Nerfing the Network

When you lower the incentive for something, you get less of it. The amount that you currently have is likely to stay, due to sunk costs and the difficulty of converting resources, but you don’t get new ones.

When an item is nerfed, you stop camping for it. When a quest is nerfed, you stop running it. When a dungeon is nerfed, you stop going there. At least, you stop doing so as much. Same risk, lower reward.

When you discuss net neutrality, you are talking about maintaining current prices in return for less bandwidth being created in the future. You are lowering the possible rewards to bandwidth providers while creating the threat of taking further control of their property away in the future. Also, while you are lowering the incentive to conduct maintenance, you are increasing the incentive to shift funds to lobbying; if the government will determine how (and how much) they can charge, the company will make its money by directing its attention to the government, rather than you.

: Zubon

12 thoughts on “Nerfing the Network”

  1. First off, we may be working with different definitions of net neutrality, so I may be completely off base. That said, I don’t see how preventing double charging is going to take away incentives to bandwidth providers. As I understand it, they want to switch from a telephone billing model (you only pay for one way, in this case, sending) to a cell phone billing model (you pay for both sending and receiving).

    I believe that as long as people want more bandwidth then the companies have plenty of incentive to provide more. Trying to double dip strikes me as nothing more than greed.

  2. The alternative to a neutral net is nickel-and-diming to death, like mobile phone charging. It’s not at all to do with charging to offer new services, it’s all about using price discrimination to extract the most money possible from customers AND extracting money from people providing services over the internet, like MMO operators.

    Imagine if a new MMO operator had to pay fees to get their packets accepted for transit.

    Imagine if your ISP billed you a higher hourly rate for logging in a WoW level 60 character than a lower level character.

  3. What Pete said. Without Net Neutrality ISPs will be able to selectively reprioritize or filter packets based on content.

    The money quote from the CEO of ATT:

    Q: How concerned are you about Internet upstarts like Google (GOOG ), MSN, Vonage, and others?

    A: How do you think they’re going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I ain’t going to let them do that because we have spent this capital and we have to have a return on it. So there’s going to have to be some mechanism for these people who use these pipes to pay for the portion they’re using. Why should they be allowed to use my pipes?

    The Internet can’t be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! (YHOO ) or Vonage or anybody to expect to use these pipes [for] free is nuts!

    Normally you could say, ‘okay, let this dumbass cut his own throat – someone will provide unfiltered services’. But a lot of us poor shlubs are limited in our choices for broadband, with only one provider available.

    If there were numerous choices available, it wouldn’t be a problem. But given the anticompetitive nature of the two entities that do provide most broadband (telcos and cable systems), I don’t feel really comfortable giving them that much power over content.

  4. I have gone back and forth on this. Price does not concern me that much. Yes, cable and telecoms try to use monopolistic power to squeeze people, but every year I get more and more choices. Right now I have 4 choices for broadband access – something that we never would have imagined years ago.

    The main problem I am worried about is whether deregulation would create a balkanization of conflicting standards.

    But I am much more comfortable putting it in the hands of corporations than China and France, who are trying to take it over right now, claiming the US somehow controls it.

    I think a good lesson is to look back at the railroads. Sure, they expanded too quick and lost their money, but then they finally started making money, but the ICC stepped in and decided to regulate rates ruining their businesses. What was wrong? Why, they were charging more per mile for short trips than for long trips (since short trips cost more), and giving volume discounts! Obviuosly this was favoritism of big companies and favoritism to the West and it’s long transport runs to the east. Actually it was merely good business practices.

    I fear MCI much less than I fear governments’ increasing control.

  5. *ahem* totally off-topic but *squee* the LOTRO beta invites are out!

    Content providers are already charged for outgoing bandwidth, based on usage. Home users are already charged for incoming bandwidth, but it’s a flat-rate fee. I think the best solution for both parties is to charge home users a lower flat-rate, plus bandwidth fees. My cable provider charges $30/month for 30GB/month at 5Mb/s. Their higher package is $40/month for 100GB/month at 7Mb/s. Speed is a bit week, but population density is much lower here than in Europe, so I can understand the disparity. Given those numbers, and the fact that the majority of their customers probably consume less than 1 GB/month, I’d suggest they could still turn a profit at, say, $25/month +$0.25-0.50/GB, but I’d expect higher speeds at the higher end of that.

  6. Complaints about corporate greed aside, the original point stands. If you limit what or how I can charge for something, you reduce my incentive to provide it. Net neutrality proposes to decrease the amount of bandwidth available in the future in return for keeping prices lower now. That there may still be enough incentive to keep some rate of growth was in the original post. You still invest less in bandwidth creation.

    You can see it clearly in any market. American oil companies’ profits were subject to a windfall tax; American oil investment went down. European companies put price controls on pharmaceuticals; production of new drugs for the European market went down. How about a multi-step intervention effect? The US put tariffs on foreign steel; steel prices rose, along with domestic steel companies’ profits; manufacturing companies that use steel faced higher input prices and lower profits; investment in American manufacturing went down.

    The funny part is that the major reason any harms could arise is due to monopoly power. That monopoly power has been granted by your government. There are companies lining up to provide cable, phone, and broadband service in your area, if only they were allowed. That market is so profitable that companies are building satellite networks to beam the signal to your house and circumvent the government-granted monopoly. If you want network neutrality to become a non-issue, you need to get rid of the government-sponsored anti-competitive practices we currently have, not increase their number in the hope that it will all balance out someday.

  7. I have to chime in here, as this industry is where I draw a paycheck from.

    The whole concept of content-based charges seems rather greedy to me, even though it would help my employer’s bottomline (and thus mine as well). However, lets look at the current model a moment.

    Google has not only invested in their own servers, but in order for those servers to be available, they must have access to the backbone networks. They pay for this access. Just as any other website must pay fees to some form of provider, which in turns pays fees to those that own the actual fiber to transport the traffic.

    You as an individual user, pay for your access to the internet through whatever provider you may use. Businesses and governments typically pay monthly, but they are under a lease for their bandwidth (T1, T3, etc). The net effect is the same, except they home users are not (as a rule) as expensive to provide service on an individual basis.

    So now we have the customer paying the telco/cable company to access the internet, the content providers (by proxy) are paying to make this available to the consumer. The telco/cable company is making money in both directions here. The ONLY reason they are against net neutrality is in fact they wish to maintain monopolistic status. The telco is losing land lines due to people using VoIP. Why would they not attempt to make you still pay for phone service if they can, but instead of a ‘phone bill’ they can now call it tiered content pricing.

    Giving the compaines more freedom in the pricing of access fees, (read: access, not content-based fees) and problem should be solved.

    So yeah, to a point, government intervention is bad. But content-based pricing is even worse.

  8. So doing business the way they have been, charging customers for connections based on the capacity of those connections and not what they are used for, can’t give the ISP’s an incentive to build more capacity. Hmm, so we have the same amount of bandwidth now as we did in 1995? Since by that logic there has been no incentive to improve the pipes, we must still have the same ones.

    Bullshit. This has nothing to do with whether the plumbing providers will add more capacity, and everything to do with them wanting to shake down the content providers. What they are missing is this: Without the content, nobody needs their pipes. I haven’t gotten too worked up about it for the simple reason that, like the cable companies already found out once, they can’t win. But the blatant lying about how terrible the future will be if we keep doing things just like they are is pissing me off.

    No content, no network. Shake down the content providers, and you will have either less content or more expensive content, but you won’t have a better service. Cable companies and DSL providers have found out that no amount of lobbying, cross-selling, and up-selling can make people pay more for bandwidth, so they want to grab onto the other end of the money trail with a little old-fashioned protection scheme. “Nice packets you got here. Be real shame if something bad was to happen to them.”

    –Dave

  9. Dave, that is a dishonest response to the post, and you’re better than that. That is not even a good strawman since I explicitly addressed your first paragraph in the original post and a reply. The difference between “less incentive” and “no incentive” is large. “[B]y that logic” only applies if anyone has used that logic. You don’t get to say something stupid, attribute it to me, then call it bullshit. The blatant lying about basic econmics is pissing me off.

  10. Here’s the basic economics: It’s about those who control the physical pipes (which is generally a regulations-backed monopoly or duopoly) try to get a hammerlock on how those pipes are used to deliver content. No matter what, those pipes will be upgraded until they can reliably deliver HD video on demand, because that’s what the consumers are demanding (in many cases, they already can). The entire content-delivery system, from video rentals through cable TV to CD of the month clubs is poised for a total revolution. What the cable and telco duopolies want is:

    1) Entrenchment of their existing control over broadband to the home.

    2) The legal ability to restrict third-parties use of those pipes, so they have “lock-in” for the most lucrative services that can be delivered over those pipes.

    3) To act as toll-collector for *every* TCP/IP stream that someone else is making money from.

    It’s not like they even hide this. Will they invest more in the pipes? Maybe, but probably not (your same arguments applied to pre-breakup AT&T, which did not even hurry to make tone dialing standard until after they were faced with competition), we can agree to disagree because it doesn’t even matter. What’s significant is that regardless of whether they provide good service, consumers and outside innovators will be harmed.

    Once upon a time, every single phone call was charged by the minute, in-city calls at rates equivalent to today’s international rates, inter and intra state long distances at rates higher than you would probably believe, dollars per minute in many cases. The real cost of delivering VOD is in the pennies, but is charged at rates equal to or higher than physical rentals. This price will only go up if they are able to lock out potential competition.

    In the process, the idea of the internet that can be used to make money by whatever business model you can make pay will be restricted to what can make money under the rules the gatekeepers dictate. Had such conditions applied in 1997, MMOG’s would have been stillborn.

    –Dave

  11. That’s a fair presentation.

    The relevant question seems to be how to work on #1. The dominant problem is the regulations-backed monopoly or duopoly on physical delivery of content. Whenever I see government negotiating with a government-backed cartel, I expect the cartel to come out well. In this case, I expect nominal reduction in pricing control to result in a further entrenchment of long-term control of the physical system. It’s the sort of tit-for-tat we see when a corporatist system gives ownership with one hand and takes control with the other. We have a poor record of trying to use new government regulations to offset old government regulations. At some point, your path needs to be reducing the regulations.

  12. I really should conclude commenting on this, since I do not really have a strong opinion on network neutrality. This post comes down on one side largely because of the simple point that network neutrality has costs, which rarely seems to be admitted by supporters. We need not be those partisan shouting heads on TV who are always leading the true forces of good against the party of evil (whichever side you think is which).

    This is not a binary issue. Network neutrality would neither create free unlimited internet for everyone nor completely destroy the system. We are talking about changing incentives, not eliminating them. Content and bandwidth providers are both engaged in rent-seeking behavior, and those rents will be paid by consumers one way or another. Ultimately, they are all greedy corporations, because corporations are supposed to be greedy; no one is on the side of the angels here. As various commenters suggest, worries are significantly driven by which unscrupulous organization you are most scared of.

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