(Originally published in the
American Reporter.)
The Internet was the great noncommercial success story of our time.
Commissioned by the government, built on open-source software,
promulgated initially through research and academic facilities–the
Internet was the crowning example of a public good, a resource without
an owner, a self-regulating convocation of equals.
All that seems threatened now. This month, local phone companies
revealed a far-reaching change to Internet access. These companies,
who control the line into the Internet users’ homes (usually through
ADSL connections over traditional telephone wires) want to create
varying levels of service for Internet content of their choice.
They plan to reserve high-speed connections for content they serve up,
or that they accept from entertainment firms and other commercial
companies willing to pay. All other content (originating from sites
such as this one, the American Reporter) will receive poorer service.
And if the phone companies can do it, cable companies (the other major
providers of Internet service to end-users) could very well start
doing it too.
Those who hail the open Internet cringe at this initiative, which
exploits the Internet to build and market private, premium content.
But this is is by no means the first time companies have tried to bend
technology to favor their services. In fact, it’s an old story.
As I’ll show in this article, companies have been trying to position
themselves at choke holds and manipulate the Internet since it became
commercialized in the early 1990s. Such shenanigans are simply an
exercise of market power. Up to now they have failed to change the
essential nature of the Internet. If they threaten to do so, opponents
can invoke regulatory power and antitrust law to fight them.
Case One: Walled gardens
Parallel to the Internet, in the 1980s and 1990s, grew several
commercial networks whose names are mostly part of computing history:
Prodigy, CompuServe, and the one that managed to beat the odds,
America Online. These sites offered email, forums, and special content
to their users; they were often termed “walled gardens” because they
existed only for paid subscribers, and because the companies used
their content in bidding wars to win users to their exclusive service.
There was one form of competition, though, that none of the commercial
companies could beat. That was the Internet, a completely uncontrolled
repository of every imaginable thing anybody wanted to put up in
digital form. During the mid-90s, the users of the commercial services
demanded access to Internet riches, and soon there was little interest
in the special, limited-access forums. The companies gambled that they
could use the Internet as a lure to keep users in the walled
gardens–and they lost the gamble.
The functions of Prodigy and the rest are now split into two types of
business, both of which are thriving. One side of the split is pure
connectivity, the other pure content.
Internet service providers (ISPs) offer end-users raw physical access
to the Internet. Meanwhile, portals–which are experiencing a
resurgence, and of which Yahoo! is the most successful–offer
high-quality content attractions such as news and discussion forums.
Both businesses are becoming concentrated in fewer and larger
corporations, which is typical for maturing markets. And as the phone
company announcement showed, some companies are trying once again to
combine these functions. We’ll see later in the article whether this
attempt to create a new choke hold can succeed.
Case Two: Peering and transit charges
The Internet grew because companies strung lines between their routers
and connected to each other. No connections, no Internet.
This principle, in fact, lies at the heart of the term “Internet.”
For a long time, computer administrators have been running networks
that cover a department, a building, or a small campus. Each network
can be an Ethernet, a wireless network, or some other local area
network technology. Whenever the administrator connects two of these
networks, it’s called an “internet” (small “i”).
The vision of connecting all these networks globally led to the
capital-I Internet. It was brought to fruition by the simplicity and
flexibility of the TCP/IP protocols (and, some say, government
requirements that these protocols be used for communications with
government agencies).
At first, ISPs carried each other’s traffic for free. How else could
they imagine doing it? If they put up any barriers to connection,
they’d slow the growth of the miraculous Internet that increased the
value all providers could offer to their users. Furthermore, the
effort and cost of counting traffic, working out pricing systems, and
collecting payment didn’t seem worth the extra revenues they might
bring. Because everybody was equal in these halcyon days, building
connections was called “peering” (as in the modern term Peer-to-Peer).
By the late 1990s, though, hard-headed bean counters had taken over,
and a major change ensued. The largest ISPs and backbone owners
announced they would peer only with companies who could provide
comparable service to them–other companies would have to pay.
What was considered comparable? Comparable companies had to have a
certain geographic spread, accept a certain volume of traffic, and
meet various other criteria for reliability and service.
A lot of small providers complained, but this change was economically
necessary. End-users paid for the connections to the ISPs, but who
would pay for the lines that stretched for thousands of miles across
continents and between continents, carrying the Internet from one
far-flung ISP to another? The large ISPs who owned these thick bundles
of optical fibers, known as backbones, needed to charge to cover both
their sunk costs and their maintenance.
According to Fred Goldstein, principal at ionary Consulting, “Major
backbone operators (Tier 1, as they are called) were a new market that
had to create itself from the early noncommercial Internet. Not only
was there no dominant player, it was a cut-throat business in which
huge operators went bankrupt. Transit charges helped make the wider
Internet possible.”
Still, a whiff of oligopoly hangs over the issue. The large backbone
companies gambled that they could maintain a common front and force
smaller companies to pay extra. And this gamble, unlike the earlier
gamble of the walled garden companies, succeeded.
At that time, people also worried that large ISPs would employ
technical measures to make service for users on the same ISP better
than service for users on different ISPs. Certain ways to transmit
streaming data (audio and video) work better if a single company has
control over the whole route. Therefore, an ISP might be able to
market a “quality of service” that requires users at both ends to sign
up with that ISP.
This has not yet happened, perhaps because the need was not felt by
users (Voice over IP works pretty well on the current Internet, while
few people do video teleconferencing), and perhaps because the market
did not emerge for social and business reasons. (See my article
A Nice Way to Get Network Quality of Service?)
The peering controversy mostly died down in the 1990s, but it can
still pop up. In October of this year, a controversy between two
providers–Level 3 and Cogent–burst into public view. Level 3 wanted
Cogent to start paying for its connection, and to show its muscle, cut
off the connection to Cogent for three days. Subsequently they signed
a new agreement. But people using each provider who were trying to
access each other’s email or web pages found out that peering and
transit is a living controversy. (Some commentators attribute the
dispute to other business conflicts as well.)
Ironically, back in 1998 it was Level 3 who complained that larger
companies were charging it instead of peering. What’s fair or unfair
looks different from the two ends of a cable.
The only policy argument over ISP transit currently lies in the
international realm. ISPs in North America and Europe impose transit
charges on smaller ISPs in regions of the world that came to the
Internet more recently.
This has been a major bone of contention in international
communications policy for years. It comes up repeatedly at meetings of
the International Telecommunications Union and at that well-publicized
United Nations body on Internet issues, the World Summit on the
Information Society (WSIS). In fact, WSIS participants consider
peering and transit arrangements more important than the issue that
grabbed the headlines in the U.S., that of domain names and ICANN. So
transit is now a digital divide issue.
But independent analysts back the backbone operators. They consider
peering and transit not as policy but purely as business, privately
negotiated and covered by non-disclosure agreements. Chris Savage,
head of the Telecom/Internet practice at the law firm Cole, Raywid
& Braverman, says, “To avoid transit charges, an Internet provider
has to bring to the table (a) a lot of users, and/or (b) a lot of
highly valued content. The providers in the underdeveloped countries,
at least historically, have had neither.”
So the worldwide Internet is not the seamless universality that
idealists like to talk about, but rigidly segmented. The cost of my
accessing a Web page in Brazil, or even some rural parts of the U.S.,
are greater than my costs of accessing a Web page in Menlo Park,
California. It is not I, however, who pays the difference (though I
may well pay in the form of noticing a longer time delay during the
download).
Transit charges led to increased costs for small ISPs in the U.S., but
these didn’t made much difference in their profitability. What killed
most of these ISPs was the cost and difficulty of a very different
kind of connection: those between small phone carriers and the
established local phone companies. The battle over the last mile had
begun.
Case Three: Last-mile legerdemain
Aside from the transit charge controversies, Internet backbones
present little to fight over. This is because they have ample
bandwidth for current needs, partly because of the over-optimistic
investments of the dot-com boom.
Trouble arises only in the wires that connect the backbones to
individual homes and businesses: the so-called “last mile.” This is
what our traffic passes over when we sign up with a local Internet
service provider.
Originally, an ISP was just a company with a connection to an Internet
backbone. Customers dialed up the ISP just like they dialed up a
friend, and the phone company treated the call the same way. In the
early days, ISPs were often Mom-and-Pop operations; a computer
programmer might offer service as an adjunct to managing his or her
own Internet connection.
But as new technologies with higher-speed access emerged, ISPs
realized they had to start acting like phone companies. Some formed
close relationships with small, upstart phone companies, while others
created their own companies that traversed the regulatory maze to
offer phone service. The upstarts ran their own lines, or more often
rented lines from the old Bell phone company, the incumbent.
Once incumbent phone companies woke up and realized Internet business
was big business–both because the upstarts were successful, and
because cable companies started offering the Internet over cable
modems–they started marketing their own service, and redoubled their
efforts to cut off the competitive phone companies. These could not
survive without connecting to the incumbents. Who would sign up for
phone service or Internet service from a small company, if that
service reached only customers of that company?
In a dozen ways, incumbents made it hard for competing phone companies
to connect. Their numbers dropped precipitously during the late 1990s;
few exist today.
Now the ISPs themselves are in the incumbents’ direct sights. When the
incumbents build new, high-speed lines, they no longer are forced by
regulation to lease or share them with competing ISPs.
As for cable TV companies, U.S. regulations have ruled out any
requirement for them to serve competing ISPs, although Canadian
regulators have taken the opposite tack. ISPs in Canada still need to
buy service from companies with which they are in natural competition.
So the open Internet–the Internet cited at the beginning of this
article as an exemplary achievement of noncommercialism–now ends,
ironically, in choke holds. Incumbent phone companies and cable TV
companies both hold considerable market power, enforced by regulation.
The incumbent phone companies are the children of the break-up of
AT&T, a regulated monopoly; they still face only minimal
competition. The cable TV companies get franchises from cities and
towns, and often enjoy the sole cable franchise in each community.
The incumbents and cable companies are gambling that they can
re-establish walled gardens; that they can leverage the Internet to
tie customers to their high-revenue offerings. Goldstein says, “It’s
no coincidence that the companies are rolling out these plans after
most of the alternative phone companies and ISPs have disappeared.” A
key part of their gamble is that users won’t find viable competition
to move to.
So do incumbents and cable companies now own the Internet?
With this background we are almost ready to tackle the historic (and
perhaps histrionic) question asked at the beginning of this article.
First, we have to recognize that the Internet access offered by
incumbents and cable companies to home users is notably different from
Internet access as it was understood originally. In the early days,
bandwidth was equal in both directions. A typical Internet site was an
institution owning file, mail, and news servers; it hosted content.
When sites hosting content pushed it down their fat pipes
(high-bandwidth lines) and home users downloaded it on their small
pipes (dial-up lines), the users experienced the notorious “World Wide
Wait.”
The next step up in Internet access was ADSL (from phone companies)
and cable modems (from cable companies). But both are asymmetric
(that’s the A in ADSL). This is part of their design.
The providers expect you to request a web page (a very small
transmission in the upstream direction, perhaps just a couple dozen
bytes) and use most of your bandwidth downstream (which can easily be
tens of thousands of bytes, if the page contains images or
animations). Bandwidth is divided up accordingly. The model of
Internet access, ensconced in current ADSL or cable lines, is a
consumer model.
Markets in tandem with technology can often overcome limitations. So
perhaps, despite being relegated to the status of a consumer, you are
merrily blogging, putting up photos, and even posting songs and videos
(legally, I presume) on the Web. Most individuals do these things by
forming some kind of relationship with a hub on the Internet that has
fat pipes, powerful services, and terabytes of disk space. The
individual remains a consumer, but can piggyback on a producer.
Meanwhile, this market fuels the growth of portals, mentioned
earlier. Two example readily at hand are the popular site for posting
photos, Flickr, and the site for sharing favorite web sites,
deli.cio.us. Both were acquired by Yahoo! this year.
Because of bandwidth restrictions, and the physical nature of the
cable as a medium shared by hundreds of users, the terms of service
published by most cable companies rule out servers and peer-to-peer
applications. Some place absolute limits on traffic usage.
We should not be surprised that a cable company’s idea of Internet
access differs from the original meaning of the term. Cable companies
have always existed to deliver canned content of their choice with
graduated prices. When they discovered the Internet, they set aside
one channel for Internet traffic; the Internet became an incentive to
sign up for cable service, as it served the Prodigies and CompuServes
of the 1980s.
In other words, the cable company leopard never changed its spots; it
just let a monkey hop on its back for a ride. The lifespan of the
monkey is up for debate.
Phone companies have been watching the premiums charged by cable
companies for decades; now they see their opportunity to do the
Phone companies are finally ramping up better connections. But the new
plans would dedicate the new fat pipes to commercial vendors who pay
to use them. Personal, small-business, and community-organization
Internet sites would be ghettoized onto the current aging wires. And
the promise of innovative applications such as video teleconferencing
would remain a pipe dream.
In fact, such a policy would actually reduce incentives to build
faster connections. The phone companies would be able to keep using
the old ADSL lines, just marking traffic by its origin and favoring
the highest bidder. The change would increase revenue without
improving service.
Goldstein says, “The incumbent phone companies want to apply a
‘message unit’ model to web sites, who must either pay up (’800
model’) or become harder to reach (’hobo class’). And perhaps they’ll
even block all access outside of the walled garden. This is what they
set up on mobile phones, whose data services were never regulated.”
The goal of favoring one type of content over another can be fulfilled
through a technology called differentiated service. This is not
something new, nor is it the result of oligopolistic conspiracy.
Research into this area has gone on for many years, and many Internet
tools support differentiated service.
Differentiated service lets administrators choose routes for data by
multiple criteria, and let through traffic between certain users while
holding up other traffic. The important criterion might be how fast a
single request gets to its destination, or how fast a heavy stream of
traffic gets through in the aggregate. Reliability and cost can also
be factors; each factor assumes a different way of handling traffic.
For a long time, the business goal behind much of this research was to
allow ISPs to provide different quality of service to different
customers, and to charge for the difference. The attempt has mostly
been a failure, as I mentioned earlier.
But differentiated service has a new lease on life, and it’s much more
closely targeted to users and content. Particular types of traffic
(identified, for instance, by port number) and particular sources and
destinations can be either favored or penalized.
The first suggestion that cable and phone companies could employ
differentiated service to prefer particular content came in 1999, when
Cisco Systems, the leading maker of Internet routing equipment,
introduced a router specifically marketed to these companies and
promising sophisticated ways to enforce preferential treatment.
Public interest groups such as Consumer Project on Technology jumped
on this development. They criticized Cisco, and by extension its
potential customers, heavily. But it’s hard to criticize a technology
developed, with support from standards, over many years with many
useful applications. It’s also hard to criticize companies for using
technology to direct consumers to their own content. That would be
asking the leopard to change its spots.
So now we can make a stab at predicting the outcome of the trend
toward creating new Internet haves and have-nots. The question should
be what constitutes an anti-competitive practice.
What forced the issue into public view is a bill in Congress that
would explicitly stop preferential treatment and mandate “neutrality”
in Internet service. The phone companies want this clause removed.
Historically, the Federal Communications Commission has tried to leave
the Internet unregulated, but at key moments it has often laid down
rules concerning the interactions between Internet services and the
larger communications environment that the FCC is responsible
for. Most recently, they fined a phone company for blocking a
Voice-over-IP provider; the phone company had clearly seen the
provider as a competitor and was using its position as a choke point
to curb that competition.
The FCC has freed incumbent phone companies, in one ruling after
another, from the need to support competitors. The trend in Congress
seems to approve. As mentioned before, cable companies have always had
that freedom in the United States. But discriminating in Internet
access may be a drastic change the FCC cannot stomach, a
bait-and-switch approach to offering Internet service–and Congress
may feel the same way.
Savage says, “It would not surprise me if, regarding Internet access,
the FCC will matter more over the next three to five years than it has
in the past. This is because the two kinds of entities that will now
be providing the overwhelming majority of consumer Internet access are
incumbent telephone companies and cable operators, which the FCC has
traditionally viewed as generally within its regulatory ambit.”
We should not sing a dirge over competition, either. Old competition
has been vanquished, but new forms poke their shoots up.
A second cable company offers competition in some areas. Cellular
phone companies (some owned by the incumbent phone companies and some
independent) are rolling out Internet services, although not very fast
in North America. And in rural areas many people connect to wireless
ISPs. Wireless is expected to become a more and more common solution
to the last mile. In some areas it may be offered by a powerful new
standard called WiMAX.
Municipalities are also getting into the act. The more games companies
play with access, the more pressure will grow in the public for their
municipal governments to provide alternatives. And while the phone
companies anticipated this movement and worked hard to pass laws in
many states to prohibit municipal networks (a Philadelphia case made a
particularly large news impact), more and more public officials and
experts are coming out in favor of them. In Philadelphia, with phone
company obstructionism exposed to public view, a compromise was
arranged.
I don’t think we need to panic over the two-tier Internet. Attempts to
monopolize the Internet have failed before, and there are many factors
in both the business and the legal frameworks to prevent it from
happening again. We will always experience tensions between business
models and the public good. But it’s clear that, around the world,
people want their Internet. Ultimately they’ll get it.
