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Network neutrality came from the telephone business.  With electronic phone switching (analog, not digital) it was possible to give phone company customers who were willing to pay more priority access to trunk lines, avoiding the dreaded “all circuits are busy, please try your call again later.” Alas, some folks almost never got a circuit, so the FCC put a halt to that practice by mandating what it called “network neutrality” – first-come, first-served access to the voice network. When the commercial Internet came along, network neutrality was extended to digital data services, lately over the objection of telcos and big ISPs like Comcast, and the FCC is now about to expand those rules a bit more, which was in this week’s news. But to give network neutrality the proper context, we really should go back to that original analog voice example, because there are more details there worth telling.

Network neutrality in the voice era took from the telephone companies the opportunity to sell priority access to trunk lines, but it didn’t remove the need for big businesses to have such priority access. So AT&T invented a leased-line business where companies could buy whole circuits that operated 24/7 and were guaranteed access to the long distance network. By being a separate product with a separate tariff and sold in a completely different way, this leased line business, which had long been used by broadcasters but was now expanded to other business customers, was WAY bigger in revenue for AT&T (more than 10X) than simple priority access ever would have been, which is why AT&T suddenly stopped complaining.  Network neutrality made more money for the old AT&T than had it not existed. People forget that part.

Now Obama’s FCC is trying to fulfill what I’m sure was a campaign promise and codify network neutrality so future more conservative Administrations will have a harder time messing with it.  Republican interests, fulfilling promises of their own, are opposing the expansion of network neutrality saying it is an imposition of government on a free market that works just fine, thanks.  Oh, except for Wall Street, and the insurance companies, and the banks, and maybe six homeowners on your street and about four million others, but otherwise the free market is perfect.

Internet network neutrality became an issue because ISPs were found to be undermining it, blocking ports and packets and using other traffic shaping techniques not just to help certain kinds of traffic like VoIP, but specifically to hurt other kinds of traffic like Bit Torrent.

What’s the beef here, really? Are we running out of bandwidth?  Remember the FCC came about to administer public airwaves, which very much are limited, but wired networks aren’t, at least not in the same sense.

Cable systems these days often run their TV service at break-even and make nearly all of their profit on Internet, voice service, and video-on-demand. I know cable bills are always rising, but so too are the payments from cable systems to cable channels, which is why cable networks are booming and broadcast networks are wilting, because that cash flow to content creators doesn’t exist (in fact it is reversed) in the commercial broadcast model.

Cable Internet and phone services, in contrast, have no content cost. They leverage the existing cable infrastructure investment, and have as their main expense Internet backbone bandwidth that has been going down in price by 50 percent per year for more than a decade with no end in sight.

Right now the typical cable operator uses one analog channel (6 MHz – usually channel 80) for Internet service. That’s ONE PERCENT of the total bandwidth on an analog cable network.  Give up a shopping channel and Internet bandwidth could be instantly doubled.

There is no Internet bandwidth shortage.

DOCSIS 3.0 cable modem technology, which is rolling-out now, can bond together up to four analog channels (I can think of a few I’d gladly give up) and in turn offer up to 100 megabit-per-second Internet service.

Taking a look 5-10 years into the future makes the existence of these new network neutrality issues even less problematic.   The future of cable TV, for example lies clearly in switched digital cable service with recording capability, where the only active channels are those actually being used on a given subnet, freeing-up huge amounts of bandwidth for other uses.

Now start to think like a cable CEO circa 2019 or even 2015. You have the same short-term mentality of nearly all U.S. CEO’s, which means you care about this quarter, this fiscal year, and that date 2.5 years in the future when you’ll pull the ripcord on your golden parachute. Nothing else matters and nothing else impacts your business decisions. You suddenly realize that 90 percent of your profit is coming from 10 percent of your business – Internet and maybe voice. Nearly all the money you care about – profit – comes from providing a switched empty pipe to customers.  So what do you do? YOU SELL OR SPIN-OFF TO SHAREHOLDERS EVERYTHING EXCEPT THE EMPTY PIPE BUSINESS, THAT’S WHAT.

And the telcos will, too, because they’ll be in a similar position.

This is the inevitable future and it makes much of the current debate, well, silly.

Network operators will get out of the content business, which will be handled for the most part by Google/Hulu/whomever using shipping containers filled with servers docked at the local Network Operations Center – shipping containers for which the network (formerly cable and telco) operators will collect rent just like grocery chains now make their profit by renting out shelf space to Proctor & Gamble, not by selling things.

Where, in this new world of renting empty pipes, will the network operators come down when it comes to network neutrality? They’ll be all for it, having by then philosophically switched camps, because ONCE THEY STOP CARING WHAT BITS ARE IN THE PIPE, THAT PIPE STARTS TO MAKE MORE PROFIT.

So we’re getting all worked-up over something that is structurally destined to become a non-issue in the near future. Having said that, I remain a supporter of network neutrality simply because it’s the way I prefer my Internet to run.

Tags: network neutrality

This entry was posted on Friday, September 25th, 2009 at 8:50 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.