Spectrum Price Discrimination Using Zero-rated Apps

The Washington Post reports,

Apps and Web sites that don’t count against the users’ data plan are popping up both in the United States and abroad, often under names like Wikipedia Zero or Facebook Zero.

Pointer from Tyler Cowen.

If what wireless companies need is congestion-pricing or peak-load pricing, then my prediction would be that we will not see zero-rated apps that allow video anywhere, any time. To get that, you will have to pay something.

There is now a vocal “net neutrality” chorus that will fight any form of price discrimination in wireless services, including fighting zero-rated apps. I think that they are misguided and represent no actual consumers. However, the FCC will do everything to make them seem important, because that in turn justifies having the FCC do more regulatory meddling.

5 thoughts on “Spectrum Price Discrimination Using Zero-rated Apps

  1. I agree that some of the most hardcore “net neutrality” voices are going too far, but I also think there is something important that needs “fixing” here.

    I understand that there’s economic efficiency in allowing price discrimination… but isn’t that process about INFORMATION? IE: Isn’t pricing of every little thing partly a way to communicate how we value every little thing?

    The net neutrality debate for many of us is that we can’t KNOW what we are buying. Every ISP offers “unlimited blazing fast internet!!” and then arbitrarily, secretly, modifies our connection to the internet. They slow down one site we wish to visit and speed up another to extract payments from those sites. Again, maybe that’s economically efficient but from my end I have no visibility on what service I’m actually buying. They could change the service I pay for every half-hour, but I can’t change ISPs that fast. I could pre-pay for six months of Netflix because it’s the fastest streaming service, and the next day it could be the slowest, and I have little recourse.

    And no, competition cannot (yet) magically fix this. My ability to switch to a different ISP doesn’t provide true competition on this aspect of their service. Due to historical monopolies there are only two high-speed options with cable coming into my house (cable company, phone company). Many houses only have the one (cable) due to limits on copper telephone cable speeds. Typically, cities have legal barriers to new entrants laying such cable into my property. (Witness Google’s legal struggles with offering new fiber service in a few cities.) Most importantly, the duopoly carriers both hide their performance on this metric from us, the actual consumers. The information that prices are suppose to communicate to us is not there.

    If I could determine, while choosing between ISPs, what their service to my favourite website is really going to be, then sure, let them discriminate on price and let me choose based on the metrics that matter to me. If the FCC insisted on a “list of ingredients” for the product I’m buying, I would be satisfied.

    Forcing the “net” to be “neutral” is probably going too far, but I think it’s reasonable to demand that service providers tell us what the service they’re offering actually is. Either that or eliminate all legal barriers to new entrants who do.

  2. My complaint about various sorts of throttling isn’t with pricing (and it’s often on flat rate pricing which may be a bad idea) – but rather that it amounts to a kind of monopoly or near monopoly service applying what amounts to censorship.
    [The extreme case so far being comcast trying hard to force people to buy it’s TV offerings rather than video from places like netflix.]

    The straight forward solution (I imagine) is an anti-trust rule that is simple – monopoly and near monopoly providers of services, which would explicitly include comcast, the wireless providers, etc, would all be forced to show 100% pure revenue – as in, they must get ALL of their money from moving data, and are not allowed to make a penny from anything else. Forbidden, totally, to own or have any stake in phones, video content, etc. Video producers would have to charge viewers on some more direct model. Phones would no longer be subsidized or contracted. And verizon, att, comcast, etc. would be competing on coverage, speed, price, all content (except perhaps 911 calls) equal in their eyes.

    I think that without that, there will never be anything like “neutrality” because some wireless carrier will have a stake in some studio, etc. etc.

  3. My understanding is that Comcast wants to charge Netflix for high-speed delivery, because its users clog the pipes relative to other Comcast’s other users. If that’s true, couldn’t Comcast solve that by selling metered access to users? If some users’ bandwidth usage is higher, then they can be charged more.

    Is this whole regulatory mess just because ISPs don’t want to sell metered access to users? Are the Net Neutrality advocates correct that Comcast just wants to run a protection racket for service providers?

    • A couple points:

      “Clog the pipes” does not apply. ISPs sell you (for e.g.) “25 megabits per second” service. The service is a promise of a certain upper limit on bandwidth (rate of data transmission) between you and the “internet” (see below). The fine print says you might not always experience this speed, but the implication is that if you pay for a certain tier of service, you are “connected” to the internet and your can download from it at 25Mb/s. There may be a data cap, or other restrictions, but they have chosen to sell mostly based on speed, and with it assumed that any site you wish to reach can send to you at that speed.

      For the past decade or more, it has been necessary (as more people use the internet, and as more people consume more of that upper limit on bandwidth) for an ISP to increase THEIR bandwidth to the “internet” steadily, so that they can handle the total traffic and maintain their promise to you. Up until now they’ve added that capacity (usually) without regard for where in the “internet” the traffic is coming from. Now, they don’t want to add it unless some growing sites at the other end pay them special fees.

      They use this propaganda that one group of users is “clogging the pipes” versus another group of users to conceal the fact that they don’t want to upgrade their infrastructure to maintain the service levels they’re selling anymore. They try to use this to justify deliberately slowing connections to some external sites (throttling) or to some users who are simply using more of the bandwidth they’ve purchased than others. This violates their promise of 25Mb/s download speeds. It also (and this has serious competition implications) means that they can choose to throttle Netflix (which replaces cable TV consumption) and favour access to NBC (which is owned by Comcast). All without consumers really ever knowing what’s going on with the connection they’ve paid for. The reality is that each customer has paid monthly for 25Mb/s, and the ISP is responsible for adding capacity as needed to deliver the service they’ve promised. If they want to change the deal, they can tell me what the new deal is and I’ll decide if I want to buy that. But they’re not doing that. They’re arbitrarily rewriting the deal in their own favour.

      I have been putting quotes around “internet” because it’s a bit more complicated than that. Just like you need an ISP to connect to the “internet”, so does Comcast. So does Netflix, YouTube, etc. These major internet companies (either producers of content — and thus traffic — and the ones delivering it to homes like Comcast) buy massive capacity from lower-level ISPs that run the real “internet” over cables stretching all over the world. (Run tracert in a command window in Windows, to your favourite website, and it will show you the routers for these lower-level, in-between ISPs.) The real “internet” is those lower-level ISPs that move the bits between some server room owned by Comcast to some server room owned by Netflix. It is important to understand this: Netflix pays huge fees for their connection to the “internet”, just like Comcast does, just like you do. Up until now connectivity was always paid for in terms of bandwidth (and now data caps) for access at the entry point, with no regard for where the traffic started or came from on the “other end”. This is what “internet” means, everything connected to everything else.

      Now, just like you pay for 25Mb/s, Comcast pays for some level of capacity, some bandwidth, on that lower-level, much bigger “pipe”. Comcast assumes that you and your 1000 neighbours that have purchased 25Mb/s will only use a small fraction of the maximum on average, so they aggregate this promise and only buy enough from Level III, or Qwest, or whomever is their ISP. Blips at high congestion when this connection is overloaded are to be expected from time-to-time. Since the “internet” really got going, they’ve had to buy more and more of this capacity as we’ve all used more and more bandwidth in aggregate. It’s what they’re selling, after all: A 25MB/s connection to the “internet”. We’ve just gradually used more and more of what we’ve purchased.

      Just because they don’t want to pay to upgrade their end of the bargain anymore does not make me the villain for using a new “internet-based” service that consumes, on average, more of the service they’ve sold to me. IE: If I choose to connect to Netflix instead of NBC, and choose to average 2MB/s instead of 1MB/s most evenings, that is me consuming the service I paid for. Delivering it by provisioning enough capacity from their ISP to supply aggregate bandwidth to my whole neighbourhood is their cost of doing business.

      Furthermore, the actual bandwidth consumed on a per-house basis by consumers downloading from Netflix (streaming) is not actually that large. The problem for Comcast is that after years of profiting by aggregating very light users that seldom if ever hit the 25Mb/s peak, they now have a large number of users consistently using more of their bandwidth continuously to stream Netflix. They are not profiting so handsomely by aggregating as they used to.

      As far as I am concerned they can go right ahead and tailor services levels and prices to reflect costs and deal with this, but that’s not what they’re doing. Tell me what I’m buying and deliver what you’ve sold me. No problem!

      Instead they’re cheating. They continue to claim that I have 25Mb/s service (because I have that speed downloading from THEM — and their subsidiary NBC) while refusing to add capacity on the other end (so that I have — in actual reality — that download speed from Netflix — a major competitor to them).

      There are other geographic concerns (see “peering”) that have to do with the actual wires and network cards between routers/servers in physical server rooms, but the gist of it is the same. They’re refusing to provide the service they’ve SOLD to us, and trying to get someone else to pay for it, while blaming the problem on Netflix, or your neighbours. Along the way they’ll undoubtedly favour other media companies they already own.

  4. Net Neutrality is the solution to a very speculative concern that has never materialized in real life. How successful do you think the FCC is going to be in crafting a policy that fixes a problem that has never happened, and so has zero observable symptoms?

    It also subjects every new protocol and the management of QoS to Federal scrutiny. There are loads of excellent technical reasons for throttling or prioritizing certain traffic. Quick example, might it not be nice for my customers if VOIP calls or Skype video had higher priority than YouTube video? The former needs to be in real-time to work properly, the latter can simply buffer. A decision like that is now either forbidden or subject to review. Even if they did some sensible things now, they can never keep up with the birth and death of protocols and how existing protocols are cleverly extended or reused for new purposes (eg, SSL VPNs).

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