Will Net Neutrality Lead To Usage-Based Internet Fees?

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Yesterday, Federal Communications Commission (FCC) Chairman Julius Genachowski spoke about his desire to keep the internet free and open. Most of his talk centers on the idea of "net neutrality." The principle broadly states that internet access should be unencumbered. To most consumers, this probably sounds wonderful. To most internet providers, it probably doesn't. They'd rather have control over the data. This is a complicated issue, with lots of moving parts, but I'd like to focus on the principles of net neutrality that Genachowski explains, especially a new one.

Towards the second half of his speech, he turns to what he considers to be the six principles of net neutrality. The first four were more well-known:

Network operators cannot prevent users from accessing the lawful Internet content, applications, and services of their choice, nor can they prohibit users from attaching non-harmful devices to the network.

I think those are at least relatively uncontroversial, despite the fact that they aren't always followed. For example, Genachowski says:

Notwithstanding its unparalleled record of success, today the free and open Internet faces emerging and substantial challenges. We've already seen some clear examples of deviations from the Internet's historic openness. We have witnessed certain broadband providers unilaterally block access to VoIP applications (phone calls delivered over data networks) and implement technical measures that degrade the performance of peer-to-peer software distributing lawful content. We have even seen at least one service provider deny users access to political content. And as many members of the Internet community and key Congressional leaders have noted, there are compelling reasons to be concerned about the future of openness.

It sounds to me like he's not-so-subtly talking about Apple's decision not to allow Google Voice on its iPhones. A while back I noted one angry column reacting to this decision by Andy Kessler. He noted that, eventually, there won't be voice, text, music or TV, just data. I think that's right. What AT&T, Apple and others need to do is price their plans in this manner. Instead of, say, $40 per month for voice and $30 for data, plans will eventually just be all inclusive of whatever kind of data for $70. The question, of course, is whether that data plan is priced to be unlimited or based on usage.

The second complaint in that quotation -- when internet providers deny access to political content -- is completely unacceptable. Censorship has no place on the internet.

Then, Genachowski introduced the last two principles:

The fifth principle is one of non-discrimination -- stating that broadband providers cannot discriminate against particular Internet content or applications. This means they cannot block or degrade lawful traffic over their networks, or pick winners by favoring some content or applications over others in the connection to subscribers' homes. Nor can they disfavor an Internet service just because it competes with a similar service offered by that broadband provider. The Internet must continue to allow users to decide what content and applications succeed.


The sixth principle is a transparency principle -- stating that providers of broadband Internet access must be transparent about their network management practices.
Why does the FCC need to adopt this principle? The Internet evolved through open standards. It was conceived as a tool whose user manual would be free and available to all. But new network management practices and technologies challenge this original understanding. Today, broadband providers have the technical ability to change how the Internet works for millions of users -- with profound consequences for those users and content, application, and service providers around the world.

The sixth is also pretty uncontroversial. I see no reason why internet providers shouldn't be transparent about their policies, particularly if they are all required by law to adhere to essentially the same rules anyway. The fifth, however, is a little tricky.

In modern American culture, discrimination has a terribly negative connotation. When you think of discrimination, you think of racism, sexism, ageism, and lost of other -isms that sophisticated people just shouldn't tolerate. The only thing that the tolerant can't tolerate is intolerance.

In reality, however, individuals and businesses discriminate every day -- just in more socially acceptable ways. When you choose to have a turkey wrap for lunch instead of a Burger King cheeseburger, you might be discriminating against unhealthy food. When a business hires a Wharton finance major over a University of Iowa English major, it might be discriminating against liberal arts and a lesser-ranked school. Neither of these decisions generally involves scorn from sophisticated individuals.

Businesses also discriminate to earn the highest profit. An airline may cancel a route where there are not enough travelers, because running the route just isn't profitable enough. Genachowski's fifth principle would prevent such discrimination for internet providers.

For example, imagine if there were certain types of file sharing programs used by college students to share music files that drained an extraordinary amount of bandwidth. Since the internet provider, say Verizon, charges based on a flat fee, instead of usage, it's highly unprofitable to allow that application to operate through its servers. But Verizon has no choice if the FCC upholds the fifth principle.

This presents an interesting sort of disparity between how internet providers behave compared to most other businesses. Usually, companies want consumers to use as much of their product or service as possible. Then they'll buy more and those companies will profit more. But the more bandwidth consumers use, the more it costs internet providers, without a corresponding increase in revenue; thus, more usage lowers their profits and provides less money to invest on new infrastructure.

That's why I worry that the all-you-can-surf model for internet access is not sustainable. It's akin to all restaurants being all-you-can-eat. Clearly, for light eaters it's not a very good deal. But for heavy eaters, it's great. Now imagine if those restaurants had no choice about whether or not they serve caviar and foie gras. Then it would be an even worse deal for light eaters who don't have expensive tastes. In order to accommodate the FCC's desire that internet providers not discriminate among content or applications, before long usage-based fees will probably be necessary.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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