What if ‘net-neutrality’ was a really bad idea? Guest post by Brian Hanley

By skepticlawyer

[SL: Despite long-term engagement with technology, I remain something of a tech sceptic. I’m not the only lawyer who’s noticed that modern computer software often impedes the completion of important, time-critical tasks, or who has witnessed the property department at three different law firms refuse to part up with their IBM Selectrics.

This article, however, represents a different kind of tech scepticism, and one–I must admit–that simply hadn’t occurred to me. We very seldom published speculative contributions from people we don’t know, but this was too thought-provoking to pass up. Its author, Brian Hanley, is a research microbiologist with his own company specialising in life sciences. Enjoy.]

20110101_ldd001Let us declare that “print neutrality” shall be a non-negotiable principle. Print-neutrality guarantees that any person shall get equal distribution through any print media, regardless of merit or ability to pay. Pay a flat fee for “print access” to any delivery service, and everything comes to you: Any hate speech. Any wacko, dingbat, or puerile rubbish. Any fact-free drivel. It is all printed and delivered to the doors of everyone. All libraries must stock it – all of it – or be in violation of print-neutrality. All bookstores must provide space for it.

Any delivery service must deliver – for one flat fee – everything. All the rubbish unfit to print – and everything else. Printing and distribution costs are borne by the big companies. For all practical purposes everyone else gets massively subsidised; their material is printed and delivered nearly for free.

A family can pay for a service that will remove most pornography or other objectionable material from being delivered to their children, but all the child has to do to see it is get to the mailbox before the censoring service person comes around.

There are two big economic subsidies that were created to prop up the internet in its infancy. First is net-neutrality, which is the real reason why newspapers and magazines have experienced so much trouble. In a non-net-neutral world, the cost of transmission would have to be born by the source – through subscription or advertising.

Second is the internet tax break. In a world that didn’t subsidise online businesses by setting them free of local sales or consumption taxes, entities like Amazon could not have started. Whether you are pro or con on that issue, the fact remains that Amazon.com is an extremely low margin business. Just look at their profitability. That means an exemption from sales and local tax is critical for them. In reality, online sales and piecemeal delivery is generally the higher-cost system. Can Amazon.com survive without tax breaks at this point? Perhaps.

It isn’t immediately obvious to most people why this type of product delivery is more expensive. But I worked in warehousing and distribution systems (as a software/project manager) and learned a fair amount about it. So let’s put on a store owner’s hat. The main thing to realise is that a store is essentially a local distribution centre. When someone enters that store, they provide free labour to locate, pick, and carry product out the door. Then, they carry that product home – and it’s their dime, not yours. In addition, when they pick it up and take it away, they are far less likely to return the product.

Against this is the fundamental problem: a store has excess inventory that doesn’t get sold. But so does any distribution system. One of the things Amazon.com has done is to offload a lot of inventory management (mostly for oddball items) off onto subcontractors through “Amazon stores”.

Now that we have internet behemoths that were created by subsidy, and those have destroyed swaths of “bricks and mortar” business, the call of jobs! goes up whenever legislation to impose local taxes comes up before legislators. But the truth is that those internet businesses are mostly job destroyers, and generally create lousier jobs. Truth is, the real reason why the tax breaks can’t be repealed is that the behemoths have concentrated huge amounts of cash flow, so they can buy three things: access to legislators, story placements in media, and arm-twisting buy playing the “jobs” card. The recent negotiation between the State of California and Amazon.com is a case in point. Amazon.com made a deal to keep their sales-tax free status (unfair advantage) in return for locating a regional distribution center (RDC) in California. This says volumes about politicians. It speaks even louder about the priority Amazon.com places on its tax-free status. Give any business sector tax free status and it will thrive on the subsidy.

But let us circle back to net-neutrality, which is the primary focus of this article. If net neutrality is repealed, I think that will greatly improve the fortunes of journalism, because it will enliven the natural barriers to entry to being published. That will restore the place of news media companies as gatherers and arbiters, and make it possible for them to employ and pay journalists for their service.

The internet’s roots just prior to exploding on the public stage were academic. Academics have a peer centered egalitarian culture. They wanted to bring that to the world – I think naively. But academia also has a peer-review culture, and academia as a whole values the truth. Academics are also the products of a long, intense, very difficult winnowing process. Those features are not present in the world at large.

Academia did not think ahead to try to predict what the effect of net-neutrality would be, although there were early signs. I got on “The WELL” around 1993. At that point, this pre-internet BBS was a place where (like usenet) uncivil discourse occurred, although most were professional people. “The WELL” had already seen one member, Blair, bullied to suicide online, as chronicled by Howard Rheingold in “Homesteading on the Electronic Frontier.” I had my first, last, and only online date from “The WELL”, with a woman who announced that she wanted to flog me within the first 30 seconds. A LLNL server was found to be serving pornography. I am quite sure that drug deals also went down, but nothing overt. I didn’t care. Drugs weren’t my scene.

Academics did not think ahead and understand that a major feature of net-neutrality would be enabling the creation of a sea of pornography at everyone’s fingertips. As an example, I was asked a while ago about “Two Women and a Cup” a scat-porn clip that a 13 year old boy watched during recess. Boys were grossing each other out, and he wanted to know if he would have to do that when he grew up. I didn’t even tell his mother what it was, just that he was “getting to that stage”. She flipped out. So he would never talk to her. Kids today grow up in a sea of pornography of every kind.

Looking at what net-neutrality has wrought, a few things, like Wikipedia, are worthwhile. Everyone has their favorites. I am sure that if we declared a 20 year period of print-neutrality, that something could be pointed to at the end. Any subsidy will also allow some pleasant flowers to bloom.

But everyone knows that the internet has enabled the voices of the delusional, the uninformed, the hateful, the obnoxious and the idiotic. And that leaves aside the scammers, con-men, and snake-oil purveyors. That leaves aside the fact that net-neutrality subsidises all of the rubbish. Net-neutrality subsidizes sites that sell everything from illegal narcotics (viz. Silkroad) to Bitcoin (no transfer costs) to the overwhelming surfeit of blogs.

History also tells us that the printing press, even without print-neutrality, can also be a vehicle for organising great mischief. I will not belabor that.

And yet, nobody today is writing about net-neutrality with a critical eye. It is taken as axiomatic that net-neutrality is an unalloyed good. This is somewhat odd, considering that the economic sucker-punch journalists have taken from net-neutrality is greater than any other profession. The wild proliferation of blogs, racing journalism to the bottom is a direct effect of net-neutrality. Wa-Po is lampooned in Doonesbury for its unpaid blog aggregation as Jeff, the son of Rick Redfern makes a killing selling rabid fantasy rubbish while Rick is laid off into blogistan. Perhaps this fact illustrates the paucity of practical business experience on the part of most journalists, or perhaps it is just their inability to think things through. I don’t know.

Like the explicit subsidy of tax-free sales, I think I think the time has already passed for the implicit subsidy of net-neutrality to end. The internet experiment has run for over 20 years. We have a pretty good idea now what happens. We have not seen a promised land appear full of excellence that better informs the public. Extending net-neutrality requires a serious argument be put forward for doing so.

Perhaps there is a place for special treatment of certain entities. For instance, bona-fide educational institutions could get net-neutrality breaks. That could be implemented. A few new institutions like Wikipedia could get such special treatment. But when I look at it, I cannot justify net-neutrality.

Not anymore.

14 Comments

  1. Lurker
    Posted January 22, 2014 at 2:13 am | Permalink

    http://www.youtube.com/watch?v=nwK7VRkbGiU&feature=player_embedded

    Keep your mitts off our net Brian Hanley.

  2. Nick
    Posted January 22, 2014 at 4:18 am | Permalink

    An interesting article, Brian. Unfortunately, to me the library analogy fails at the level of cost. A librarian faces issues of cost to acquire, store, organise and provide the content she provides. The ISP, however, only delivers articles stored elsewhere. A better analogy might be Post Neutrality, rather than print neutrality. Imagine a system where postal services and courier companies, in competition with each other, were forced to carry parcels to anyone, regardless of their content, on the sole conditions that those parcels were not illegal and had been paid for by the sender and receiver. This is a much closer analogy. On the internet, content providers pay to store their data on a hard drive and pay to connect that drive to the net , while consumers pay have that content delivered them. Suddenly the analogy is much less objectionable. We already have so called print neutrality – I can write anything I want and put it to paper. Then, through our thankfully censor free postal system, I can mail it to whomever I want. What’s so bad about that?

  3. TerjeP
    Posted January 22, 2014 at 4:33 am | Permalink

    Net neutrality is a nice principle but it was always folly to try and codify it in law. However I suspect the basic principle will mostly endure because delivering bits and bytes is getting endlessly cheaper, there is profit to be made delivering bits and bytes, there are costs associated with inspecting and blocking bits and bytes, there are endless ways to get around those blocks, and customers might tolerate some deliveries being a little delayed relative to others but they are highly selective about what they may want blocked and get a bit annoyed if they are not in control. Oh and consumers have plenty of choice about who supplies their connection.

    I don’t think the changes at law will make much difference or ever did. Neutrality for the most part is driven by technology and the market. Any commercial exceptions will generally be reasonable. I’m much more worried about governments mandating firewalls and blacklists.

    I don’t think Australia ever had net neutrality laws.

  4. AJ
    Posted January 22, 2014 at 12:07 pm | Permalink

    Journalism is dying because price tends towards marginal cost of production not the actual cost of production. It’s the same reason patents exist, It’s the reason the music industry went from $30 a CD, to 99c a song, to as much music as you can listen to for $11 a month. It’s an iron law of economics,

    the only thing getting rid of net neutrality would do is raise the marginal cost of production by increasing transaction costs. i.e. creating a bunch of middlemen whose job it would be to negotiate the price for web traffic’s priority on a network. This would be inefficient and lower general welfare.

    Also, just some further thoughts: 1. large web firms like Google and Amazon already make large contributions to the internet’s backbone. This would be double dipping and could create a system like in medieval Europe where any minor feudal lord who owned some ancestral gate, hedge, or bridge would levy a toll on all people travelling a road. 2) don’t cry for the ISPs they make money by charging end users. In fact they make quite a lot of money. 3) if you don’t like internet crackpots don’t read them.

  5. kvd
    Posted January 22, 2014 at 12:33 pm | Permalink

    The post was interesting to start with, when the main point seemed to be that Amazon got a jump on shopfronts by using newer technology (good) and specific subsidy (bad). But then it veered into the moralistic judgemental complaint that the internet is full of crap, and why won’t somebody provide some sort of value system. Now let me guess who that might be…

    The author states that academics are ‘peer-reviewed’ as if that’s somehow more scientifically (or at least statistically) worthy than 20M hits on J-Lo’s boobs as opposed to 15M hits on J-Law’s. (I made those numbers up, and probably should have added a couple of zeros, and anyway – who are those people and what’s with the initials and abbreviations? I must write T-Abb or SamCam about it.)

    My internet is not ‘awash’ with pornography and drugs; the author needs to maybe spend less time ‘researching’ his indignation. And I feel quite sad that the only resource mentioned (twice) as worthy for the plebs is Wikipedia. I rather like this blog for instance 😉

    I just wish he’d spent more time on the economics, and less on the Huffing about what (he felt) was suitable for the masses. Otherwise, great Post.

  6. Posted January 22, 2014 at 12:37 pm | Permalink

    I’m trying to understand exactly what this author understands net neutrality to mean.

    Oh and consumers have plenty of choice about who supplies their connection.

    That’s not entirely true in many parts of the world; which makes the problem worse, but isn’t the only reason for net-neutrality.

    The whole point of net-neutrality is to prevent large Telcos from using their market position (including local monopolies) to block competition to their own online services. Imagine if Telstra and Optus were the only ISPs you had access to and both decided to block Google (and Bing, etc) and force you to use their own (lower quality) search service just so they can get the ad revenue.

    Besides the fact consumers would be lumped with potentially crappy services, it’s a threat to online entrepreneurs. Who would invest in an internet startup at the risk of being blocked or throttled into oblivion by major ISPs once they decide to compete?

  7. Dave Bath
    Posted January 22, 2014 at 3:42 pm | Permalink

    From what I know, this is a VERY bad analogy.

    Net neutrality is more akin to “common carrier” rules. A taxi driver cannot charge a collingwood supporter differently to a geelong supporter, or go say “I’ll take you to McDonalds at a cheaper rate than I’ll take you to a Hungry Jacks”.

    Net neutrality is, in an Australian context, cables and routers owned by Foxtel (Telstra/Murdoch), carrying packets between the consumer and foxtel or news.com.au as fast as they would between the consumer and optus or abc.net.au or theage.com.au. Net neutrality rules would stop Telstra/Murdoch owned foxtel cable (and routers) working quickly to and from select sites, and being crap to and from competittor sites.

    Another analogy would be Microsoft Explorer downgrading performance whenever it was trying to view something at apple or google.

    When you think of the various office services (Microsoft 365, Google Apps For Business, etc) available, and the fact that Telstra is a partner of Microsoft, would you want telstra to be able to throttle speeds to google and make Microsoft look better?

    Let’s see …. if Telstra is in bed with Murdoch for Foxtel, would there be an incentive to throttle NetFlix?

  8. slybrarian
    Posted January 23, 2014 at 3:40 am | Permalink

    This seems to fundamentally misunderstand what net neutrality is. There is absolutely no technical reason telcos should need to control or censor what their subscribers access, and certainly there’s no reason other than blatant abuse of their monopolist positions to charge fees. Why should Comcast get to dictate that I can’t use Netflix? Why should they be able to demand a fee from sites for non-degraded access to users? I pay for a certain level of bandwidth to access the internet. The other companies like Netflix or YouTube pay for a certain level of bandwidth. Why should the telcos get to double-dip? If they can’t supply that level of bandwidth to their customers, then they need to (a) stop oversubscribing, and (b) use all that money the government has been shoveling them to upgrade their networks instead of pocketing it to make the next quarter’s numbers look better. The idea that net neutrality is some kind of subsidy is outright absurd. Do phone regulations subsidize businesses because telcos aren’t allowed to say “you must pay extra in order to call certain companies”?

    The blatant moralizing of the piece just makes it worse. Why should telcos be able to censor out access to the evils of breasts, Teh Gays, or the wrong political party?

  9. TerjeP
    Posted January 25, 2014 at 4:17 am | Permalink

    Yes Foxtel could in theory deliberately degrade their users experience of Google. But deliberately degrading your service isn’t generally a winning business strategy.

    In the early days, at least in Australia, the ISP were dialin bulletin board providers who offered internet as an additional service to their in house content. The ones that didn’t open things up to third party internet content went broke. There are strong incentives for keeping things open.

  10. Posted January 25, 2014 at 11:02 am | Permalink

    TerjeP,

    It is a winning strategy when you’re big enough to establish a vertically integrated position in the market. Just look at the things Apple and Google have already done. It’s not a stretch to see large ISPs taking steps simpler steps with their internet service at large.

    Small time businesses might not be able to get away with a closed approach, but large enough corporations certainly can and do.

  11. Mel
    Posted January 25, 2014 at 7:21 pm | Permalink

    This article is odd.

    For instance it claims there is an internet subsidy owing to sales tax exemptions yet:

    [t]he Productivity Commission in a 2011 study, “Economic Structure and Performance of the Australian Retail Industry”, estimated additional costs more than double the gross extra GST and customs revenue if all imported parcels were to be taxed.

    What would be the point of the Australian taxpayer forking out hundreds of millions of dollars so that Amazon is on an equal footing with the local bookstore?

    And what is this talk about job losses? Surely the withering away of the idiocy of paid employment should be one of the major goals of social policy for the remainder of this century.

    And I say that with great pride as I am someone who has never done an honest day’s work in his life 🙂

  12. Brian Hanley
    Posted May 16, 2014 at 2:43 am | Permalink

    Imagine a system where postal services and courier companies, in competition with each other, were forced to carry parcels to anyone, regardless of their content, on the sole conditions that those parcels were not illegal and had been paid for by the sender and receiver. This is a much closer analogy. … I can write anything I want and put it to paper. Then, through our thankfully censor free postal system, I can mail it to whomever I want. What’s so bad about that?

    No, you missed the point. 1. Eliminate illegal and ship anything at all. 2. Anyone would get any amount of free reproduction and shipping of anything, whether it was theirs or not.

    Net neutrality is more akin to “common carrier” rules. A taxi driver cannot charge a collingwood supporter differently to a geelong supporter, or go say “I’ll take you to McDonalds at a cheaper rate than I’ll take you to a Hungry Jacks”.

    1. In fact, taxis are free not to pick up anybody they don’t care to – and they do just that. Dress like a hoodlum and hail a cab late at night. You’ll see. (Although the land of Oz might be so safe you won’t see it.)
    2. Your metaphor is lousy because the taxi must allow any number of passengers in, and deliver them everywhere with no difference in price for distance, etc.

    TerjeP & desipis get it.
    Mel – I believe you.

    Overall, the anti-moralists missed the point. Everything a society does is shaped by regulation and law. Much of commerce is inextricable from regulation and law and would not exist without it. The reason for regulation and law to exist is that it provides benefit to the larger society. Perhaps scat-porn is a bad example because it triggers liberal reflexes. There are others.

  13. Posted May 17, 2014 at 7:58 am | Permalink

    Brian Hanley:

    As an example, I was asked a while ago about “Two Women and a Cup” a scat-porn clip that a 13 year old boy watched during recess.

    OK, so you’re a junior school teacher with a phantom company called Butterfly Sciences that reckons it can cure AIDS and prevent ageing:

    Butterfly Sciences has two product goals – An HIV – Synthetic vaccine system, and an anti-aging GHRH gene therapy.

    I think I’d prefer “Two Women and a Cup” to your particular offerings.

  14. Tim
    Posted May 17, 2014 at 2:19 pm | Permalink

    This author does not understand what net neutrality is. Net neutrality is a set of regulations the FCC has been trying to impose, but which have been struck down by the United States Court of Appeals. Now there are proposed net-neut regulations again. Net neutrality is regulations to regulate the unregulated internet. This author needs to read the articles written about proposed net-neut regulations by Holman W. Jenkins Jr. of the Wall Street Journal.

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