Coyote Blog

Readers of this blog know that I have always been skeptical of the value of net neutrality rules.   I see the Internet just like any other vertical value chain with multiple players, which we might oversimplify as content providers who hand off to bandwidth providers to get in front of the customer.  Nearly every industry has these vertical value chains with multiple players -- think Coke and Pepsi fighting for floor space and margins through Wal-Mart.  What is amazing to me is how the large content streamers, particularly Google, Netflix and Facebook, have somehow convinced the public that the whole future of the Internet depends on the government hamstringing the bandwidth providers in their relationship with the content producers.

When Youtube wants to stream at 4K rather than 1080p, the majority of the instractructure hit is on the bandwidth provides, and Google/Youtube wants that bandwidth to be there but does not want to have to pay for any of it.  That is why these companies are the main supporters of net neutrality, but they are smart enough not to say this, but to instead flog some mythology that bandwidth providers might block or discriminate against certain providers.  Even supporters of this meme are forced to agree that it is wholly hypothetical, that no one can really point to any good examples of it happening (I have always suspected that general public hatred for Comcast in particular has created more support for net neutrality than anything else).

This argument for net neutrality is even odder as clear discrimination and deplatforming is happening on the Internet apparently everywhere BUT with the bandwidth providers.  Or as I wrote on Twitter:

I might be unable to get a domain registered. I might not get hosted. I might not get anyone to handle my payments. I might not be able to syndicate on any social media. Google might not show me in searches. But by God Comcast is going to give equal treatment to my traffic!

— Coyoteblog (@Coyoteblog) November 29, 2018

This is my usual long-winded lead in for a very good article I read a while back and forgot to link.  It's from Drew Clark at Cato and is titled "Seeking Intervention Backfired on Silicon Valley".  I recommend the whole thing but here is a small piece:

The companies that drove the engine of America’s information technology machine essentially argued as follows: We provide the good stuff that you — the American consumer — want. You go to Google to get your searches answered. You want Facebook to keep up on posts from friends, families, and trusted content providers. Access to the content in the Apple iTunes store or to Amazon Prime streaming video subscriptions doesn’t need to be regulated because we tech giants compete vigorously among ourselves. But Washington does need to step in and regulate the telecom market because of a lack of competition among ISPs. And the FCC agreed in 2015 with what was officially dubbed the Open Internet Order. ...

Major content companies like Google, Facebook, and Netflix feared that ISPs would seek to throttle their services as a way of extracting payment for prioritization. Particularly for data-intensive video- streaming services like Netflix and Google’s YouTube, this concern had a certain economic logic, even as it remained hypothetical. Having long courted Silicon Valley as a key constituency and facing a highly visible public demand with enthusiastic grassroots support on the left, Obama complied....

Silicon Valley’s regulations-for-thee-but-not-for-me attitude has come back to bite them. They want the strictest form of regulation for telecommunications providers but no scrutiny of themselves, and now the tables have been turned.

Pai has not hesitated to point out the hypocrisy as he has moved to undo the net neutrality rules. In a November 29 speech in the lead-up to his net neutrality rollback, he said that the tech giants are “part of the problem” of viewpoint discrimination. “Indeed, despite all the talk about the fear that broadband providers could decide what internet content consumers can see, recent experience shows that so-called edge providers are in fact deciding what content they see. These providers routinely block or discriminate against content they don’t like.”

Want to know who the largest financial supporters of "net neutrality" regulations are?  Find them here: (source)

Think about the billions of dollars your ISP has spent to upgrade the bandwidth and speed of their network.  15% of that investment went to supporting Netflix's business, often without any compensation.  Net neutrality supporters always pitch their fears as concern that little guys might get shut out or have to pay to play.  But Comcast et. al. don't give a flip about the little guys.  They are concerned about the amount of their network infrastructure used by, sometimes choked by, Netflix, Google/Youtube and Amazon.  I have run projects to put internet access into large communities (in this case campgrounds with long-term campers).  There is just an astronomical difference between the cost of a system that serves the majority of internet traffic but no video streaming and one that allows video streaming.

Let's use an analogy.  Let's say that the highways in our state are getting torn up and we want to charge users for their use so we can repair and upgrade the roads.  We propose to charge much more per semi-trailer than per car because semi-trailers with their up to 80,000 pound weight really tear up highways more than does your Prius.  But the trucking companies object!  They want road neutrality, and propose that the roads should not treat any traffic differently and all vehicles should be charged the same amount regardless of size.  In fact, they go further -- all entities should be charged the same amount so that UPS with its 1000's of trucks on the road should pay the same flat fee (or no fee) as you pay with your one Prius.  Fair?

This sort of supply chain / value chain negotiation goes on in every industry.  It is also not unusual for participants in this negotiation to run to the government to try to get rules that tilt the playing field in their direction.  This is the context in which I see the net neutrality discussion, an attempt by large content providers to hamstring bandwidth providers in this negotiation.

Via engadget:

The European Commission's long-running investigation into Google has finally come to an end, and it's not good news for the search giant. Commissioner Margrethe Vestager confirmed today that the company has been fined €2.42 billion ($2.72 billion) for unfairly directing users to its own products rather over those of its rivals. It's the biggest financial penalty the Commission has ever handed out, eclipsing the €1.06 billion ($1.4 billion) charge incurred by Intel back in 2014.

In a statement, Vestager said: "Google has come up with many innovative products and services that have made a difference to our lives. That's a good thing. But Google's strategy for its comparison shopping service wasn't just about attracting customers by making its product better than those of its rivals. Instead, Google abused its market dominance as a search engine by promoting its own comparison shopping service in its search results, and demoting those of competitors.

Via calls for "net neutrality"** in this country, Google has been arguing that ISPs must act as common carriers of its content and must ignore the fact that nearly half of all US ISP bandwidth investment is used without compensation to support the business model of just two content providers (Google and Netflix).  Google does not want ISP's to somehow favor other content providers over themselves, even though these others cost orders of magnitude less to serve than does Google's Youtube division.

Well, as I wrote before, the EU is bringing karmic justice to Google via this decision.

Hah!  I think this is a terrible decision that has nothing to do with economic sanity or even right and wrong -- it has to do with the EU's frequent historic use of anti-trust law as a way to bash foreign competition of its domestic providers, to the detriment of its consumers.  But it certainly is Karma for Google.  The EU is demanding that Google's search engine become a common carrier, showing content from shopping sites equally and without favor or preference.  The EU is demanding of Google exactly what Google is demanding of ISP's, and wouldn't you know it, I don't think they are going to like it.

** I put "net neutrality" in scare quotes because I think it is a term that means exactly the opposite of what it says.  Neutrality is what we had 2 years ago, with no regulation that favored either content providers or bandwidth providers in the typical negotiations and back-and-forth that occurs in every supply chain.  "Net neutrality" actually means tipping the scales and being non-neutral in favor of content providers over ISP's.

Google was (and is) a big supporter of Net Neutrality.  Content providers like Google (Google owns Youtube, among other large content sites) want to make sure that other content providers are not somehow given special treatment by the ISP's that provide the bandwidth for consumers to view these sites.  In particular, sites like Youtube and Netflix, which consume a HUGE percentage of the bandwidth at many ISP's, don't want to somehow pay any extra costs that might be imposed on content sites that use a lot of bandwidth.   I wrote this on net neutrality a few years ago:

Net Neutrality is one of those Orwellian words that mean exactly the opposite of what they sound like.  There is a battle that goes on in the marketplace in virtually every communication medium between content creators and content deliverers.  We can certainly see this in cable TV, as media companies and the cable companies that deliver their product occasionally have battles that break out in public.   But one could argue similar things go on even in, say, shipping, where magazine publishers push for special postal rates and Amazon negotiates special bulk UPS rates.

In fact, this fight for rents across a vertical supply chain exists in virtually every industry.  Consumers will pay so much for a finished product.  Any vertical supply chain is constantly battling over how much each step in the chain gets of the final consumer price.

What "net neutrality" actually means is that certain people, including apparently the President, want to tip the balance in this negotiation towards the content creators (no surprise given Hollywood's support for Democrats).  Netflix, for example, takes a huge amount of bandwidth that costs ISP's a lot of money to provide.  But Netflix doesn't want the ISP's to be be able to charge for this extra bandwidth Netflix uses - Netflix wants to get all the benefit of taking up the lion's share of ISP bandwidth investments without having to pay for it.  Net Neutrality is corporate welfare for content creators.

A typical ISP would see this relative usage of its bandwidth.  You can be assured everyone on this list is a huge net neutrality supporter.

Essentially, Google wanted to force ISP's to be common carriers, to be legally required to carry all traffic equally, even if certain traffic (like Google's Youtube) is about a million times more expensive to serve than other people's content.

But the point of this story is not about my issues with Net Neutrality.   The point of this story is Karma, or as we used to say it in the South, what "goes around, comes around."

The European Union’s antitrust watchdog in the coming weeks is set to hit Alphabet Inc.’s Google with a record fine for manipulating its search results to favor its own comparison-shopping service, according to people familiar with the matter.

The penalty against Google is expected to top the EU’s previous record fine levied on a company allegedly abusing its dominance: €1.06 billion (about $1.18 billion) against Intel Corp.in 2009.

The fine could reach as high as 10% of the company’s yearly revenue, which stood at $90.27 billion last year.

But more painful to Google than a sizable fine could be other consequences that come with the European Commission’s decision, including changes not only to the tech giant’s business practices with its shopping service but with other services as well. The EU’s decision could also embolden private litigants to seek compensation for damages at national courts.

The EU is likely to demand Google treat its own comparison shopping service equally with those of its competitors, such as Foundem.co.uk and Kelkoo.com Ltd., possibly requiring the search giant to make rival services more visible on its own platform than they are at present. Such companies rely on traffic to their site from search engines like Google’s.

Hah!  I think this is a terrible decision that has nothing to do with economic sanity or even right and wrong -- it has to do with the EU's frequent historic use of anti-trust law as a way to bash foreign competition of its domestic providers, to the detriment of its consumers.  But it certainly is Karma for Google.  The EU is demanding that Google's search engine become a common carrier, showing content from shopping sites equally and without favor or preference.  The EU is demanding of Google exactly what Google is demanding of ISP's, and wouldn't you know it, I don't think they are going to like it.