The FTC & net neutrality

(Series on Communications Law, USA)

I was alerted by a series of posts that alleged that the Federal Trade Commission (FTC) had abandoned net neutrality. This is not exactly accurate, and I'd like to start over and explain to readers (in brief) the meaning and status of net neutrality. Top FTC officials are hostile to the concept of net neutrality, since the FTC regards its primary mission to devise and promote legal standards that favor export revenue. Should Internet neutrality be enshrined into law, the FTC believes it will be undermining the telecommunications sector's ability to capture rents from its infrastructure. This issue has come up during a period where the FTC is entirely beholden to the telecoms, and it has continuously advertised its position that it believes what is good for AT&T is not only good for America, but the epiphany of justice as well.

However, as an arbiter, the FTC needs to validate its position in trade law; it may not rule by whim. Hence, it has published endless "studies," which amount to editorials that might have been written by attorneys for the major telecom firms. It is Congress that must decide.

The Internet uses a system of packet switching to transmit very large amounts of digital information over existing telephone, coaxial cable, and DSL lines. In the past, when people used telephone lines solely to communicate orally, the effect was analogous to a train, which occupied the track (so to speak) for the entire duration of the phone conversation. If we pretend that all roads consist of one lane, and that they are interchangeable with railroads (so that, for example, it were possible for trains to use—and tie up—the highway for half an hour at a stretch), then the analogy is nearly perfect. Only one train headed for one destination may occupy one track at a given time. This is compatible with the immense loads that trains—or telephone conversations—carry. A 100-car train may carry about ten thousand tons of freight; a telephone conversation, a continuous stream of rich audio data. In contrast, digital transmissions need only communicate a finite string of bits. This is equivalent to thousands of little Vespas buzzing onto and off of the highway. Even when an internet connection is active, its connection to the server can be analogized to an intermittent traffic of a few hundred scooters. Naturally, other scooters can fit in between them with ease. During the course of an internet session of (say) two hours, the volume of data transmitted may well be equivalent to a telephone conversation of one or two minutes. That means that several scores of internet connections may have the same telephone load as a single telephone call.

Of course, the TCP/IP protocol makes this possible by arranging the data into packets of fixed duration, which then flow through like cars through a busy city center. The Internet Protocol acts like a system of traffic codes and signals that coordinate the packets so that they flow smoothly. The interesting thing about this is that, with improvements in data compression technologies, it is (ironically) possible to use the Internet to transmit audio files as bit packets, more efficiently than as analogue streams—the thing that telephone lines were created to do. Another point to bear in mind is that the Internet and the IP protocol have evolved over time so that most traffic now occurs over broadband connections, in which data is transmitted hundreds of times more rapidly. The physical constraints of 1990's-era telephone lines have been superseded by ethernet and coaxial cable, but this merely means that the load of potential data that can be transmitted has physically increased, without a drastic shift in the prevailing rules.

Now, in the past the IP system has been utterly, relentlessly neutral. The analogy to cars moving through a vastly busier traffic network, with vastly increased capacity, still holds. Stoplights don't award faster access to the cars of wiser and busier people, at the expense of cruisers and idle wastrels. In fact, the physics of vehicular traffic is somewhat different from that of internet connections; so in my TRON-like universe, packets marked "Priority A" are awarded with closer spacing (and hence, greater volume) than packets marked "Priority B."

The vast majority of internet connections are provided by telephone companies, which created the system of "pipes" based on the presumed mixture of conventional telephone calls and broadband internet connections. The premium on telephone service is so huge that it makes telephone monopolies immensely profitable; from a financial/business perspective, internet service is just a way of getting additional revenue at little marginal cost. The problem is that services such as voice-over-internet protocol (VoIP) would mean that the main revenue stream for telephone companies would be cut off. Instead, people would use the phone company for internet connections, if that. A huge number of Usonians already get their phone service through their wireless service anyway. With technologies like Bluetooth and Wi-Fi, a Skype subscriber can actually use her cell phone at work or at home, and get VoIP service as if she were communicating through a headset plugged into her computer. That would effectively cut out the PCS companies as well as the landline telephone companies.

One way of getting their money back is for telephone companies to use a strategy known in basic economics as "discriminatory pricing." This means that people using the Internet more heavily (as, for example, those who get movies or VoIP through it) would pay a premium, but get better service. Better service, in this case, would mean VoIP packets would get a higher priority.

It's interesting to note that a mass migration of telephony and television services to IP channels of delivery would lead to a new business model under which broadcasters networks, cable TV providers, and telephone companies would all become virtually indistinguishable businesses, all providing a mixture of IP-related services. In the same way that all financial services in the United States were allowed to merge into nationwide supermarkets of finance, it seems likely that all entertainment and communications services in the country would become a single amorphous sector of the economy. And just as supporters of the financial supermarket concept argued that there would be increased competition among financial service providers, so members of the telephone companies are arguing that they face increased competition from VoIP (which is usually delivered over phone company lines). In order to support innovation in Internet multimedia, some form of discriminatory pricing will be required.

Where this is alarming is when the ISP's and search engines collude to apply a discriminatory pricing model to websites. We're already accustomed to search results offering the lowest prices on "The Damned of the Earth."* In the future, search engines like Google or Yahoo! would have to tweak their search algorithms to reflect the new primacy given to bandwidth-intensive services, like... CNN, Fox News, and so on. In effect, the Internet would become extremely skewed towards commercial media, and net-based activism would be vastly more difficult.

However, at this time, I am not aware of there having been any recent developments on potential legislation.

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SEE ALSO: Video on net neutrality (RSNL&A)

*Not a reliable result; The Damned of the Earth is a notorious book by Frantz Fanon, and also a line from the French version of "The Internationale." I recall conducting a search in the hopes of finding the text online, and instead was offered "The lowest prices on..." OK, I thought it was really funny.

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SOURCES & ADDITIONAL READING: "We Still Need Net Neutrality Legislation," David DeJean (4 July '07); "FTC Net Neutrality Report Tortures Logic," Net Neutrality, Policy Blog; "FTC abandons net neutrality," Vnunet.com; "Navigating Between Dystopian Worlds on Network Neutrality" (PDF), speech by FTC Commissioner Jon Leibowitz (Feb 2007) & "FTC Chairman Addresses Issue of 'Net Neutrality'," FTC (Aug 2006); Oligopoly Watch, "Oligopoly and network neutrality" (21 Jan 2006);