The Beginning of the End

Yep, here come the giant grasshoppers. Via Marginal Revolution, an intriguing article in Slate about how the Internet--a big, sloppy, wonderfully chaotic assemblage of random crap--could ultimately be controlled by the likes of Verizon. I mean, nothing improves content like making it corporate, right? Sound terrifying? You bet:

The Internet has always been about democracy—what the geeks who designed it call "network neutrality." Data, whether e-mail, a Web page, or video, get sent as packets that are reassembled at the end of their journeys. All packets are created equal, and Internet service providers deliver them without prejudice, based on their network's speed and capacity.

Telecommunications and cable companies—let's call them telco-cable—want to change that. Verizon, Comcast, and their ilk have been lobbying Congress to transform the Internet into a two-tiered system. By tagging content, broadband providers would ensure that their own packets (or those from companies paying them protection money) get preferential treatment and reach subscribers faster than second-tier content. This would give companies like Verizon a tremendous advantage as they roll out their own television and VoIP telephone services.
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As a result, telco-cable has been lobbying Congress to rewrite the Telecommunications Act of 1996. A draft of the new bill would codify "network neutrality" (which to this point has been voluntary) and forbid network service providers from blocking or otherwise sabotaging content. Usually fierce competitors, these gatekeepers can agree on one thing: They want to strike the network neutrality clause. Google, Yahoo!, Microsoft, and eBay want to keep it. If telco-cable wins, it will be able to set up separate tiers, forcing Google to pay up or ride in the slow lane.

At this month's Consumer Electronics Show, Verizon CEO Ivan Seidenberg explained, "We have to make sure that they [application providers] don't sit on our network and chew up bandwidth. We need to pay for the pipe." Perhaps, but what Verizon proposes is to charge twice for broadband: first to subscribers, then to content providers. In essence, telcos and cable companies want to privatize the Internet—a model we've pretty much left behind since the days of CompuServe, Prodigy, and AOL.

If the telcos and cable companies get their way, we'll have a Balkanized Web. Content providers who can afford to pay for premium service will market superior products to consumers with fast connections. Everyone else will make do with second-class companies at second-class speeds.

The business model that this most resembles is cable television. There's one key difference, though. In the cable world, the service providers pay channels for the rights to broadcast their shows. In the system that telco-cable is proposing for the Internet, the content providers—who provide the services that make customers clamor for broadband in the first place—would have to pay for the privilege of being included.

Economist Tyler Cowan comments thusly:

In purely economic terms, the idea of charging Google or other "bandwidth hogs" does not sound outrageous. (What would the incidence of such a price hike be? Would cable connections become cheaper, or do the cable companies have too much mononpoly power?) But in public choice terms, this would bring politically-influenced pricing. Don't expect porn or blogs to get a break.

Shucks. I mean about the blogs, of course. And it gets worse:

The net would become much more corporate. The perils of regulation aside, Verizon probably would favor its own products.
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The beauty of the status quo is that web sites compete on the basis of consumer surplus alone. The bandwidth costs end up as a fixed charge on net access as a whole; I suspect this hits many inelastic demanders, a'la the Ramsey rules for optimal taxation. Admittedly it may be a bad deal for the poor who cannot afford to connect, but the overall arrangement enhances the long-run "competition of ideas" feature of the net.

One second-best solution is to charge users for bandwidth per se, while not discriminating across differing uses of that bandwidth. In essence this would tax file-sharing while leaving most content decisions unaltered. Alternatively, a tiered net could lead to more Wi-Fi networks, whether at the municipal level or constructed by Google. If that is where we are headed anyway, this apparently troubling development could rebound to our collective advantage. We might end up bearing the fixed costs of the transition sooner than is optimal, but again the dynamic benefits of the new arrangement might swamp that problem.