The Net Neutrality Tax

Michael Vizard

Somewhere, somehow, all the equipment and services that make Internet bandwidth being consumed in ever increasing amounts has to be paid for. Although we can count on to some degree advances in networking technology that will make it efficient to carry larger and larger amount of Internet traffic, the fact of the matter is that the nature and volume of Internet traffic is outpacing our technological abilities to keep pace.

The three things driving these issues are the increased amount of video on the Internet, the sheer volume of traffic being created by end users accessing the Internet over smart phones, and the rise of more latency-sensitive applications such as unified communications and collaboration software.

The only thing that's holding everything together right now are advances in router and switching technologies, coupled with dedicated networks for managing smart phones and other devices, that fortunately are all poised to make a significant leap forward in terms of performance. But even with those advances, which come every three to five years in terms of new product development cycles, we should see a lot more noticeable widespread application performance degradation starting in 2011. In fact, one of the reasons that television shows and movies can be painful to watch on the Internet, as spoofed by Neil Patrick Harris during the recent Emmy Awards gala, is because the existing network infrastructure can't really handle the load. This doesn't mean that the Internet will collapse ala some infamous predictions made by Bob Metcalfe, but it will definitely slow to something that feels more like a crawl.

The logical thing, of course, is to upgrade the underlying network infrastructure. But somebody has to pay for that. Right now, all those costs fall to the carriers, who can't sustain a business model where every application, as specified by the Net Neutrality doctrine being embraced by the Federal Communications Commission, gets the same level of priority. The end result, the carriers argue, is that they will be forced to rescind flat-rate pricing for Internet access in favor of usage pricing models that we have not seen since the 1980s.

As it's unlikely that consumers will stand for this, the odds are good then that the carriers will turn to the Federal government as they become the next big industry standing in line looking for a bailout, which is really just another word for imposing a tax so more people can enjoy consistent application performance on the Internet. Whether that's good public policy in the name of economic growth is debatable, but the source of the money to pay for all that content on the Internet becomes the taxpayer.

Of course, none of the people backing Net Neutrality seem to have any proposals to help pay for the network infrastructure that they are planning to gorge themselves on. Google and a host of other content providers backed by large amounts of venture capital money insist that "fair access" is critical to insure the growth of a vibrant Internet economy, which is just another way of saying they want to make sure they can get rich.

But none of them seem to have a real plan about how to pay for the infrastructure that they depend on to make that happen. In fact, they seem to be saying that somehow or other it's the responsibility of the carriers to fund that investment so the content providers can cash in on those investments. In the meantime, Google spars with carriers like AT&T over rural access fees and a FCC that is staffed by a small army of technology industry veterans pretty much pretends to not be pursuing a specific agenda that just might have as much to do with raising money from lobbyists to fund political campaigns as it does real public policy.

Unfortunately, when two industries start bickering about business models, it's not long before they look to Washington and the taxpayers to bulk up what amount to flawed models in the name of economic growth and stability. The simple fact of that matter is that for carriers to make money, they will need to be able offer differentiated types of service based on performance. Those costs will then be passed on to the content providers, who will in turn have to figure out how to either get users to pay more for content or for advertisers to pay more to support it. That would make those types of entities less profitable and, therefore, less compelling to investors.

Alternatively, the government could impose a flat fee on content providers that would in turn be used to bulk up Internet infrastructure. Or we can move to move to a usage model that might set the growth of the Internet economy back on its heels by about two decades. Or perhaps better yet, we could just promise consumers some basic levels of guaranteed service and pretty much leave everything well enough alone after that. When all is said and done, market forces tend to be the most efficient way to sort this kind of mess out.

But no matter how you get there, one way or another the Internet has to be paid for.

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