Raw Economics :

Of Tolls and Rivers Chains -The New Robber Barons

For a number of centuries, roughly 800 AD to 1800 AD, feudal lords with land along the Rhine River in Germany, collected tolls from passing cargo ships. In an effective effort to back this control, large iron chains were laid across the river and raised high enough to block passage of uncooperative vessels. Not being a very discriminating filter, one could imagine that even ship captains willing to pay the tolling tax, would be blocked as well, adding to the pressure as cargo shipping continued to be blocked by paying and non paying ships alike.

The sanctioning authority, at this time, was the Holy Roman Emperor, bestowing charters to local archbishops and nobleman. With two towers, a heavy chain stretched between them and the controlling authority some distance away the situation was ripe for abuse. During the Interregnum (1250–1273), when there was no Emperor, the conditions led to complete chaos: the number of tolling towers multiplied without limit, whole cargos and ships were seized and to insure fees were paid, even kidnapping took place. It was during this period that these petty lords were given the name ‘robber barons’.

Fast forward to a different time: the very real cargo are the bits of data that reside in packets coursing through the network of the Internet. The towers that sit astride this vital economic flow are the Internet Service Providers (ISPs). The chains are their effort to block, filter or tier the data types that flow through their switches, routers and data centers. The rivers are the public owned airwaves and terra firma right-of-ways that their cables and data traffic must move.

In August of 2009, the Dutch ISP, UPC, announced that it will restrict by two thirds all non HTTP type traffic between noon and midnight. In addition, UPC will limit bandwidth on HTTP sites that they feel are using too much traffic “We want to prevent the excessive internet usage by a very low number of customers – approximately one per cent – causing congestion for the other 99 per cent,” quoted a UPC spokesperson. The citizen’s rights group, La Quadrature du Net, comments that unless consumer’s groups or the upcoming meetings in late September to vote on amendments to the European Union’s ‘Telecoms Package’ to modify or ban these practices, it is likely that UPC’s new directive will go into effect within weeks.

In Canada, Deep Packet Inspection (DPI) has become the rule, rather than exception. In January of 2009, Canada’s Radio-television and Telecommunications Commission (CRTC) had all Canadian ISP’s turn over the records of how and to what extent they use DPI in their networks identify and then throttle specific data protocols. The CRTC had ruled in November 2008 that Bell Canada could continue to throttle P2P traffic on their wholesale customers because, in fairness, they did the same to their own retail customers. At the time, it did not occur to the CRTC to question the legitimacy of the practice in general. Moving on to July 2009, the CRTC held hearings with Sandvine and Juniper who provide DPI tools as part of an overall network management system, consumer groups last mile ISPs and large wholesale providers. The CRTC decision is months away but if you read the detailed transcript links below or the clear summation of Michael Geist’s report, “In Case You Missed It: Reflecting on the CRTC’s Net Neutrality Hearing,” a clearer picture can be drawn of the landscape.

In the United States the issues of broadband and net neutrality have a more complicated and mixed path to the future. The Federal Communications Commission (FCC) ruled in August of 2008 that the cable provider, Comcast, could not throttle P2P type traffic. Comcast has agreed to comply with the FCC order, but in September of the same year, filed suit in U.S. Court of Appeals for the District of Columbia Circuit claiming that the FCC has no legal jurisdiction in the matter. According to Comcast vice president David L. Cohen, “The congressional policy and agency practice of relying on the marketplace instead of regulation to maximize consumer welfare has been proven by experience to be enormously successful,” adding further to his remarks,”Bearing these facts in mind should obviate the need for the Commission to test its legal authority.” On the other side is FCC chair Kevin Martin, who declared, “Given Comcast’s past failure to disclose its network management practices to its customers, it is important Comcast respond to the many still-unanswered questions about its new management techniques,” Martin went on to ask, “If a consumer exceeds a limit, is his traffic slowed? Is it terminated? Is his service turned off?” Its now late summer 2009, a new US President, a new set of FCC commissioners and chair, new congress and a recession, the only two things that are the same: the legal challenge and the issues of net neutrality.

When thoroughly read and there is a lot to read, all the arguments about the rights of consumers to a fair and neutral internet, or the rights of ISPs to manage their networks, or that citizens who use the Internet have the right to the same assumptions of privacy that they should expect anywhere else that right is granted, or that DPI is the method ISPs need to insure their networks operate with the best possible performance, all those arguments may be missing a more fundamental point. The best way to start explaining that point is to ask a question, “Who owns the most basic raw material of the Internet?”

The answer is, “The Public.” LIke the metaphorical river mentioned above, the public owns the airwaves and the physical right of ways. In the case of the airwaves it is federal and national agencies that represent the public in the issue of rule making and enforcement. In the matter of regional distribution and especially in the case of last mile delivery, regional and local government agencies regulate the use of cables in streets and the wires that run above those streets to homes and businesses..

What sometimes gets lost in the arguments about privacy and net neutrality is that private companies have built their communication switch stations, server farms and cable build outs at significant capital expense. In a democratic, capitalist-based society it is expected that such investments must not only be returned in kind but with maximum profit that the market will bear. In any supply chain there exists the raw commodity, added value manufacturer, wholesale distributor, retail distribution and finally the consuming end user. In the case of the Internet, both the owner of the raw commodity and the end user are the same. Anyone in the chain can demand any price that the market will bear and they also have he right and market incentives to reduce costs by reducing the length of the chain: finishing the raw commodity to a greater degree or combining wholesale and retail operations into one.

In the case of the public, it is time they understand that they can demand any price they wish to exact from the telecoms, cable companies and ISPs for the raw commodity they must have to operate. The public also has the right to reduce the supply chain, supplying the broadband Internet to themselves like any other public utility, such as the supply of water or electricity. The public and the politicians that represent them need to understand this essential ingredient and begin using its value in the true spirit of commercial trade.

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