Forget everything you’ve heard about Net Neutrality. Net Neutrality is not about content, it’s about poles. Your city is so dotted with utility poles you probably even don’t notice them. Those poles are the real reason why the FCC needed to change the rules around the Internet.
To understand why, you have to know three things: American Internet service sucks. American Internet service won’t improve until new Internet service entrepreneurs emerge. Third, new Internet service entrepreneurs can’t set up new Internet networks unless we even the playing field.
American Internet Service has Fallen Behind the Rest of the World. Seriously.
Last summer, Tom Wheeler, Chairman of the FCC, introduced the possibility of reclassifying Internet service providers (ISPs) as common carriers. In response, CEOs of the major ISPs sent a threatening letter to the FCC stating that if ISPs were made common carriers, these CEOs would be forced to make the Internet worse than it already is. Here is what they said: “New service offerings, options, and features would be delayed or altogether foregone. Consumers would face less choice, and a less adaptive and responsive Internet.” Now, those same CEOs and their enablers are all over TV, screaming about the coming deterioration of the Internet. This is exactly like a three year old reacting to his own tantrum with a bigger tantrum. Most of us don’t even know how much better we ought to have it, so it’s hard for us to understand how ludicrous these arguments really are.
American Internet service is wonderful … if this were 1998. For 2015, American Internet service is terrible – slow and overpriced. Around the world, people pay $3.72 per megabit per second – here, we pay $5.28 per megabit per second – 30% more. We’re also slow – 27th in the world for download speeds (i.e. browsing and streaming Internet content), 39th for upload speeds (i.e. video calling) and 42nd for mobile broadband. 42nd! And, this isn’t a photo finish – you can browse the web on a Smartphone in China or Denmark at nearly twice the average speed of American mobile broadband.
Internet Service Won’t Improve Unless New Internet Service Entrepreneurs Emerge
So, why is American Internet service so bad? Because, like so many other things in the U.S., Internet service is dominated by just a couple of Goliaths at the top, without pressure or incentive to innovate or improve. Comcast and Time Warner are regularly among the most hated companies for customer service. One of the leaders in evaluating brand satisfaction is Bruce Temkin, whose firm puts out an annual Customer Service Rating Index. In 2014, Comcast came in 232nd place out of 232 companies. Only 22% of Comcast customers actually liked them. When asked to explain why Comcast and all the other big ISPs scored so low, Temkin said that Internet providers “have had a hard time focusing on customers. And, even the best of these companies have scores so mediocre [compared to other businesses] that there’s not a lot of competitive motivation to improve customer service.”
When Comcast’s CEO, Brian Roberts, was asked why Comcast is always at the bottom of the pile for customer service, he essentially said that Comcast is too big to provide quality customer service.
What unfortunately happens is we have about… 350 million interactions with consumers a year, between phone calls and truck calls. It may be over 400 million, and that doesn’t count any online interactions which are over, I think, a billion. You get one-tenth of one-percent bad experience, that’s a lot of people — unacceptable. We have to be the best service provider or in the end, this company won’t be what I want it to be.
So, American Internet service is slow, overpriced and unpleasant, but ISPs shrug their shoulders and say it could be worse. Yet, in some cases, bad Internet service is not just the product of happenstance, it’s intentional.
Big Internet companies have been caught purposely slowing content delivery over their networks. Sometimes this throttling is by design, and sometimes it happens because of a refusal to maintain infrastructure.
ISPs get away with it because three providers control 40% of the market, so there is no competitive environment to force them to offer anything more than the bare minimum. Most Americans have one – two if they’re lucky – choices for Internet. That absence of competition is what has made our Internet overpriced, slow and maddening. The key to fast internet – and good, fair, free markets everywhere – is competition.
Without more broadband suppliers, costs will remain high (and costs are high because there are so few ISPs). The owners of the monopolies have no incentive to fund research and development, or even to invest in updating their infrastructure. Many of the networks in the US are still made of old copper telephone lines that are slow, inefficient and unreliable. It’s so serious, and the monopoly owners are so craven, that Level 3 actually published a bunch of articles accusing the big Internet suppliers in the US of purposely slowing – and breaking – the US Internet in order to extract a ransom from content providers to speed it up to its full capacity.
Wait. What’s the Internet?
The Internet is made up of over 11,000 Internet service providers around the world. By and large, each provider owns, or has rights to use, cables that carry data. Cables are connected to data centers every 100 miles, pushing along data broken into uniform packets. Some cables are planted under ground in trenches or under the ocean floors, but most cables are strung along utility poles. Cables, particularly undersea cables, are so expensive that they are often owned by groups of carriers, or financed by selling capacity to other carriers. Some providers are called Tier 1 providers because they control an enormous amount of cables. That means they are able to serve the largest number of users without needing to use anyone else’s cables. No single provider’s cables go everywhere in the world, so everyone has to rent space on other providers’ cables at some point. That’s what is called “peering.” And, there are Content Delivery Networks that operate servers to hold packets of data and distribute them upon request.
Here is an intensely simplified model of the Internet: This model shows Content Networks (like Netflix), an unmarked set of cables that connect various ISPs (plus a hop) and the last mile (the end of the line from your ISP to your device) in red.
Sources: 1. Medium – The Cliff and the Slope; 2. Level 3 – Level 3 Emails; 3. CNET.com – Comcast vs. Netflix: Is this really about Net neutrality?
Why so Few American ISPs?
There are a few reasons why American Internet service is dominated by monopolies. One reason is that, while governments in other countries keep companies from getting too big, in the U.S., Deregulation Fever has made people believe that companies should be allowed to get as big and mean as they want.
Beyond that, new ISPs are barred from entry by the astronomical expense of installing new cables. For perspective, Level 3, one of the biggest non-monopoly Internet suppliers, had to be the most well-funded startup ever in order to spend the $10 billion needed to install its initial network of cables. Current ISPs also have titanic financial advantages. These ISPs inherited cables from their predecessors, the original phone companies, so they didn’t have to install anything in order to get started. In addition, these ISPs also get billions of dollars in cash subsidies from the government to help cover their installation costs. And, in some cases, these ISPs can levy small charges on your phone bill to fund new or improved cables.
Further, no Internet provider has networks around the world – instead, they have to make “peering” deals with competitors to use their networks. Unfortunately, the bigger the monopolies get, the more they demand in connection with peering agreements.
Finally, in other countries, the business of “Internetting” (maybe it’ll catch on) has stayed competitive. Nearly every developed nation across the globe enjoys faster broadband speeds at lower prices than the United States. Consumers in South Korea, Japan and many parts of Europe have more than three ISPs offering them similar products and services. ISPs in other countries are able to compete with bigger companies because they get the right to lease the lines and wires installed by the bigger companies. As a result, ISPs are free to rent their wires and provide exceptional customer service. However, in the United States, not only is there no right to use existing cables, the FCC just ruled out forcing cable leasing as part of the new Net Neutrality package.
It’s all about the Poles (and Fostering Competition)
So, if you wanted to set up an ISP, you would need to find a way to string up the wires and cables that comprise your network. The easiest and cheapest way of doing that would be to use the existing infrastructure of utility poles that stretches across the country. Unfortunately, there are a few problems with that approach.
First, the utility and phone companies that control the poles are slow to respond to requests for access. Second, in fairness to the pole owners, the tasks are not simple. You are asking them to stick a wire next to a bunch of other wires, without interfering with any existing lines. You are asking permission to send someone up the pole with tools, exposing the pole owner to liability and the pole to damage. These pole owners also want to be compensated for your use of the pole. Getting the pole owners to respond, negotiate, evaluate and prepare the pole for installation is a serious challenge.
To conquer this challenge, in 2011, the FCC released “Pole Attachment Rules” to promote broadband deployment. The rules mandated response times by pole owners (in 30 states), as well as the right of pole requestors to hire their own contractors to do the work if the pole owners don’t do it within the allotted time frame. These pole rules also give telecommunications carriers access to public rights of way under some state laws.
But, here’s the problem: the law said that since ISPs weren’t telecommunications service, they did not get the rights to poles and conduits. Transaction costs and lease charges to obtain access to poles, or costs to install their own poles, made rolling out new broadband prohibitively cumbersome and expensive.
Under the new net neutrality rules, Internet services have been assigned to “Team Telecom” (a telecommunications service under Title II). Accordingly, Internet service providers now get the same rights to access poles and conduits as legacy telecom and cable providers. That means that internet service providers, like Google as well as start-ups, will at least have some tools in the box to string their cables along the poles.
The FCC did one more thing that tells us the real mission of net neutrality was to foster competition. Local governments have started installing their own internet networks for their residents. Local governments are compelled to do this because the monopoly ISPs don’t set up fast – or any – Internet networks in rural or high cost areas. And, we all know that big ISPs don’t like the people taking matters into their own hands. For instance, when Chattanooga’s municipal power company started providing blazing Internet service over its fiber power lines, the big monopolies, along with their supplicants, did all they could to chase away neighboring towns from buying into the service. The monopoly ISPs have also pushed laws through the state legislatures in 20 states making it illegal for city governments to install their own Internet networks as long as private companies provide, essentially, dial up Internet service. (So, the monopolies tell government not to solve problems that the “market” isn’t solving, because if the market doesn’t want to solve it, then people don’t need Internet service.) The FCC punched back. On the same day as the Net Neutrality rules, the FCC also struck all such laws prohibiting municipalities from setting up their own Internet services. That means that when big Internet monopolies drag their feet or pick profits over development, people acting through their governments can provide their own Internet service.
In the end, we got some major steps towards nudging some would-be competitors past the barricades, although a more complete solution would have been to also force the ISPs to lease their last mile to upstarts.
The FCC did at least tell your ISP that it can’t choke off content you want for any reason other than network management. But, the FCC did not even attempt to tell the providers earlier up the chain that it has to let your content through – the net neutrality rules apply only to your ISP. That’s like telling the water people they can’t stop water from flowing through the pipes from the street to your house, but they can do what they please down at the lake where the water comes from. The FCC did add some menace and hooded eyes to the rules, threatening big ISPs with more where that came from if they don’t get their act together. Hopefully, this new era in a regulated Internet will help American Internet service meet the world’s standards.