Two years ago, net neutrality had won. Today, the internet is back to square one…

Personal Anecdote: We Want Fast Internet

While I was at university, I’d return home to Zimbabwe for holidays. At the time, Harare had no reasonable internet access. The telecoms infrastructure would barely allow you to make calls between a landline and a cellphone, never mind cater for broadband. But that didn’t stop us wanting internet access. So small ISPs sprang up offering satellite wifi and the like.

For a period of time, my family was using an Internet Service Provider that was owned by the sort of unethical Christian that I deeply despise. He’d pepper his conversations with “Praise be”s and hallelujahs. He’d declare himself “blessed” in response to the obligatory “How are you?” greeting. And he’d generally bewail the godlessness of the world while pitifully looking at you, the unsaved, in all your sinful squalor.

But then he’d charge you an extortion for a given level of internet speed, deliver a tenth of it if you were lucky, and even that would only work for two weeks of the month because his shoddy infrastructure spent more days offline than anything else.

But no credit notes for you. Because there’s nothing immoral about under-delivering and over-charging, apparently.

Personal Anecdote Conclusion: Curated Net ‘Profanity’

The reason I mention that ISP is because, at some point, said gentleman was clearly struck in his heart during one of those rousing electric guitar services. And he felt compelled to slam a safety gate over his internet connection to prevent anyone accessing sites that he deemed un-Christian.

And to be clear, I’m not just talking about the porn sites. A search for “Marcia Gay Harden” would cause your internet connection to drop. As would any attempt to download songs or movies. Although there really was no need to block that – his service delivery was deterrent enough.

Curiously, this individual is still in operation. And I’ve heard him ask his clients to avoid Dropbox, because it slows everything down.

Anyway.

How This Links To Net Neutrality

Net Neutrality basically means that supposedly “Christian” gentlemen and their ilk cannot curate your internet connection. Importantly, they cannot prioritise internet connection for certain other sites (to me, that sounds like I’m saying the same thing – but apparently, those are two different things in the world of net neutrality).

To backtrack a second:

1. Internet Service Providers charge you for the privilege of having the internet in your house.
2. But Internet Service Providers would also like to charge websites for the privilege of having your house connected to the internet (and accessing their sites).
3. That is: ISPs currently allow web-users to download and upload indiscriminately (and you pay for that privilege); but they would prefer to charge web-users to download and then charge extra to upload the information that you’re downloading.

This would hypothetically lead to more competition and therefore better internet connection for all.

Something like this:

1. If ISPs were allowed to charge Netflix extra to have more bandwidth;
2. Then the ISPs would be incentivised to upgrade their infrastructure in order to have more bandwidth to sell to Netflix.
3. This is good for Netflix, because they’ll have happier customers.
4. And this is good for internet users, because they’ll have snappier movies.
5. Everybody wins.

Well, not quite everyone. Because if Netflix can afford to pay for more bandwidth, what about all the poor internet entrepreneurs and start-ups who can’t?

What The Anti Net Neutrality Guys Are Saying

The CEO of AT&T, Edward Whitacre (before AT&T suddenly turned around and joined the Net Neutrality movement – apparently):

Now what they would like to do is use my pipes free, but I ain’t going to let them do that because we have spent this capital and we have to have a return on it. So there’s going to have to be some mechanism for these people who use these pipes to pay for the portion they’re using. Why should they be allowed to use my pipes? The Internet can’t be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! or Vonage or anybody to expect to use these pipes free is nuts!

That is: Google should be able to pay to get its page to load quicker than Yahoo.

On the face of it, Mr Whitacre sounds reasonable. But actually, he’s being greedy. Because:

1. Internet users pay the cable companies to have access to the internet.
2. That includes Google.
3. Does Google pay to have a great connection to the internet?
4. I’m pretty sure they do.
5. But according to Mr Whitacre, that’s not enough.
6. They shouldn’t be allowed to use the pipes just because they’ve paid to access the pipes.
7. They should also pay to access you on the other end of the pipe.
8. Even though we have already covered our end of the pipe.
9. Isn’t that double-charging? To charge Google or whoever for what I’ve already paid for?
10. Seems completely like a monopolist who demands the right to charge everyone for everything, twice.

And that makes a lot of sense when you look at this kind of thing:

What we forget is that “competition” is a bit of a misnomer when it comes to cable companies. Because there are whole areas of coverage where there is only one service provider. And that, I’m afraid, is the very definition of a monopoly. Because if I live in a house that only has connectivity to one cable company – then I’m locked in. Regardless of the service offering. Regardless of the price.

It’s why it’s curious to me that so many libertarians are against net neutrality rules. Allowing ISPs to apportion bandwidth is not very free-market of them – it’s more anti-competitive and special-interest than anything else.

But perhaps that’s just me.

The Big Problem In A World Without Net Neutrality

We assume that ‘more money’ means ‘more capital investment’. That is not always true. And it’s especially true when there are mini-monopolies in play.

If I have a monopoly over supplying internet to a particular suburb or area, then that changes the way that I respond to demand. Where there is competition, more money on the table means that I’m likely to do more, provide more, innovate more to access it. But if I have a monopoly, more money on the table means that I just access it. I don’t need to do anything more to get it.

In fact, if anything, I should restrict supply in order to maximise my profit extraction.

Cable companies won’t necessarily provide more bandwidth to create fast lines. They’ll just create really slow lanes (the so-called “bus lanes”) for the “everyone else” that can’t pay for the existing bandwidth. Because that maximises the return. And any additional bandwidth will only go to paying websites – irrespective of what the web-user wants.

Which brings me to my bigger issue. As I see it, the real problem here is not all the start-ups and entrepreneurs that might face higher barriers to entry without net neutrality. Or about the anti-competitiveness of no net neutrality.

The bigger issue is more like my problem with the supposed Christian up top.

Let’s say that I’m American, and that my ISP gets paid by the rich Republican election campaigns for more bandwidth for pro-Republican websites and news stories. What happens to the voice of dissent?

It either gets paid for, or it gets lost in the bus lane.

Without Net Neutrality rules, you risk losing the democracy of information.

And what’s the payoff for that risk? More money for Cable companies?

For more on this, I strongly suggest that you have a look at this cartoon strip.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.