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Tuesday, March 25, 2014

AT&T's shrill anti-neutrality stance is dangerous

AT&T is rapidly becoming the Internet's Public Enemy #1.

Its sponsored data API programme is sufficiently misguided that it is fairly harmless. It has virtually no chance of achieving what it sets out to do, as I explained in this blog post last month. It also sets itself on the "right side" of Net Neutrality quite carefully, by avoiding any reference to possible differential treatment of traffic. It is just aimed at differential pricing - more specifically, zero-rating certain websites and maybe apps, by having the "upstream" provider pick up the tab.

What I've found unclear was whether this is the top of a slippery slope, or more of a sacrificial lamb to be offered up & killed in exchange for other regulatory favours.

The last few days, however, have suggested that the slope is indeed slippery, the wedge thickening, and the iceberg's tip being exposed beneath the surface.

In response to a blog post about Net Neutrality by Netflix's CEO (which is also rather bombastic, to be fair), AT&T's public policy team have decided to come back with guns blazing. Having had a bit of Twitter banter with their team, I've gone through the details in more depth below. But in a nutshell, AT&T has responded with a disproportionate and largely illogical diatribe that doesn't even bear scrutiny from the perspective of "rational anti-neutrality". It has then further compounded it with a frankly unbelievable filing suggesting that allowing paid discrimination/prioritisation is a way to further Internet competition, not restrict it - and lower subscribers' costs at the same time.

(I also had another round of Twitter banter with the head of ETNO, who seemed confused that I didn't have a conflict of interests he could use as the basis for ad-hominem attacks. He swiftly bowed out of discussion when it transpired he might actually have to argue properly and play the ball, not the man. Apparently I'm more influential than I thought, and I've been warned that "with your strange advices you will destroy the whole sector")

But back to AT&T. The main thrust of its argument is that non-Netflix users are effectively subsidising the Netflix users, by bearing the extra cost of peering and/or other elements of infrastructure. At least that's what I infer, after working through this bizarre tautology: "faster broadband networks like our Gigapower service... are requiring all service providers to drive more fiber into their networks". I read that as "our fast network means we have to deploy fiber", which is rather self-evident. Personally, I'd say that if you deploy fast networks, it shouldn't come as a surprise that bandwidth consumption rises as a result. And also, the effects have positive feedback - faster networks drive more/richer video use, which drives deployment of faster & higher-capacity networks. 

It was ever thus. Hence we've moved on from dial-up modems to fibre, while at the same time more people buy broadband, and keep paying for it. In common with many industries (computers, cars, travel) we are conditioned to pay the same or lower prices for continually-better products.

AT&T then goes on to say "we should accept that companies must build additional capacity to handle this traffic.  If Netflix was delivering, for example, 10 Terabytes of data in 2012 and increased demand causes them to deliver 20 Terabytes of data in 2013, they will have to build, or hire someone to build, the capacity necessary". My initial reaction was "...and your point is?". Netflix does build extra capacity - more servers, more data centres, bigger connections as its end of the Internet, more CDN capacity, more transit if needed. Same with all Internet companies. At the same time, end-users on AT&T's network are buying faster connections, and are subject to usage caps.

It should not really matter to AT&T whether a user's paid-for usage, below its cap of 250GB (or whatever) comes mostly from one set of servers, or a hundred different ones. If my tax contains an element to deal with road maintenance, the government doesn't complain that I always drive to the same place, rather than a random bunch of irregular destinations. 

AT&T should know that if it offers and sells more broadband capacity to its customers, then it's going to have to buy some more peering capacity and ports to support it. Surely, it's been selling broadband Internet access long enough now, to realise that dimensioning applies to both ends of its network.

Now to be fair, I think Netflix oversteps the mark as well. It basically describes paid-peering as a necessary evil (I paraphrase) which it would like to outlaw. Well, yes, I expect it would - but that's also part of the nature of the Internet, as described by the redoubtable @internetthought in this document by the OECD. What I think Netflix should have aimed for is not the elimination of paid peering, but something closer to regulatory or competitive requirements for it to be priced in a way that is fair, reasonable, transparent and non-discriminatory. What would be unreasonable would be for Netflix's paid peering to be significantly higher than anyone else's for the same capacity (Dropbox, Google, or other telcos like Verizon or Telefonica). 

Hastings makes some good points about asymmetry and free peering between telcos, as well as the risk of termination monopolies, especially in markets with limited retail broadband competition. (Yes, the US has ridiculously little competition, because its equivalent of local-loop unbundling & CLECs proved disfunctional, and there is no obligation on cable companies to offer wholesale propositions).

AT&T's most egregious argument is that non-Netflix users end up paying to subsidise non-Netflix users. It talks about the postage it paid to send movies in the past, when it shipped DVDs - the same sort of 19th-century "delivery" metaphor it tries to apply with sponsored data. But the metaphor is flawed. The postal service doesn't have an "access" model where every household subscribes. It doesn't have the same structure as the web, with data being requested, adaptive applications, mashups, bi-directional interactive flows and so on. That's the way the Internet works - there's millions of sites, and we all pay to be able to access all of them. Inevitably, there's a lot of stuff that any one person doesn't access, but others do. Drawing an analogy with the mail is ridiculous. It's a logical fallacy, a strawman.

In fact, AT&T commits a good proportion of the logical fallacies outlined on this great website in its pronouncements. (And yeah, I know I used the "slippery slope" myself).

Let's scale this down a bit. Both I & my customers are bearing costs for people accessing other analysts' websites and buying their research (boo, hiss). And much as I'd like Gartner or Forrester or Informa to stump up some extra cash to save my clients some money, I accept that's not a realistic - or fair - suggestion on my part. I benefit hugely from the open Internet - this blog, Twitter, Paypal, LinkedIn, Google and so on help me run my business - and it's in my interest to ensure that innovation continues.

By the same token, I'm sure AT&T would be unhappy if Verizon and T-Mobile started charging it a premium fee to "deliver" its own website content to their subscribers. Which, to be honest, is a much more likely outcome than them trying to get money from Internet companies with no cash.
(Hey, John Legere, why not try it for a laugh?)

The bottom line is that the position is irrational. "
If there’s a cost of delivering Mr. Hastings’s movies at the quality level he desires – and there is – then it should be borne by Netflix and recovered in the price of its service". AT&T: get this through your collective heads - the Internet does not "deliver" stuff. Data traffic is not physical, so stop using physical terminology. Your electricity connection doesn't "deliver" electrons. There is a cost to Netflix of connecting to the Internet. There is a cost to your subscribers of connecting to the Internet, which includes both last-mile access and your implicit commitment to effectively connect to all the other bits of the Internet. Even bits you don't like. That's what you're being paid for. Now yes, there may be specific instances where it's in two Internet peers mutual interest to pay reasonable fees to expedite something. But framing that discussion in terms of "free lunches" harks back to the hyperbolic SBC-era tripe of "you can't use our pipes for free".

And sure, Netflix is overstepping the mark too with its wishful thinking that all peering, everywhere is going to be done on a handshake. But instead of just arguing that Netflix should look at the structure of the Internet and accept  that sometimes (small & reasonable) payments will occur, you've tried to expand the argument onto spurious grounds of fairness to non-Netflix subscribers.

And as for your risible argument about "allowing individualized dealings between ISPs and edge providers", the idea that it will "empower startups" is so patently flawed I'm worried that you might actually believe it yourselves, rather than just having it as a lobbying position. Think about this for a moment. Are you expecting wholesale prices for such content providers to be higher than end-users' retail prices for capacity? Have you spoken to any startups willing to pay? Under what conditions? Seems unlikely to me. If I'm buying a few petabytes, I want them at much lower prices than end-customers buying gigabytes. Which suggests a less-than-zero sum game, if it does indeed "reduce the cost of broadband service for consumers" as you claim. Unless you're not intending to pass on infrastructure upgrade cost-savings, I can't see why you wouldn't lose money here. Plus, nobody will pay you money for priority when the network is uncongested unless you threaten to downgrade them, or engineer the network so it's always congested.

The bottom line of all of this is probably unpalatable. Neutrality is almost certainly the least-worst option for AT&T and other ISPs, unless you are allowed by regulators to charge unreasonable peering fees for monopolistic access to your customer base. Your attempts to undermine the existing competitive structures of the Internet with differential access-network performance are actively dangerous and insidious. By all means set up a parallel ecosystem and disrupt from adjacency, but experimenting with unproven business models on a "live" and critical platform for global innovation and productivity is unacceptable.

Not only that, but you are also ignoring risks to your own business that will result from playing "silly games". Your own website & OTT-style services will be first in line for mistreatment by your rivals. You are likely to provoke a mass switch to encryption, proxying and numerous new and exciting forms of arbitrage.You incentivise Netflix to offer "free TB of backup" or other apps, to create symmetrical or opposite flows, with you "delivering" data to it and creating further congestion/costs. You appear to be promoting a model that will replace (profitable) retail revenue with bulk wholesale deals. And above all, you are making your company appear as a threat to both the Internet and consumers' and businesses interests (and possible society as a whole). As a major US & global telecoms firm, you're too important to be allowed to commit euthanasia through non-neutrality. If you're being serious here, the FCC needs to treat you as if you're a danger to both yourself and others, and regulate accordingly.

Or alternatively, just tone down the rhetoric and start making constructive comments rather than issuing irrational polemics. (And sure, accuse me of hypocrisy if you can find anything particularly irrational here. I like to think I specialise in rational vitriol).

Edit: Oh, and Netflix / Mr Hastings - I think you need to retune this "strong neutrality" message. Paid peering has been around for longer than you, and if handled appropriately is both equitable and doesn't require the extra bureaucracy of oversight. Argue for "FRAND" peering, rather than wishfully thinking that it should all be free. 

1 comment:

Lokdeep said...

Hello Dean,

I think your main points: open internet and fair peering arrangements are right on the money.

I do think, however that sponsored data on its own ( if it is not used to lobby against open access/net-Neutrality has some interesting and valid use cases