It does not in any way incentivize them to build larger or better networks. It does not incentivize them to invest in their infrastructure. All it does is let them make more profit off what they already have.
I mean seriously, if the whole argument is that they're not making enough money as it is: if a 97%[1] profit margin isn't enough money for them to build out their networks, just how much more do they need?
[1] http://www.huffingtonpost.com/bruce-kushnick/time-warner-cab...
Build your own services and throttle everyone else's services unless they pay a premium (in which case your own services would be cheaper, but the profit they get from their own services must be higher than the profit they get from NOT selling the bandwidth their premium service uses, to third parties).
Let's put it this way, if a hotel builds a Jacuzzi, you're argument is that the hotel owner will only let their own family and friends use the Jacuzzi whereas they will charge anyone else more money to use it. But the time their buddies are using the Jacuzzi could be sold for a fee to the third party, so in order for them to rationally do this, they must gain enough favors that it justifies them to NOT make the extra profit.
In case of the ISP scenario, the Verizon Music better offer them higher profitability than letting it be used by actual Spotify and charging them. If they charge Spotify's $5 per month per user, then Verizon Music better bring them same or higher revenue or else running Verizon Music isn't worth it.
Business Model 2:
Invest in infrastructure and try to take over bigger market.
You're claiming "There is no way they will go for business model 2, they will go for business model 1". But you have no presented any reason why they would do that? We have reasons to believe that even when companies are very good at doing something internally, the parent company sells them off because it's a more profitable model.
There are two reasons they would do that.
The first is price discrimination. Suppose Spotify makes $2/month worth of profit but uses $0.05/month in bandwidth. Now Verizon can charge them $2/month for that amount of bandwidth and take their entire margin. Even if Spotify nominally continues to exist, they now have no margins to reinvest or use to attract new private investment, so they're walking dead. Which harms customers because now Spotify can never improve their service. And if Verizon does have a competing service (see also: TV and phone) then Verizon's service gets an insurmountable competitive advantage.
Which leads to the second reason, which is to extract monopoly rents. Suppose Spotify charges $10/month because they have competitors, so they can't charge more without losing business. But if they had no competitors then they could charge $25/month. Which means that Verizon can charge $25/month if they can get rid of all the competitors, which they can do by just charging them all unsustainably high data prices.
Hotels can't do this because hotels have real competition.
Some may stay and downgrade their service as they don't require as much bandwidth and some may leave Verizon entirely. It's not all roses for them.
Then Comcast, AT&T, Google or anyone else frankly begins offering "True unlimited full access internet" and eats Verizon's breakfast, lunch and dinner.
Meanwhile someone creates a VPN service to get around the blockade.
I would agree with you only if everyone had a choice of that many providers, which is not the case! In my current neighborhood in Boston I have a whopping selection of either America's favorite company Comcast (with bandwidth caps and horrible outdated infrastructure and service) or Verizon DSL (max ~3Mbs down on a good day and only when it doesn't rain). In my previous neighborhood it was only Comcast as it was too far from Verizon's DSL switch. Neither one of those companies have any incentive to improve their networks. Zero. They have a comfortable duopoly and killing net neutrality will only reaffirm their horrible exploitative positions and allow them to start turning the internet into something reminiscent of cable TV, which is their ultimate goal: full control over content providers.
You seem to be intentionally forgetting that these ISPs have segregated themselves such that they do not have to compete with one another. In most of the US, you get one choice of fast internet (Verizon or Comcast or Time Warner) and one choice of slow internet (whatever DSL you can find) - you may not even get satellite or dial up anymore.
So, when Verizon says "Screw you Google and Netflix and Spotify", their customers don't go "hey Comcast/AT&T/Google, c'mere", they say "how much do I have to pay you to make the pain stop... for now..." (The customers of all of these horrible ISPs have been screaming the "hey [other ISP] come to my area" line for literally decades, but the ISPs don't listen because they have either agreed explicitly or implicitly not to push into one another's turf to maximize everyone's profits.)
This is why we need net neutrality. If the market was competitive, it'd be a different story altogether. But it is provably not (hell, they've used the fact the markets are not competitive to try to convince the FTC to allow them to merge with other ISPs because "it would not reduce overall competition, since they do not compete in such-and-such markets"), and despite the government drowning AT&T and its many children with hundreds of billions of dollars over the past few decades to build high speed networks for everyone, they still organized their networks in such a way to maintain monopoly powers (albeit in smaller, more fragmented markets).
ISPs in America do as little as possible, collecting the biggest check as possible, and use the massive profits to squeeze competitors out (like they have successfully done with Google giving up the ghost of expanding even in Mountain View California where they are headquartered and as they are scaling up to do to municipalities creating their own networks like Chattanooga). They're consistently rated as the worst businesses in America, but they are infrastructure, so we pay them anyway. And now they're learning that more profits exist in content than it does in carrying the content fairly, so they want to be the source of the content too. And that means killing net neutrality to making themselves the sole arbiters of the market.
The idea is further that, not only does it make pragmatic sense for so favorably positioned an ISP to act aggressively in defense of that position, but such ISPs have been observed to do so, as for example with AT&T's successful defeat of the recent municipal broadband expansion bill in Tennessee. AT&T's position is that taxpayer money should not be used to fund competition with private industry, which all sounds very fine and upstanding, except that the private industry has already stifled any possibility of competition by means of the sort of monopolistic activity which US governments spent much of the early 20th century working to restrict, in order to prevent the unsavory outcomes that such activity has been observed to produce in direct proportion to the degree in which it's successfully pursued.
So, sure, they can charge high rates for traffic if they want, in addition to charging more or less whatever rates they please simply to provision backhaul in the first place. They can impose a $20/month, or higher, charge for reliable access to video streamed from services other than those they themselves run. They can do whatever they're able to get away with - and in an environment of permissive and favorable legislation and no effective private competition, they get away with a hell of a lot.
In case it matters, I'm really not progressive, and I understand business reasonably well - I've been in private industry my entire career, with no one doing me any favors, and if I didn't have at least a generally accurate idea of how things work, I wouldn't be able to support myself. In particular, I find the current attitude held by the federal, and many state, governments, toward small business enterprises, absurd and execrable - and I've seen the onerous burden such an attitude inflicts on people who go into business for themselves. But the current attitude toward large business is a whole 'nother matter entirely, and I see nothing of value to our polity as a whole in the results of such gross permissiveness. Expanding such permissiveness still further strikes me as very much the wrong thing to do.
"What's the point of paying $100 a month for Facebook and Instagram? I get that on my phone anyway! I don't want Verizon's $100 a month TV plan, I want house of cards."
As the ISP mostly has sunk costs and slim margins if even 5% of its user base leaves in a certain market that will render them insolvent or force them to raise prices, causing more departures, and higher prices still...
The point is while they don't always have direct competition they do have a decent amount of elasticity of demand.
A big cost for ISP's is customer acquisition, even if they change back their policies it will be years, maybe decades to recover. I think if an ISP did this on any large scale it would be suicide.
I guarantee you Comcast has made the same calculation, too, down to the fractional cent. Whatever vig they charge, if they do, will be scaled accordingly.
Also keep in mind they would still be subject to anti-trust regulation, they really can only take it so far before getting broken up again.
From: [email protected]
Subject: Comcast is increasing the monthly cost of Nextflix
"Dear Valued Customer,
Here at Netflix we endeavor to offer the highest value for your entertainment dollar, it is with that in mind we regret to inform you that due to sweeping and punitive fee increases brought on at the sole discretion of Comcast we will be forced to raise our prices 425% next billing cycle. Customers of other ISP's will enjoy the same low price that we have always offered, in fact we are offering our service at our cost to Comcast customers at this new rate. Please contact Comcast customer service at 1-800-Comcast if you would like this issue resolved as it is out of our hands.
Have a great day"
So... just to make sure I'm following, this is the outcome you're arguing in favor of?
[0]https://community.openvpn.net/openvpn/wiki/TrafficObfuscatio... [1]https://github.com/jlund/streisand
https://www.theverge.com/2014/6/4/5778770/netflix-warning-me...
https://qz.com/688033/netflix-launched-this-handy-speed-test...
https://bgr.com/2014/06/11/netflix-video-streaming-speed-tes...
How so? How does eliminating net neutrality give them incentive to improve their network? You've provided no support for this at all. (In which you have much in common with Pai!) if it were as simple as "more infrastructure equals more profit" then they'd already be building more infrastructure, neutrality rules or no.
> If they launch Verizon Music, then they'll have to build a service as good as Spotify (if not better) in order compete with Spotify
But that's the point: they wouldn't have to make a better service. All they'd have to do is throttle Spotify's traffic down to the point that their own service seems preferable. Or (more likely) just extract a toll from Spotify in exchange for not doing that.
Not really, they could just charge an additional $10/mo for users to access Spotify and people will start to choose Verizon Music since it is half the price, even though it is worse, which then bleeds Spotify dry.
Your useful comment reads just as well without this. While you may think they're not thinking clearly, stating so is unlikely to convince them of your argument.
This is the problem though. What happens when they build Verizon Music and then charge people to use (or otherwise harm access to) Spotify?
Its very surprising that people argue about these businesses in the hypothetical.
America has only a few Telecom players. They will remain a few telecom players because fundamentally telecom has deep barriers to entry.
And these players have a long history of hugely anti consumer moves, laziness, deceit, cabal like behavior.
I really do not understand this, and hope someone can shed light on it.
Why do people talk about these firms, and trust them to act as model businesses.
1) Are many americans unaware of the history of malifide actions by telecom firms? (colluding to drive down prices during auctions, not building the network they were given tax breaks too, already existent rent seeking behavior and attitudes)
2) Is there some other principle that they believe these firms will follow, that overrides the obvious business incentive to cheat?
I don't get it.
http://www.theverge.com/2017/4/26/15439622/fcc-net-neutralit...
If they don't have overhead in their networks, they cannot offer faster service to some net traffic over other net traffic. The ability to sell faster connections to some services incentivises them to have overhead in their networks to sell, which means investment into their infrastructure.
If UPS slows the packages of Amazon down because they're accepting money from Jet.com then they would be violating their consumer agreement with Amazon.
If UPS provides faster delivery for Jet.com for higher fee, then Amazon's products would be delivered slower but cheaper, but Jet.com's products would be more expensive.
Remember, speed isn't the only thing people care about on the Internet. Features and costs matter too.
In a non-net neutrality world, faster == expensive, and there is no business model for ISPs where they can provide cheaper services AND provide faster delivery.
This is a model where average residential person is paying UPS to deliver all packages they ask for. But UPS has decided that jet.com must pay extra or their packages will be arbitrarily delayed vs amazon because UPS has invested in amazon. Then the customer cries foul because they thought they were paying for arbitrary package delivery.
The government tried to say packages should be treated equally by treating the package delivery as the USPS, but UPS has paid off the party members to ensure they can continue to double dip.
Also remember it isn't that a given company isn't paying for "priority" it is that they're going to be actively underprioritized unless they pay.
Wait... but ISPs CAN charge consumers for faster speeds. There are most definitely price/speed tiers of service. Net neutrality was about not allowing an ISP to artificially throttle the speed of individual services going over their pipes, not about throttling total connection speed for an end user based on price.
The complexity seems to be that ISPs have 2 customers - end consumers, and content owners (to keep it simple). Comparisons to UPS aren't accurate because UPS contracts with ONE party - the shipper - for service. ISPs are contracting with both ends, and unless one side is neutral, they will be allowed to sell one thing but not provide it arbitrarily because some other party didn't also pay up. I can pay Comcast for gigabit access, but it isn't required to provide it to me at all because it can throttle any service it wishes. It's contract with me is purely to the curb.
Imagine this scenario: I pay for access to a toll road that runs for a few miles through Houston, TX. However, because my final destination on my trip is Florida, and Florida doesn't pay the toll road operator a special fee, my car is magically restricted to 15 miles per hour. The toll road provider provider sold me a pass to access the road at full speed 75 mph, but can arbitrarily (and magically) limit my speed without notice or consent based on information that is really arbitrary to the toll road's existence: my final destination.
Of course it can make you more money! You can charge your competitors rent to stay out of the slow lane, and you can make your own subsidiary services artificially preferable to consumers (and therefore more profitable) by throttling the competition's bandwidth.
Your UPS analogy doesn't fit at all. UPS would have to own Jet, and Amazon would have to have no choice but to use UPS delivery for a large subset of its customers (remember that broadband service is an effective monopoly in large portions of the US). UPS would absolutely be able to slow down Amazon's packages, because that's what eliminating net neutrality literally means: ISPs are no longer required to treat all packets equally, they can pick and choose which traffic gets priority, and naturally they're going to prioritize their own, or those that have paid an extra tariff to get in the fast lane. Amazon's products would either be more expensive, because they're paying that tariff; or they'd have inferior delivery time. Either way, UPS profits, not because of the quality or speed of their service, but because they have the ability to degrade the quality of their competitors.
In a non-net neutrality world, faster != expensive (at least not any more than is already the case). Consumer choice == expensive. "Faster" would remain under the control of the ISPs, exactly as it is right now.
The minimum cost of a transportation venture is extremely cheap -- a working vehicle and its operating costs (petrol, insurance, maintenance). Of course, it won't be as profitable as UPS and such a venture won't be able to out-compete UPS nationwide but there certainly are small local courier services that provides faster and cheaper service than UPS for limited use-cases.
There is no equivalent of a public national roads network for ISPs -- stringing up fibre is expensive as all hell and involves having to get permission from land owners, municipalities, and utilities. National-scale incumbents (who can easily afford to throw a few million dollars here or there to put in fibre of their own in a new region/market) currently are not subject to real competition from local ISPs (who don't have a comparable ability to throw cash around).
Hangouts has the infrastructure cost of a server and UPS warehouses and vehicles. An ISP has the infrastructure and maintenance costs of a buried or hung line to every single home it serves. Unlike an App or shipping company, it takes literal years to take a hard wired ISP to any sort of fruition. Building an ISP also means serving a concentrated market, where the bigger ISP can lower their prices until your new ISP goes bankrupt.
If you really wanted to break up the regional monopolies, you would force competitive bidding for all last mile connections and let companies do their own backbone infrastructure. It would introduce actually competition to a market where most consumers literally have no choice.
The fact that Google Fibre exists only reinforces the assessment that you must be this big to enter the ISP market in the USA.
And while you might say that it allows them to fund things faster, it also allows them to simply give more money to executives and shareholders.
Please don't also pretend that giving them more ways to make money at the expense of the internet as we know it means that they will invest in their infrastructure. In fact, history shows us that they most likely will not.
To be honest, I'm unsure about the whole "make it worth more and they'll invest more in it" argument, but I do think that abandoning net neutrality has a chilling effect on small startups. Or small bloggers, or small anyone.
Even if there's a lot of money to be made providing better service than Comcast, who will receive approval to dig up the ground and place new cables?
Well then why introduce more regulation like 'Net Neutrality'?
The fundamental idea is that the amount of investment done in a venture is directly proportional to the profitability of that venture. If govt makes a regulation saying that Google can provide Hangouts service, but it cannot charge more for Enterprise Hangouts features, then Google has no additional incentive to expand the hangouts service than what it gets by having the business of consumer market.
If Uber/Lyft is previously not allowed to provide priority Corporate service to corporate clients (and let's just say they do it by letting the corporate Uber cars bypass the consumer Uber cars using their Map service) then Uber/Lyft are allowed to do that, then their increased profit margins will allow them to fund their autonomous car other operations to build the network faster.
You may disagree with the ethic of overnight delivery services of UPS, but at least not pretend that if UPS is allowed to charge more and deliver packets overnight then this allows them invest more into their infrastructure.