

Danny Butt
db at dannybutt.net | http://www.dannybutt.net
Suma Media Consulting | http://www.sumamedia.com
Private Bag MBE P145, Auckland, Aotearoa New Zealand
Ph: +64 21 456 379 | Fx: +64 21 291 0200

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