Governing the Internet/Net Neutrality
Justin Breese, Dragan Mlikota, Shamel Schand, Shruti Worlikar
Brief History 
Net neutrality is not a new concept relative to the age of the Internet; its roots are embedded within the founders. Net Neutrality refers to a guiding principle that preserves the free and open Internet with no discrimination. It makes it such that an Internet Service Provider (ISP) cannot discriminate the speed of the connection - or lack there of - to one content provider versus another (Eudes 2008). When the Internet was first invented, founders wanted to be sure that it was to provide a safe haven for the transportation of information without any biases. They wanted to ensure that all people had a consistent way to access to the Internet would be able use the Internet; regardless of their connection and social status (Margulius, 2003). Net Neutrality has two polarizing factions; those who are in favor, and those who are not. On this topic there is not a middle ground. Those who are in favor of Net Neutrality consist of organizations like Microsoft, Google, and other content providers. Those who are against Net Neutrality are generally made of telecommunication network organizations and/or ISPs (Owen 2007). The roots of Network Neutrality have been pointed towards the 1887 Act to Regulate Commerce. Within this law exists the following verbiage: "It shall be unlawful for any common carrier subject to the provisions of this act to make or give any undue or unreasonable preference or advantage to any particular person, company, firm, corporation, or locality, or any particular description of traffic, in any respect whatsoever, or to subject any particular person, company, firm, corporation…” Initially this law was to regulate the railroad system. At that time, certain rail lines were being accused of charging different fees based on the content of the object transported. They also were being accused of taking a longer time to route the content to delivery based on who was asking for the item to be shipped. This made the rail business extremely inconsistent and unfair. As the legal system looks towards precedent when reviewing a legal case, proponents of network neutrality look towards this law as the foundation for network neutrality; whereas people against network neutrality see this as a completely different case in a completely different line of business. However, some ISPs wish that they can apply the precedent which was set by Benjamin Franklin in which he would not carry or deliver newspapers which came from competing publishers (Johnson, 2006).
Reasons for being in favor of network neutrality
The reasons that people are in favor of net neutrality is because they want to make it such that they are preventing a monopoly from happening within the last mile of connection. The last mile is the final leg of delivering connectivity from a communications provider to a customer (http://goingwimax.com). At this point within the transportation of a packet, it has to reach through many service providers’ equipment. What people are worried about is that a provider, who owns the physical cable lines in a given space, would charge a higher amount for a certain content provider to deliver its services versus another. This would make the content providers’ cost of doing business to go up. Going into the idea of preventing the last mile monopoly, content providers want to keep ambiguity down as ambiguity is inherent within risk. If a content provider relies on a last mile provider to distribute their services, they would have to be paying for the service. However, the last mile provider could unexpectedly increase their rates which were not accounted for within the content providers’ budget. This could throw off the content providers’ business which can lead to incorrect projections of profitability.
Reasons for not being in favor of network neutrality
As stated above, Internet Service Providers (ISPs) are not in favor of net neutrality. A specific reason that they would like to be sure that net neutrality does not exist is so that they can gain the ability to offer tiered services. They want to offer tiered services because they believe that a user should be able to pay for the quality of service provided to them (in terms of throughput). Instead of offering a flat level of service (in terms of throughput) for all customers (both content providers and end users, the ISPs would like to offer different tiers of service. They want to provide a content provider with a guaranteed level of service based on the tier that which they are willing to pay. For a top tier service, this would allow that content provider for be able to provide their content at a fast rate to its users. It would also let content providers, who do not want to pay for an extremely high level of throughput, to be able to save money by not paying for a high level. People for net neutrality argue that this would provide a disadvantage to content providers who cannot afford top-tier services. However ISPs already say that this form of increased level of service already exists when there is a content provider who has thousands of services strategically placed throughout the world. They have the ability to provide a consistently high level of service to its users due to physical access in relation to the users’ location. ISPs think that because this already exists that it should not a problem; offering tiered services. Another reason that ISPs are against net neutrality is because they believe that by offering the tiered services, they will have the ability to offer a higher level of service to their subscribers through tiered filtration. By offering different tiers that users can opt in and out off, users will be signing up for the service that they are happy with. The ISP can better throttle its bandwidth as people will be in different tiers. If a user subscribes to a low level of throughput then they will be paying for a low level of throughput and they will suffice with receiving a low level of throughput because they paid for it. Likewise, if a user subscribes for a high level of throughput then they will be paying a higher fee and will be content with the high level of throughput. Throughout this chapter we will be exploring the different aspects and impacts of net neutrality. The various aspects that we will be covering will include the economics of net neutrality, the technicalities of net neutrality, past and current regulation of net neutrality, a suggestion on how to end the debate on net neutrality, and finally the conclusion about net neutrality.
Economics of Network Neutrality
Existing Benefits from Net Neutrality and Open Access
Before a decision can be reached whether to impose regulation on the Internet or not, or whether to advocate for Net Neutrality, one must understand the current state of the Internet and its benefits to those that have a final saying, these being the end-users. The Internet has come a long way and has emerged as perhaps the best innovation in modern age. The Internet seems to have endless possibilities and it seems as if everything is possible. However, the debate over Net Neutrality could possibly alter further possibilities and pose a risk to innovation on the Internet.
It is important to understand that the Internet came to be because the telecommunications markets were not allowed to provide “electronic data processing and data communications services (now know as “information services”) on an integrated basis” (Roycroft, 2006). Moreover, due to this fact of separation of the telecommunications markets and the information services markets the creation of the Internet was made possible. The initial start of the Internet was the dial-up access and this produced a “mass-market means of accessing the Internet,” which along with it fostered competition in the market. Because of the competition among providers, the customer was able to choose among a preferred Internet provider to access the Internet. From there on, the Internet grew step by step. Among many factors that contributed to the growth of the Internet was the factor of “flat rate” rates that were first imposed on the Internet, thus attracting more consumers and creating the mass-market and fostering competition (Roycroft, 2006).
With open access to the Internet, the end-user certainly has the final say about how much of the Internet he or she will use. It is important to keep this important fact in mind when deciding whether or not to impose regulation on the Internet. Open access has tremendous benefits because it does no allow one service provider, such as AT&T and Verizon, to dominate the market and decide what is available on the Internet and how much content is available. Through the open access to the Internet companies/organizations are able to increase their consumer market, and it is possible to connect to users worldwide. Open and standard protocols such as web browsing, e-mail, search engines, and e-commerce are great examples of benefits from open access to the Internet because no one company/organization has the ability to “determine which applications, content, or services should be allowed to use the Internet” (Roycroft, 2006)
Competition Between Internet Service Providers and Internet Content, Services, and Applications
As the common carriage principle implies, one must offer its services if the user is willing and able to pay for those services. According to an example from Professor Lee McKnight, if a ferry carries people across a river and it charges a certain price, then it cannot refuse anyone who is able to pay for the ferry to take them across the river. Similar is the case in the Network Neutrality discussion. An access provider such as AT&T should not be allowed to discriminate against and refuse access to content providers like YouTube and Google.
However, that is why the Network Neutrality debate has received a great amount of attention and continues to be a hot topic to date. The Internet, for many across the globe, is seen as a gateway to acquire information and be able to educate oneself about current events as well as stay in touch with friends and family across the world. Nonetheless, it is in the Internet access provider’s power-that is, if Network Neutrality is abandoned and regulation is imposed on the Internet-to dictate whether end-users across the globe will be able to freely download and view information on the Internet as it has been done to this day, or whether they will only be able to acquire certain information at certain speeds. Moreover, should Internet regulation be imposed, discriminatory pricing and choice of content providers will surface, thus imposing exclusion. Exclusion occurs when an Internet access provider chooses one content provider over another, YouTube over iFilm for example, thus resulting in the exclusion of iFilm (Hemphill, 2008).
In addition to exclusion, Internet regulation could also prove harmful for innovation and innovators because it could influence potential Internet access providers to use extraction as a way to cash in more money. Due to threats of exclusion, one Internet access provider benefits from applications from competitors and charges both content providers for access to premium Internet connections (Hemphill, 2008). On the other hand, an Internet provider will most likely try to extract rather than to exclude because the benefits from applications are greater and it is more likely that competitors will compete for the number of applications as well as quality, thus fostering competition through extraction. However, the party that benefits most is the Internet access provider.
Risk to Innovation if Net Neutrality Factors Are Abandoned
Innovation is a key principle associated with network neutrality and through open and neutral internet access innovation is able to prosper and provide so much more to users around the globe. Innovation with the help of the Internet’s open and unregulated access has been responsible, and continues to be responsible for how we live our lives today. For instance, before the internet was born, many of the tasks were done physically and required a larger number of employees. A retail bookseller, such as Borders would have a physical location which buyers would be able to visit and purchase books.
However, now that the Internet is here, the same buyers are able to purchase the books online and get it faster than ever, especially with the use of a Sony’s Kindle eReader, for example. Also, let us take into consideration Amazon.com, which is the leader when it comes to purchasing products online. Amazon has a great deal of products available, from books to clothing, and buyers are able to sign on the website, without leaving their homes, and purchase any necessities they might require. Such examples are worth mentioning because these innovations would perhaps not be possible on a regulated network. It may have not been possible because in addition to start-up costs for organizations such as Amazon, additional costs from service providers-AT&T, Verizon, and Comcast-could have discouraged the opening of such an online retail giant.
Abandoning network neutrality factors will certainly alter innovation due to threats of exclusion and extraction. It is perhaps safe to say that the best innovations are produced with open and uncontrollable surroundings, or when the mind is allowed to operate freely without any constraints. Another online giant is worth mentioning here, and that is Google. Google allows its employees to freely work on whatever they please twenty percent of the employees’ time in the day, and in turn the innovations belong to the company. GMail is one example that resulted from such an incentive. However, now that Google is a dominant force in in various aspects, imposing regulation on the Internet would perhaps not slow this Internet giant down. If there is regulation imposed on the content providers, larger organizations like Google will be able to continue to dominate the Internet, and organizations like Yahoo! could be facing the threat of exclusion.
On the other hand, should there be no regulation imposed on the Internet both companies could continue to innovate and provide users with ways for a more efficient use of the Internet. So, as a result it is evident that when no constraints or regulations are put into place at times, the results can be rewarding to every Internet user in the world. An open and free Internet has been the foundation of innovation and it can certainly continue to benefit users and contribute to innovation.
Economies of Scale, Sunk Costs, and Barriers to Entry
It is clear as to why Internet service providers, AT&T, Verizon, and Comcast want to see regulation imposed on content providers, Google, YouTube, Wikipedia, etc. because these content providers are able to stream content, services, and applications to users and earn a great deal of money, while using the Internet access providers’ lines. Let’s look at how these Internet access providers already earn their revenues. According to a recent analysis by the Government Accountability Office (GAO), it has found a duopoly in the highly concentrated market for broadband access. A closer look at the market reveals that residents of the United States of America get their broadband access from either of the two service companies in the duopoly, one being the telephone company DSL, and the other being the cable company Cable Modem service (Roycroft, 2006). Due the fact of a duopoly in the broadband market last-mile competition-delivering the final connectivity from an Internet access provider to the customer-is non-existent. Economists believe this is caused by certain entry barriers, which are discussed in more detail below.
Entry barriers are not necessarily high or low, but there are factors that come into play that certainly play a role in discouraging others from providing last-mile competition. Let’s take some of these factors into consideration. Economies of scale tend to play a vital role that discourages entry into the broadband market. When talking about economies of scale in the broadband market we talk about the proximity of the users, and the best possible solutions to efficiently connect users. Whether the users reside in rural or suburban areas is important because in order to lower the costs of building a network it is better if the users are closer to one another as well as having a larger number of users present in one given area. Such economies of scale will offer certain benefits, it will be cheaper to build one network that will connect more users in one given area, and it will also provide a better incentive to build a network since there are a large number of users in that area.
On the other hand, if there is fewer users and they reside in a rural area, it quickly becomes difficult and expensive to provide connection to these users. To provide connections to users in rural areas it is important to take int consideration certain geographic characteristics, such as the terrain, soil conditions, and weather extremes, and the fact that it will take a significantly large amount of cable that will need to be extended from the network facility to the users, adding to the costs. Geographic characteristics are vital as they represent sunk costs as well. Running cable from the network to the users involves digging into the ground, connecting wires from pole to pole, digging into streets, and so on, which are not recoverable should the business fail. However, if a company is able to succeed in its process to compete in last-mile connectivity, the telephone and cable companies are able to exclude the newcomer by lowering their prices to the users until the new competitor exits the market (Roycroft, 2006).
It is important to note that not only is it discouraging to enter the broadband market, but also that the current companies have a clear advantage and are reluctant to new competitors. Due to the duopoly in the broadband market, why is it not fair for content providers to fight for open and unregulated Internet access? Do Internet providers have the right to seek regulation? Network neutrality will continue to be a heated debate for years to come and those arguing in the favor of net neutrality will succeed because the Internet has come a long way since its introduction in the mid-90s, and it accounts for a great deal of innovation and success throughout the world.
Market Power and the Supply and Demand for Technology and Internet Traffic
It is evident that there is an increase in the demand for newer and more efficient technological devices and the complementary Internet use. With the introduction of certain products such as the PDAs and more recently the Blackberry and the iPhone certain tasks have become much simpler, and people are able to be more productive as well. Perhaps it is not always appropriate to use Google as an example, but it is a dominant online giant in many aspects and the name Google certainly cannot be left out when talking about search engines. Although Google is not the first search engine that was introduced to the market, it is definitely the most popular one today.
Advances in technology have enabled innovations such as the Google search engine, the online auction giant eBay, one of the biggest online retail book sellers Amazon, and so on. In addition to these innovations comes the increase in demand for even newer and more advanced ways in which tasks can be made simpler for everyday Internet users. The introduction of web conferencing, for example, has allowed organizations to lower travel costs and connect its users via the use of the Internet, and similar innovations are needed for organizations to lower costs and increase productivity. The Internet has also made it possible for employees to work from home, which in turn has been responsible for increased employee productivity. There is an increase in the demand for products such as those mentioned above because they are not labeled as luxury products, but rather necessities. Products such as a smartphone certainly is a necessity because it allows users to do various tasks, such as access to e-mail, the Internet, etc. while they are on the go.
Moreover, we are experiencing an increase in the demand for Internet usage. Users from all corners of the world seek equal access to the Internet for educational purposes as well as gaining knowledge of the world’s events. Facebook, a social networking cite that has the ability to connect users from one end of the globe to the other, consistently experiences high volumes of traffic due to the fact that people like to stay connected and be able to communicate to others on different levels. The previous examples are results of competition and innovation with a free Internet and why it is important not to let Internet access providers gain too much market power.
Should these access providers gain too much market power, users will experience rather slow Internet speeds and connections as well as experience higher rates for accessing the Internet. In addition, with too much market power the ability of doing business with other companies in the market will not exist, and Internet access may be available only to those high-tier users in the market, according to the article “Four nightmares for net neutrality” by Shane Greenstein. Network neutrality is important and it needs to preserved, otherwise changing the Internet as it is now can have various implications, such as excluding a great deal of the population and significantly decreasing the use of the Internet. However, this debate will continue to demand large amount of attention from officials and anyone involved in the process. Satisfying everyone in this market is impossible, and this debate will not be resolved in the near future. It will be interesting to see as to how the Obama administration will try to resolve this debate and provide solutions to the issue. Hopefully the process will not involve Internet access providers spending money on lobbying officials in the government to regulate Internet access.
Technicalities of Network neutrality
Discrimination on Internet
The extent to which network operators should be allowed to discriminate among Internet packet to block selectively, adjust price or quality of service is one of the most fundamental issue in the network neutrality debate (Peha,2007).The networks favor some traffic orpacket streams over others by using variety of data differentiation techniques or algorithms. There are various methods by which the ISP’s are able to discriminate, by determining which types of packets are in the network. The first type is flow classification, ISP’s are able to determine the nature of packet by examining the amount of time since the packet stream began, theamount of time between consecutive packets, and the sizes of packets in astream (Peha,2007). The information about every packetstream going through the network can be maintained by using the second methodcalled as deep packet inspection. It can categorize traffic based, not just on what it can learn from the packet it is currently handling but also on the combination of the content of many consecutive packets (Peha, 2007). Instead of looking only at the information needed to get the packet to its destination, using deep packet inspection a device is aware of the information at the application layer as illustrated in Table 1.1
Table 1.1:Examples of header data showing which information is stored in which data field.
|MAC address||Manufacturer of device that is attached to network.|
|IP address||Identity of sender and recipient, location of sender and recipient.|
|Transport protocol||Type of application.|
|Traffic class in IP version 4 / IP version 6||Type of application, priority desired by sender.|
|Packet length||Type of application.|
|Source port and destination port||Type of application.|
Table is adapted from a table mentioned in 'The Benefits and Risks of Mandating Network Neutrality' by Peha.
Types of Discrimination
Minimal vs. Non-minimal Discrimination
This is a type of network discrimination, which discards packets by assigning priorities to the packets, and always discards the packet with lowest priority (Felten, 2006). When it is absolutely necessary a network discards packets it is called minimal discrimination, because only when it can’t serve everybody the network discriminates (Felten, 2006). In minimaldiscrimination if the network is not crowded, lots of low-priority packets canget through; the low-priority packet inconvenienced only when there is anunavoidable conflict with high-priority packets (Crowcroft, 2007). In contrast, non-minimal discrimination is more drastic form of discrimination in which even when it is possible to deliver or forward every packet routers discards some low-priority packets (Felten, 2006). For example even if 80% part of network capacity is idle, a router might limit low-priority packets to 20% of thenetwork’s capacity (Felten, 2006). It is decided which packets to be discarded or not with the help of different traffic control algorithms. The first type is scheduling algorithm in which it determines how often packets from agiven stream are transmitted, and when each waiting packet is actually transmitted (Peha, 2007). Using a dropping algorithm, it will select some packets to be discarded when the number of waiting packets becomes too large (Peha, 2007). In traffic shaping algorithm so that packets are spread out sothat they do not arrive in a single large burst (Peha,2007). And finally an admission control algorithm on the grounds that it would not be possible to meet QoS requirements for the new packet stream if this new stream were admitted and the current streams it may block entire packet streams temporarily (Peha,2007).
Discrimination can also work by reordering or delaying packet streams it always doesn’t haveto operate by dropping packets (Felten, 2006). Where a packet should be forwarded next is decided by using routing algorithm thus achieving delay discrimination (Peha, 2007). Some packets with low priority might besent the slow way, while others with high priority may be sent over the mostreliable path and quickest (Crowcroft, 2007). “A network operator might discriminate by providing unequal access to various services (Peha,2007).” Delay discrimination is useful for those who broadcast media streams such as music or video to multiple users simultaneously over the Internet (Goldsborough, 2008). Delay discrimination also works giving better access of information caches to some users, so that internet content need not have to be retrieved from remote part of the network but can be done locally (Lehr, Gillet,Sirbu, & Peha, 2007). Other users may be charged more or not even allowed for using that network associated caches (Lehr, Gillet, Sirbu, & Peha, 2007).
The Benefits of Discrimination
There are several benefits for discrimination and it ranges from securityto quality of service control. One of the most important benefits of discrimination on network level is security. A network operator can determine whether a packet stream is carrying a virus or a dangerous piece of spyware by using deep packet inspection (Peha, 2007). It would be a huge damage to network security if a network neutrality policy that prohibits networks from dropping dangerous traffic/packet stream of this kind. The network can prevent customers from using equipment which would hinder their neighbors’ traffic by ensuring that only authorized devices are attached to thenetwork (Peha, 2007). The devices may access adult-only material contrary, or that consumes more of the shared resources than is allowed contrast to the customer’s stated wishes (Peha,2007). Different applications have different QoS needs so discrimination with respect to QoS is also important (Peha,2007) (Felten, 2006). So it is not required to give equal access to all services. Pricing also plays an important role in congestion control by using price discrimination. There are quantifiable advantages of price discrimination over more traditional technical approaches; it is done by convincing some users to delay their transmissions by adjusting prices dynamically basedon congestion levels (Peha,2007). The internet traffic is increasing at tremendous rate. This flow of data/traffic can suffer from congestion at a number of points on the internet. The increasing use of multimedia technology is worsening the congestion of the flow of data/traffic.“An internet user attempting to retrieve a file from a file repository in another country will generally be unable to tell whether the dominant cause ofcongestion is the hardware at the file repository, or the various network links between the repository and the user (Gibson, 1998).” Thus, the effect on internet users isgenerally the same, although the distinction between hardware and data/traffic congestion is important to internet providers (Gibson, 1998). Thus by discriminating the ISP’s canprovide better service to maximum of the customers.
The Risks of Discrimination
In the previous section we talked about the benefits but there can be huge consequences to discrimination if it is not properly monitored. One of the serious risks with discrimination is that it may lead to protecting legacy services from competition. In the current ISP market cable and telephone companies are dominant broadband providers. In this case without any network neutrality the ISP’scan block the traffic or degrade the QoS for rival services (Peha, 2007) (Grossman, 2009). For e.g., a telephone company can degrade the VoIP services forcing customers to use traditional telephone services, as well this can be the case with cable companies for degrading streaming videos (Goldsborough, 2008) (Crowcroft, 2007) (Felten, 2006). Discrimination may also lead to charging oligopoly rents in the broadband. In this scenario the ISP’s may be able to maximize their profit depending on the will of the customers to pay for particular services (Peha, 2007). This would lead to degrading services for customers who pay less. By using the above statement it can be said that the scenario of internet access without net neutrality regulation would look like as figure shown below:
Figure 1.1: Internet Plan charging different value for different sites
Creative commons material, Retrieved from: http://www.flickr.com/photos/barrettb/4080341641/sizes/m/
As well discrimination may even lead to charging oligopoly rents competitive upstream market. Firstly an upstream market in this situation is ane-commerce market (Peha, 2007). For e.g., an ISP if not restricted can lead to charging extra for every book sold online, just because it is allowing its customers to visit that particular site (Crowcroft,2007). Too much of discrimination on Internet may lead to stifling of free speech. This would play an important role in political environment for reasons varying from raising campaign donations to extreme cases like avoiding access to sites having contradictory views on certain political candidate (Peha, 2007).
Misleading Characterizations of the Network Neutrality Issue
Banning all discrimination should not be a network neutrality policy (Peha, 2007). As we have seen previously discriminating is also used in benefiting customers for improving security, QoS etc. Protecting the rights or “freedoms” of consumers should not be a network neutrality policy (Peha, 2007). FCC has endorsed freedom for internet user; under which consumers should have the ability to receive meaningful information about their service plans, attach the devices of their choice, run the applications and they can also access any legal content they want (Powell, 2004). However if regulation for network neutrality is to be approved it has to be based on behavior of network operators and not the freedom of consumers (Peha, 2007). Not just “who pays” for Internet service or infrastructure should be a clause for network neutrality policy (Peha, 2007). Today, the cost for the last-mile service providedby network operator is paid directly by both consumers and content providers. However,some network operators argue that content providers pay only for their own last-mile connection thus getting a “free ride” (Peha, 2007). This is the same where both sender and receiver pay for “air time,” using cellular telephone calls in the U.S., which is accepted without any problem. “Network neutrality should not be about whether network operators can differentiate their services (Peha, 2007).” In regions with only one broadband provider differentiation is not a big issue, but in today’s market situation with rigorous competition a network neutrality policy would turn broadband access into a commodity if it prevents a network operator from offering a unique set of services (Sidak, 2006).
Net Neutrality Regulation
The Telecommunications Act of 1996 was not the first piece of legislation enacted which directly affected service providers. It was the original act, which in 1934 established the Federal Communications Commission (FCC). In that act, specific functions and powers were granted to the FCC, which would determine what extent the FCC would be able to promulgate its powers. As previously mentioned, in 1996, the United States government affixed the first set of amendments to the Telecommunications Act of 1934. The purpose of the legislation as stated in the bill was to “promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies” (Telecommunications Act 1996, 1996, §1). In order to rapidly develop and deploy new technologies, the 1996 bill would set forth rules and guidelines that would facilitate local loop unbundling via facilities-based entry rather than service-based entry. This meant that incumbent service providers who owned landlines would be forced to give access to competing new service providers in order to foster competition and growth. Or least that was the intention of the bill. However, enforcing such a practice would not go without sharp criticism as Bauer & Bohlin (2008) noted, “ the Act sent mixed signals to regulators and industry, as some of the instruments envisioned to support the transition to local competition invited excessive forms of regulation”(Bauer & Bohlin, 2008, p. 5).
Granted the issue of “net neutrality” had not risen into the public sphere until the early 21st century. Specific regulation containing language that was either for or against net neutrality, had yet to be constructed in the House or the Senate until mid 2000’s. The following are some of the major events that would set the stage for how net neutrality legislation would be formulated and FCC policies promulgated.
On June 27, 2005, the United States Supreme Court upheld a decision by the Federal Communications Commission on whether to classify cable companies as telecommunications service providers or information service providers. In that decision, an appellate court’s decision would be overturned, which had initially overturned the FCC’s decision. The Supreme Court in agreement with the findings of the Commission found that based on the functionality of the Internet, that “because Internet access provides a capability for manipulating and storing information, cable companies are classified as information service providers ”(National Cable v. Brand X, p.6, 2005). Quite simply what this means is since cable companies provide access to the Internet (via broadband), that is significantly faster than traditional dial-up services, and that those services allow for the manipulation, retrieval and storage of information, they should be classified as information service providers. Being a telecommunications provider, e.g. Telephone Company, would imply providing a service to customers where the transmission of the data is not manipulated, retrieved, or stored e.g., phone calls. This is important because if the Supreme Court had concluded that cable companies be classified as telecommunications providers, they would then be subject to the regulations of the FCC granted by the Telecommunications Act of 1934 as well as be subject to common carrier legislation that would force local loop unbundling as set forth in the Telecommunications Act of 1996.
In 2005, Madison River Communications, a telephone company operating in North Carolina, blocked port availability to customers using Vonage; an operator of Voice Over Internet Protocol (VOIP) phone services. At the behest of complaint filed by Vonage and investigation by the press, the FCC’s enforcement bureau set in motion an investigation on the complaint. The only noticeable action taken upon Madison was a $15,000 fine imposed by t the Federal Communications Commission and the signing of a consent decree by Madison River Communications. Though resulting in a fine and signing of a consent decree, the settlement by no means indicated that the Madison River was willfully acknowledging any “factual or legal finding regarding any compliance or noncompliance with the requirements of the Act” (Consent Decree, p.3, 2005). This is important because though it would inhibit such future actions from, the decree was not formed as a legaly binding action. Vonage, a broadband service provider, does not own physical landlines for transmitting phone calls. They operate their service by selling routers and a compatible handset that connects to their customers’ existing DSL modem(s). Vonage does not provide customers with a way to store, retrieve, or manipulate information rather they only provide a service where information is transferred in it original form (phone calls). According to the Supreme Court’s opinion in the Brand X case they might be classified as a telecommunications provider, however since they are operating over a broadband connection they are classified as information service providers. Though discriminated against, Vonage was not subject to any of the discrete forms of discrimination mentioned in the previous section such as flow classification or deep packet inspection. Rather, it was a more blatant form of discrimination that prevented Vonage’s customers from actually using the service by preventing the Vonage routers from connecting to required servers on Madison Rivers’ network.
FCC Policy Statement of 2005
With a model case, the dense and rapid growth of broadband escalated the importance and value of interconnectivity. In August 2005, shortly after the Madison River incident. The Federal Communications Commission released a policy statement in which it referred to The Telecommunications Act of 1934 which it stated that, “In section 706(a) of the Act, Congress charges the Commission with encouraging the deployment on a reasonable and timely basis of advanced telecommunications capability – broadband – to all Americans” (Policy Statement, 2005, p.2). In its interpretation, the FCC used the Act to reiterate its ancillary authority to regulate domestic telecommunications commerce. In that policy statement, the commission would enforce principles allowing its enforcement of broadband development and deployment. The statement was aimed at fostering competition, such that consumers are able to access the content and services and connect devices; granted they are lawful devices approved by the FCC. For the FCC, fostering competition meant consumers should have the rightful choice of multiple network, application, service and content providers that would appropriately foster a competitive and consumer driven market place. (Policy Statement, 2005, p.3)
In 2007, Comcast replicated a similar action to that of Madison River Communications in which it willfully practiced discrimination. This time it was not against a service provider like Vonage, this time foul was voiced by consumers and operators of Peer-to-Peer (P2P) networks. Initially Comcast strongly denied conducting such actions, however at the behest of an investigation by the associated press, Comcast admitted that it had it was in fact practicing reasonable network management. The actions against Comcast did not come swiftly as it did with Madison River. A hearing was held on February 25, 2008 in which Comcast's Executive Vice President defended the network management practices of his company but would deny blocking access to any content, service, or application provider. The hearing resulted in the FCC forcing Comcast to change its network management policies and discontinue the discriminatory packet management against P2P networks. Unlike the Madison River incident, the type discrimination in this incident was deep packet inspection. It was not the reasonable traffic management practices that caught the attention of the FCC; rather it was the throttling of content from the torrent P2P networks. Much of content flowing through those networks was thought to be content that was competing directly with content that Comcast provided e.g. movies, music, and television shows. Most recently, Comcast has settled a class action lawsuit with the operators of the bit-torrent network and has settled the matter for a sum 16 million dollars. Which results in a sum of roughly 16 dollars per plaintiff involved in the case.
Proposed Net Neutrality Legislation 
Box 1.1: Summarizing the four of the major proposed legislative actions that have been introduced into congress since the announcing of the FCC’s policy statement in 2005.
|Bill Title||Date Introduced||Introduced By||Main Stipulations||Bill Status|
|Internet Non-Discrimination Act of 2006 (S. 2360)||March 2, 2006Example||Senator Ron Wyden (Democrat-Oregon)||Boased on Congress' findings, the bill set rules for network operators to abide by which would make it obligatory for them to provide consumers with non-discriminatory access to a network as well offer non-discriminatory prices to consumers. It would pevent operators from treating any data in regards to content, applications, or services that consumers can lawfully access, from being discriminated against.||Died on the Senate floor after being referred. The Committee on Commerce, Science, and Transportation tha same year. The bill did not receive any support from additional co-sponsors.|
|Network Neutrality Act of 2006 (H.R. 5273)||May 2, 2006||Representative Edward Markey (Democrat-Massachusetts)||Network operators would be charged with certain duties to maintain the quality of service for content, applications, and services accessed by consumers on an operators network.It would not prevent operators from offering superior quality of service for particular types of data. However, if an operator chose to do so, they must offer that enhanced quality to all data of that type, to all customers, without imposing additional charges for receiving that increased quality of service.||Though receiving the support of 23 co-sponsors, the bill died on the House floor after being referred to the Subcommittee on Telecommunications and the Internet.|
|Internet Freedom and Non-Discrimination Act of 2006 (H.R. 5417)||May 18, 2006||Representative James F. Sensenbrenner Jr. (Republican-Wisconsin)Example||For the purpose of preventing anti-competitive behavior, by amending the Clayton Anti-Trust Act, the bill would make it explicitly unlawful for any incumbent local exchange carrier (ILEC) to prevent the interconnection of competitive local exchange carriers to its network. Nor would it allow those operators to offer favorable terms to a particular (CLEC) over another.||The bill received little support from five co-sponsors. However, the bill was put on calendar up for discussion but failed, thus dying on the House floor in the 109th Congress.|
|Communications Opportunity Preservation Enhancement Act 2006 (H.R. 5252)||May 1, 2006||Representative Joe Barton (republican-Texas)||This bill essentially reinforced the policies and provisions stated in the FCC's 2005 policy statement in regards to its ancillary duties for regulating telecommunications commerce by wire and radio, as set forth in the Telecommunications Act of 1934. It would also set provisions for local loop unbundling restrictions and national franchising.||Garnering support from 55 co-sponsors, the bill passed in the House with vote of 321-101. The bill would die after being place on the Senate union calendar.|
Internet Non-Discrimination Act of 2006 (S. 2360)
Brought to the Senate by Democratic Senator of Oregon, Ron Wyden, the Non- Discrimination Act was the first piece of legislation introduced in Congress that directly tackled the arising issue of network neutrality. It laid out rules for actions following complaints of violations made to the FCC and it laid out penalties for those violations. Those violations would be punishable and promulgated by the FCC as stated in the Telecommunications Act of 1934. The bill was ambitious in that it would specifically prevent network providers from offering superior service to companies whom they conduct business with, while providing inferior service to customers. It also set out quality of service provisions preventing network providers from prioritizing packets for customers regardless of geography or service agreements, putting service on a level field. More importantly, the legislation would force network providers to clearly disclose its network management practices for consumers in its terms and agreements. (Internet Non- Discrimination, 2006, §4) The proposed legislation, though ambitious, was only referred twice to the Committee on Commerce, Science and Transportation. The bill failed to gain any ground and did not pick up any co-sponsors. There has been no action on this bill on since, thus it never became law.
Network Neutrality Act of 2006 (H.R. 5273)
This bill was introduced by Democratic Representative Edward J. Markey of Massachusetts on May 2, 2006. Not introduced as an amendment to prior laws, this bill attempted to pick up where the Internet Non-Discrimination Act left off and contained much of the same non- discriminatory language that bill S. 2360 had contained. One of the main provisions in this bill not included in the Non-Discrimination Act stated that operators shall have the right to “manage the functioning of its network, on a system wide basis, provided that any such management function does not result in discrimination between content, applications, or services offered by the provider and unaffiliated providers” (Network Neutrality, 2006, §4). It would also allow operators to reserve data prioritization rights in the event of an emergency. Overall, the tone of the bill was to reinforce the principles for regulating telecommunication commerce as stated in the Telecommunications Act of 1934. Providing for a little more flexibility than its predecessor, though containing much of the same language, the bill received support from 23 house representatives, including current Speaker of the House Nancy Pelosi. However, like its predecessor it failed to pick up any ground and was only referred twice, once to the Committee on Energy and Commerce and once to the Subcommittee on Telecommunications and the Internet.
Internet Freedom and Nondiscrimination Act of 2006 (H.R 5417)
Unlike the first two bills, this bill was introduced not as an amendment to the Telecommunications Act but to the Clayton Act, which covers anti-trust regulation. It would make all actions listed under the law illegal as a matter of competition among broadband providers. The purpose of the act was the facilitation of trade and competition within the communication marketplace, with the aim of protecting consumers, and content providers from discriminatory network management practices. This bill, like the previous ones, contained much of the same non-discriminatory language prohibiting certain actions by broadband network providers. But more specifically, this bill laid out a provision which would allow any person to provide content, applications, or service over a said network, at the same time providing nondiscriminatory protections for those offering the content, applications, or service. (Internet Freedom, 2006, §3) It was an area of network neutrality prior proposed legislation had not covered. Rather than focusing on the establishment of a neutral network from business to customer prospective, it focused on ensuring that the business-to-business connection along with the innovation and growth to could be bred from that competition, would not be hampered by anti-competitive behavior.
Communications Opportunity, Preservation, Enhancement Act of 2006 (H.R. 5252)
The Communications, Opportunity, Promotion, Enhancement Act was a fairly narrow piece of legislation that covered national franchises, local loop unbundling, restrictions on states municipalities ability to provide cable operations and internet services to the general public, requirements for VOIP operators such as Vonage, but most importantly network neutrality. This was the first piece of legislation to be wholly introduced by a Republican member of the House, Representative Joe Barton of Texas. In Title II of the bill, Congress via this bill, would reassert the right of the FCC to regulate communications commerce violations and impose reasonable punishments, through the powers granted by the Telecommunications Act of 1934 which stated that “the Commission shall have exclusive authority to adjudicate any complaint alleging a violation of the broadband policy statement or the principles incorporated there- in” (Communications Opportunity, 2006, §201). Though it did not contain any specific non-discriminatory language, the bill would support net neutrality via FCC regulation. The first version of the bill introduced in the House of Representatives received support from both Democrat and Republican House members, as a result passing with a vote of 321-101. After making it through the House, it moved on to the Senate where it was referred to the Committee on Commerce, Science and Transportation for markup. There were several proposed amendments to the bill, but of those, only four were adopted, none of which contained any specific net neutrality language. Granted that the bill did make it to the Senate, it was reviewed by the Congressional Budget Office, where it was estimated that the bill would cost over 5.2 billion dollars to implement over a ten-year period. That spending would in turn generate revenues of 5 billion over the same period. On September 29, 2006, the bill was put on the Senate calendar for debate, but never was acted on again and fell short of becoming law. Though the bill did pass in the House of Representatives with a defining majority, it did not come without its criticisms. As mentioned above, the bill did not pass with any specific net neutrality amendments, thus it would be Senators Bryan Dorgan and Olympia Snowe (authors of Internet Freedom Preservation Acts 2006 & 2007 respectively) who would dissent. Subsequently, they would propose an amendment that "prevented cable and telephone companies from assigning priority to Internet traffic based on financial arrangements with Web Sites” (Roberts, 2008, p. 76). It was an amendment, which they felt would strongly uphold and maintain the goals of a competitive telecommunications market place as set out in the Telecommunications Act of 1934.
The Internet Freedom Preservation Acts (IFPA)
Of all of the regulation that has been proposed, but yet to make it to becoming law, the Internet Freedom Preservation Act, has had the most re-incarnations since the original version of the bill was first introduced in 2006. Making the transition back to much of the strong non-discriminatory language of the Internet Freedom Non- Discrimination Acts. It was aimed at amending the Telecommunications Act of 1934, by specifically requiring that broadband operators provide consistent and non-discriminatory service to customers in the same manner that previous legislation would have required. It borrowed language from the C.O.P.E Act, preventing network operators from forcing customers to purchase other network services e.g. telephone and television (known as bundling or the ‘triple play”) as a requirement for receiving Internet Service. Similar to the Non-Discrimination and Net Neutrality Acts, this bill would not prevent network providers from conducting ‘reasonable network management’ practices to maintain the quality of its network. It also would allow service providers to offer different levels of service to customers, but would not allow them to charge for those varying levels of service. Overall, the bill provided consumers protections against discriminatory network practices, but would also give broadband operators provide operators with the ability to ensure in conducting ‘reasonable network management’, much of which includes ensuring proper and secure transmission of data over a providers broadband network. To date there have been four versions of the bill under the same name which have either failed or have yet to be enacted into law.
Table 1.2: Summation of the Internet Freedom Preservation Acts
|Year Introduced||Section of Congress (Bill#)||Introduced By||Status|
|May 19, 2006||Senate (S. 2917)||Olympia J. Snowe (R- Maine)||Referred to the Committee on Commerce, Science and Transportation. Died on the senate floor.|
|January 9, 2007||Senate (S. 215)||Byron L. Dorgan (D- North Dakota)||Referred to the Committee on Commerce, Science and Transportation. Died on Senate floor.|
|February 12, 2008||House of Representatives (H.R. 5353)||Edward J. Markey (D- Massachusetts)||Referred to the Subcommittee on Telecommunications and the Internet. (Dead)|
|July 31, 2009||House of Representatives (H.R. 3458)||Edward J. Markey (D- Massachusetts)||Referred to the House Committee on Energy and Commerce (pending)|
Unlike the prior proposed legislation this bill, would receive support form currentPresident Barack Obama, Secretary of State Hillary Clinton, as well as currentSpeaker of the House Nancy Pelosi. However even with the backing whom were at the time presidential candidates, the Freedom Preservation Acts have yet togain any serious ground in the House or the Senate and continues to fight an uphill battle. It remains that network neutrality regulation is seen asgovernment intrusion into an area it has no business being in. And on the otherside, as some say, protecting the very Internet that has flourished because ithas been neutral.
Suggestions are few and far in between when it comes to net neutrality. As the two sides are so divided, it makes it very difficult to come to a compromise. However, there is one suggestion which comes from the Canadian organization, Canarie, which is funded by the Canadian organization. The suggestion comes from a study which was led by researcher Bill St. Arnaud where he suggests that homeowners pay for the last mile connection. It is a known within the telecommunications industry that companies do not make any money off of the last mile connection(s). The initial investment within the last mile connection is so expensive, and the fees at which that they can charge their customers are so competitive. Because of that, technology lags so much in the last mile connection as they cannot make any money off of it. This is what makes a non-net neutrality environment to ISPs because it now presents a way in that they can make money off of the last mile connection. The idea from the study is that it would have the people that actually use the connection and bandwidth to actually pay for the bandwidth. Once they purchased it, they would be in charge of doing upgrades if they so choose, as well as dealing with maintenance costs. Once an installation is added on a house, the homeowner may then sell the connection with the house in a future sale. Though each installation is costly at roughly $2700, a homeowner could bundle it into their mortgage which would allow them to spread the cost out over the length of their mortgage; mitigating the impact of the initial price shock. Having a high speed connection which is owned by the occupants of the home is also a major selling point. Arnaud also cites that home owners are starting to factor in broadband access when choosing a new home. Having purchased broadband would be a positive thing within a potential home sale because the investment has already been made for the potential buyer (Johnson, 2008). This suggestion also poses several positive side effects for the telecommunications companies. One being that it allows them to get a depreciating asset off of their books. Currently the last mile connections are owned by the telecommunication companies. As they are expensive the install and maintain, the telecommunication company must foot the bill when it comes to installation and maintenance. It is an investment that they have to make in order to attain a significant customer base, however it is an investment which will depreciate. Each year as the technology gets older and older it will depreciate which causes their current assets to go down. By allowing the telecommunications companies to sell these assets to individual owners, it allows them to get rid of these depreciating assets and turn them into a liquid asset (I.e. cash) which helps to enhance their cash flow situation and make a real investment (which can provide a return) into their core competencies like programming and installing and maintaining the major backbone infrastructure. As the telecommunications companies cannot make money off of the last mile connection(s), they have to subsidize it with their other service offerings. With them not having to subsidize it anymore, they would have the ability to lower the fees that they charge each month. It also opens up potential future business because the connections will need to be maintained. By situating themselves correctly, the telecommunications companies have the potential to do the maintenance work for the homeowners as further maintenance is required.
Balanced Network Neutrality Policy
The debate over network neutrality has two very different points of view. Network neutrality advocates worry about ISP’s discriminating internet traffic andopponents argue that enforcing network neutrality would be difficult and errorprone (Felten, 2006). The solution for this is a balanced policy which would limit the harmful uses of discrimination and allow it’s beneficial uses, because making wrong decision with respect to network neutrality regulation can hamper Internet’s development (Peha, 2007). For the protection of beneficial discrimination a policy can be designed which might allow the following: Network operators could provide different QoS to different classes of traffic by using explicit prioritization or other techniques. A stricter QoS requirements for trafficsent using a higher-priced service can be favored using these techniques (Alleven, 2009). Network operators could charge a different price for both the senders and recipients of data depending on different classes of traffic (Peha, 2007). The higher price could be charged for traffic which consumes more of a limited resource or which requires superior quality of service and has adverse effect on neighbors traffic (Felten, 2006). Traffic that can pose a threat to network security or which can be harmful to the network could be blocked by the network operator; it can be either by not following certain protocols or defined algorithms (Crowcroft, 2007). Network operators could also benefit by offering unique services or proprietary content to their customers (Peha, 2007). If and only if, the broadband market is not highly competitive, a policy designed to limit harmful uses of discrimination would not allow the following: (Peha, 2007). A network operator cannot charge more for a 50kbps VoIP stream than 50kbps gaming application where the QOS requirements are the same (Felten, 2006). One user could not be charged more than another by a network operator whether the user is a service provider, content provider or a consumer for a comparable information transfer or monthly service or even whether the user is the sender or receiver (Peha, 2007). Until and unless a network operator has a reasonable belief that certain traffic poses asecurity threat to the network it could not block traffic based on content or application alone (Crowcroft, 2007). Degradation of QoS only on the basis of content alone couldn’t be done by the network operators (Crowcroft,2007)(Alleven, 2009).
A network operator could not offer different QoS and price for traffic that competes witha legacy circuit-switched service (Peha, 2007).
Net neutrality is one of the most contested issues today within the Internet forum. Its impact is over-reaching and is tremendously impactful. Firstly we gave a brief overview of net neutrality. This discussed where its roots had come from and introduced the polarized sides within the debate of net neutrality. Next we discussed the economics of net neutrality. Not only are the ethical issues important within net neutrality, but the economics must make sense and be feasible. All parties involved within the net neutrality debate want to be sure that outcome should benefit them financially. Thirdly we discussed the technicalities of net neutrality. In the previous section we talked about the financial implications (through economics), and now we wanted you, the reader, to have an understanding of how, technically, the routes and switches are able to support or not support net neutrality. Next we discussed regulations within net neutrality. This was important because it is imperative to understand the current legal landscape of net neutrality. It was discussed where this topic is supported and not supported within the legal environment. After that, we discussed a suggestion of how to solve the debate by having home owners purchasing their broadband connection from the ISP; the last mile. By the homeowners purchasing the connection it would neutralize the last mile connection and therefore taking a lot of the contention of net neutrality out of the running. Net neutrality is a broad topic. However, though it is broad, there are a lot of nuances and passion that needs to be understood about it. By having an understanding of this topic it allows one to begin to develop an opinion on where net neutrality should go in the future.
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