Nyquist Capital

The New York Times writes an editorial on Net Neutrality, thereby launching the issue into the mainstream. In typical Left leaning fashion, the NYT comes out for government regulation of ISPs, and argues that consumers should be guaranteed service regardless of application.

Net neutrality is about big media against big telecom, not big telecom against the consumer, though that is not what the NYT and digital elitists would like you to believe. The reality is that different types of internet consumers exist, and they should pay different amounts for different types of service. Just as the Tragedy of the Commons parable shows:

Benefits of exploitation accrue to individuals, while the costs of exploitation are distributed between all those exploiting the resource.

The telcos have done an awful job of arguing for net neutrality, and have caused such an uproar that Congress cannot back away without extracting a pound of flesh. One of the more sensible things Verizon (VZ) or AT&T (T”) could have presented at the congressional hearings is some recent insightful data ( .pdf link ) on internet use in Japan, where high-bandwidth services are most deployed.

The presentation clearly shows the following has happened in Japan once bandwidth speeds are increased:

• 4% of the fiber internet users account for 75% of traffic usage
• These ‘heavy-hitters’ are no longer an exceptional extreme, and appear in larger numbers when the offered bandwidth increases
• The dominant application driving high bandwidth use is peer-to-peer media downloading

A closer look at the data clearly shows that internet consumers already fall into two tiers.

Note this is a logarithmic chart, the consumers in the upper right are orders of magnitude above the main cluster. The model that ISP’s use ( x mb/s down, y mb/s up, always on, regardless of whether you use it or not) is clearly being exploited by some.

The American carriers must see exactly the same patterns and they are frightened. Big telco comes from a background where every single call, every bit of data must be delivered. Quality of service is paramount, but to keep this promise to all users they will need to increase backbone capacity.

The carriers are seeking a way to recover additional costs from consumers who make the decision to behave in a certain way by downloading very large amounts of media (Video, Audio, software). As peer-to-peer goes legit through paid media downloading services, and more people start taking on usage characteristics like the folks in the upper right-hand corner of the picture, someone will need to pay for more connectivity.

The other option is that one class of users is required to subsidize the usage of a smaller class - i.e. currently 96% of the users pay for the usage of 4%. The result? The price of broadband goes up, and fewer people subscribe - an outcome everyone would agree is not desirable.

In short, a small fraction of users engaging in peer to peer networking is dictating the capital expenditure requirements for backbone bandwidth. If net neutrality becomes law here in the US, carriers will be forced to pass these capital expenditure costs along to all users, regardless if they are a member of this 4% class.

Why doesn’t it surprise me that the traditional political boundaries (and newspaper editorial pages) frame the issue perfectly?

This isn’t an issue about protecting the rights of consumers. The media providers like Google (GOOG) and Yahoo (YHOO) are dead-set against this as it is money out of their pocket. They would rather have the consumers who don’t use their services pay for those who do.

Tiered usage already exists so why is it wrong to charge for it?

Other related posts on this popular topic:

• More Government != Better Broadband
• Fred Wilson on Net Neutrality
• IPTV and the Rising Sun
• AT&T and Whitacre on Net Neutrality
• Verizon Network Hog Nonsense

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Hat Tip: .pdf link courtesy of MuniWireless