The Benefits and Risks of Mandating Network Neutrality, and the Quest for a Balanced Policy

A fundamental issue in the network neutrality debate is the extent to which network operators should be allowed to discriminate among Internet packet streams to selectively block, adjust quality of service, or adjust prices. This paper first reviews technology now available for traffic discrimination. It then shows how network operators can use this technology in ways that would make the Internet less valuable to Internet users, and why a network operator would have financial incentive to do this if and only if it has sufficient market power. A particular concern is that network operators could use discrimination to extract oligopoly rents from upstream markets that are highly competitive. This paper also shows how network operators can use the very same technology to discriminate in ways that benefit Internet users, as well as the network operator. Thus, network neutrality supporters are right to fear unlimited discrimination in some cases, while network neutrality opponents are right to fear a policy that imposes strict limits on discrimination. From this, we argue that the network neutrality debate should be refocused on the search for a balanced policy, which is a policy that limits the more harmful discriminatory practices in markets where there is insufficient competition, with little interference to beneficial discrimination or innovation. We apply this balanced policy in a few controversial scenarios as examples. There has been too little attention on the possibility of a nuanced balanced policy, in part because the network neutrality debate is focusing on the wrong issues. This paper argues that the debate should shift towards the complex details of differentiating harmful discrimination from beneficial discrimination, and away from high-level secondary questions like whether discrimination is inherently just, who ought to pay for certain Internet services, how important general design principles are, what abstract rights and freedoms consumers and carriers deserve, or whether network operators can give their affiliates special treatment. Reality is more complex than these questions would imply, and none of them will serve as a basis for a sufficiently specific and effective policy. 1 Jon M. Peha, Carnegie Mellon University, Associate Director of the Center for Wireless and Broadband Networking, Professor of Electrical Engineering and Public Policy, [email protected], www.ece.cmu.edu/~peha and www.epp.cmu.edu/httpdocs/people/bios/peha.html 34th Telecommunications Policy Research Conference, Sept. 2006 2 Section 1: Introduction As the Internet approaches its 40 th birthday, “network neutrality” has suddenly become its most controversial issue. Why now? One reason is that the technology itself has been changing, giving networks extensive abilities to treat some classes of traffic differently from others. As we will show, some forms of this discrimination could harm Internet users, and this has many network neutrality advocates concerned. On the other hand, we will also show that some forms of discrimination enabled by the same technology would benefit users. There is therefore a danger that imposing a broadly-defined network neutrality policy could prohibit carriers from adopting these valuable practices. The other reason why this controversy is occurring now is that competition for consumer access to the Internet has been declining. After all, if there were rigorous competition, network operators who use discrimination to harm consumers or fail to use discrimination to benefit consumers would lose customers to their rivals. Dial-up access was naturally competitive, but consumers have been switching to broadband, and most consumers currently have one or perhaps two last-mile broadband providers to choose from. At the same, attempts to encourage competition over the same physical connection have largely subsided in the US. Without competition, if there are discriminatory practices that increase carrier profits but harm consumers, then it may take regulation or the threat of regulation to deter these practices. At this point, few people are seriously advocating complete common carrier regulation of these monopoly and duopoly markets, as this could limit innovation and discourage the entry of new competitors. However, under the banner of network neutrality, policymakers could attempt to limit some discriminatory practices, as long as they believe the regulation will do less damage than the discrimination would. Thus, policymakers face the following fundamental challenge. Can we limit how network operators can discriminate in a manner that • prevents them from fully exploiting market power in ways that seriously harm