Biggest content outfits may make more money if neutrality goes. The levels of competition in the carrier and the content industries determine the effect of payments. Hong Guo, Subhajyoti Bandyopadhyay. two other economists plus a mathematician have a new model  that suggests the biggest content outfit could benefit. The driver in their model is the "relative intensity of competition between the markets of Internet access service and digital content." The big guy's increased advantage over the little guys may more than make up for the payment to the carriers. In all cases, the smaller content outfits become worse off. The professors believe:

 Under certain conditions, it is economically beneficial for the dominant content provider to reverse its stance on net neutrality. ...  In fact, [it] might actually eke out a higher profit under packet discrimination, since its payments to the ISP for priority delivery might pay off in terms of the additional revenue garnered from consumers that have switched from a rival CP.

Particulariy relevant to policy debates is their conclusion about online markets:

It is likely that the more efficient content provider would become increasingly dominant over time, which makes it more difficult for the less efficient content provider to compete. This is especially true in many online markets, where there is often a large gulf between the market leader and the next leading competitor.

 Professor Bandyopadhyay writes me:

Our results show that the conventional wisdom of CPs being on the side on NN and ISPs being opposed to NN is being upended. ISPs still want to get rid of NN, but now they have an ally on their side - the large Internet companies. We were reminded of a recent article in the Times. That article goes on to speculate that the large Internet companies might be on the sidelines of the NN debate because they “would escape relatively unscathed” by the paid prioritization. Our research shows that not only would some of these large Internet companies escape “relatively unscathed” from paid prioritization, they might actually prosper from such an arrangement. In other words, the large Internet companies can use the competition between ISPs to their advantage. We are obviously very encouraged by the result, since we can now prove the economic incentives of the various players in the debate. Our results also indicate that NN is not just an US-centric issue: large Internet companies would profit from NN being abolished worldwide.

They present a theoretical model which like most economic models is necessarily simplified. That's why I say above "suggests." The profs follow academic convention and use the term "prove." That's stretching, of course. In D.C. there is a plague of advocacy economists whose models fall apart when you realize what they have assumed. They prove nothing except how clever the advocate is and how many are easily fooled. I'm not saying we have implausible here. Rather, I wince at any assertion that simple models "prove" anything without strong empirical confirmation. Empirical confirmation is likely impossible here because companies don't release their results with a similar breakdown. Even if they did, the accounting assumptions necessary would make the result uncertain.

12/12 Update Subhajyoti Bandyopadhyay writes me with a further thought: 

In the fixed-line broadband market, where users have a very high difficulty in switching between ISPs, content providers - even dominant ones - are never better off without net neutrality. Which might explain why the content providers - all of them - were united in their stance against dismantling net neutrality a few years back.

 

However, if it is relatively easy for consumers to switch ISPs, as is the case in the mobile-broadband market, a dominant content provider can be better off. Which might explain the change in stance by some content providers now. The only ones who are arguing for net neutrality are the little guys.

 

The abstract is below but unfortunately the paper itself (which I've read in draft) is delayed while a journal reviews it. 

Effects of Competition Among Internet Service Providers and Content Providers on the Net Neutrality Debate

 


Hong Guo 


University of Notre Dame

 

Subhajyoti Bandyopadhyay 


University of Florida - Warrington College of Business Administration

 

Arthur Lim 


University of Notre Dame

 

Yu-chen Yang 


University of Florida

 

H. Kenneth Cheng 


University of Florida - Warrington College of Business Administration

November 22, 2014


Abstract:      

Supporters of net neutrality have often argued that more competition among Internet service providers (ISPs) is beneficial for an open Internet and that the market power of the ISPs lies at the heart of the net neutrality debate. However, the joint effects of the competition among ISPs and among content providers have yet to be examined. We study the critical linkage between ISP competition and content provider competition, as well as its policy implications. We find that even under competitive pressure from a rival ISP, an ISP still has the incentive and the ability to enforce charging content providers for priority delivery of content. Upending the commonly held belief that content providers will always support the preservation of net neutrality, we find that under certain conditions, it is economically beneficial for the dominant content provider to reverse its stance on net neutrality. Our paper also makes an important contribution in extending the traditional two-dimensional spatial-competition literature.

 

The world needs a good news source on Internet and telecom policy. I hope to create one. Catch a mistake? Email me please.  Dave Burstein

Latest

Professor Noam's "Many Internets" http://bit.ly/ManyNets

Until about 2010, everyone agreed the Net was a "network of networks," not a monolithic entity. There was a central authority, ICANN, keeping track of domain names, but that was a minor administrative function.
Columbia Professor Noam suggests we might be better off accepting that some nations or groups might want to organize their networks differently. It's easy to see demand for an Internet with much more effective filters against material some think harmful to children. (Any 10 year old can easily find porn today. Many do.)
Internet translation is getting better very quickly. You might want an "Internet" that translates everything into your language. Google Chrome translation isn't perfect but I was able to research most of this story on Russian language sites. With a few more years progress, I might welcome an alternate that brings me everything in English, including caching for better performance.
De facto, Internet news is already split, as hundreds of millions only get their news from Facebook. Google AMP pages, including for news, also favor selected parts of the net
Centralizing the DNS doesn't prevent censorship, as the Chinese have demonstrated. There are many Jewish and Muslim fundamentalists who want to block what they consider blasphemy and limit free speech. See http://www.nytimes.com/2012/05/21/nyregion/ultra-orthodox-jews-hold-rally-on-internet-at-citi-field.html . More from Noam http://bit.ly/ManyNets

Russia Orders Alternate Root Internet System http://bit.ly/RussiaDNS
It's actually practical and not necessarily a problem.The Security Council of the Russian Federation, headed by Vladimir Putin, has ordered the "government to develop an independent internet infrastructure for BRICS nations, which would continue to work in the event of global internet malfunctions ... This system would be used by countries of the BRICS bloc – Brazil, Russia, India, China and South Africa." RT
Columbia University Professor Eli Noam and then ICANN CEO Fadi Chehadé have both said such a system is perfectly practical as long as there is robust interconnection.
Actually, the battle over ICANN and domain names is essentially symbolic. Managing the DNS is a relatively insignificant task, more clerical than governing. ICANN Chair Steve Crocker pointed out they had very little to do with policy.
Some will claim this is about blocking free speech but that's rhetoric. Russia doesn't need to fiddle with the DNS for censorship, as the Chinese have demonstrated. The wonders of the Internet will continue so long as the resulting nets" are robustly connected. The ICANN and U.S. policy goal should be to help create that system for interconnection.
I expect contentions that “The Russians are taking over our Internet” and “They are splitting the Internet.” The Internet is a “Network of Networks.” It is not a monolith so what would “splitting” it mean or do?
After the WCIT, China realized that ICANN and the DNS are side issues not worth bothering about. They have been building alternate institutions including the World Internet Summit in Wuzhan and the BRICs conferences.  The Chinese have put their main work where decisions that matter are made. Wireless standards are set by 3GPP, where nothing can be approved without China's consent.
The American battle at ITU is proving to be a historic mistake.
Why does Russia want an independent Internet?
They fear that Western sanctions on Russia could cripple the Russian Net. Communications minister, Nikolay Nikiforov, worries about, "a scenario where our esteemed partners would suddenly decide to disconnect us from the internet." I think that's highly unlikely but Nikiforov points out, “Recently, Russia is being addressed in a language of unilateral sanctions: first, our credit cards are being cut off; then the European Parliament says that they’ll disconnect us from SWIFT."
It makes sense for the Russians to be prepared for such a contingency as the Cold War has been warming up on both sides. "Britain's top military chief Air Chief Marshal Sir Stuart Peach just made headlines warning Russian subs "could CRIPPLE Britain by cutting undefended undersea internet cables." Much more http://bit.ly/RussiaDNS

ICANN Continues Excluding Russia & China From the Board http://bit.ly/CEOPromises
No wonder Russia wants an alternate root. Three years ago, ICANN CEO Fadi Chehadé promised "a seat at the table" to Chinese Premier Li. ICANN welched and this year added two more Americans.
Almost all the ICANN board is from the U.S. and close allies; only about 4 of the 18 board members are from countries on the other side of the North/South divide in Internet policy.  Claiming ICANN represents the Global Internet is inappropriate. China is 1/3rd of the Internet but has no representation on the board.
I know many of the board members. They are all basically honorable but generally share a strong opinion on North-South issues.
Larry Strickling of the U.S. government knew just what he was doing with the IANA transition. He handed over to a board with similar positions as the U.S. government.
"The system is unsustainable while it excludes half the world," I have been saying since 2012. More, including the transcript of Fadi's statements,http://bit.ly/CEOPromises

Sorry, Ajit Pai: Smaller Telcos Did Not Reduce Investment After NN Ruling http://bit.ly/SorryPai
Pai justifies his NN choice with the claim, "The impact has been particularly serious for smaller Internet service providers." #wrong (Actually, NN has minimal effects on investment, up or down, I’m convinced. Competition, new technology, customer demand and similar are far more important.)
The two largest suppliers to “smaller ISPs” saw sales go up. Adtran's sales the most recent nine months were $540M, up from $473M the year before. 2016 was $636M, 2015 $600M. Calix the last nine months sold $372M, up from $327M. The full year 2016 was $459M, up from $407M in 2015. Clearfield, a supplier of fiber optic gear, was up 8% in sales in the smaller ISPs.
There is nothing in the data from others that suggests an alternate trend. Anyone could have found this data in a few minutes from the company quarterly reports.
The results in larger companies are ambiguous. I can "prove" capex went up or went down by selecting the right data. The four largest companies' capex - two/thirds of the total - went up from $52.7B in 2015 to $55.7B in 2016. The result remains positive after making sensible adjustments for mergers and acquisitions. That's as close to "proving" that NN led to increased spending as the facts chosen to prove the opposite.
Actually, whether capex went up or down in 2016 tells us almost nothing about the choice on neutrality. Everyone knows a single datapoint could be random or due to other causes. Much more, including the source of the errors http://bit.ly/SorryPai

Elders Bearing Witness: Vint, Timbl, & Many More http://bit.ly/VintTim
Vint Cerf, Tim Berners-Lee, Steve Wozniak and more than a dozen true Internet pioneers wrote Congress to protect Neutrality. The best Congress money can buy didn't listen but I wanted to reproduce their letter.
I hope they are wrong believing "is an imminent threat to the Internet we worked so hard to create." My take is the impact will be moderate in the short run.
From the letter:
We are the pioneers and technologists who created and now operate the Internet, and some of the innovators and business people who, like many others, depend on it for our livelihood. ... The FCC’s proposed Order is based on a flawed and factually inaccurate understanding of Internet technology. These flaws and inaccuracies were documented in detail in a 43-page-long joint comment signed by over 200 of the most prominent Internet pioneers and engineers and submitted to the FCC on July 17, 2017.
Despite this comment, the FCC did not correct its misunderstandings, but instead premised the proposed Order on the very technical flaws the comment explained. The technically-incorrect proposed Order ... More, including the full list, http://bit.ly/VintTim