To fix net neutrality we need competition of broadband providers | Local Loop Unbundling explained


Why would Google support net neutrality when
it doesn’t even affect them. It’s the stuff like this that gives me trust
issues. If you want to advocate for or against something
that’s going to affect lives of other people, at least know what you are talking about. Steven, you don’t even know how the Internet
works and you advocate for one of the greatest consolidation of economic power in history. Let me break this down for you – edge providers
directly benefit from net neutrality. They can potentially get a direct access to
the ISPs’ networks without paying for it. They wouldn’t have to beg like dogs for
access to their customers, as ISPs are most of the time time having the final word. But I guess terms like settlement-free peering,
transit provider, or Internet exchange point don’t say much to you. My point is repealing net neutrality might
not be the worst thing ever to propose, but I can only respect it as longs opponents of
the rules suggest an alternative. Simply saying “the government regulation
is always bad because that’s what my tribal ideology tells me” won’t do the trick. So here I am doing the job for them. How can we fix the Internet after net neutrality
gets repealed? Competition is the answer, but two-thirds
of the country don’t have such luxury. So how do we restore competition? By finally doing justice to what the 1996
Telecommunications Act was truly intended for – break up big infrastructure monopolies
from the ISP market. Net neutrality isn’t perfect and it has
its problems. Luckily, there is a better solution that addresses
them without creating other problems. So let’s start from the begging. This is the premise. Net neutrality as a public policy will always
lose. And there are two main reasons for this. First, the FCC has by design an exclusive
authority to choose how it wants to classify services and regulate them accordingly. In 2010 the Commission adopted coherent set
of net neutrality rules in the Open Internet Order but chose to classify Internet Service
Providers as information services nonetheless. As a result some ISPs chose to honor these
rules, but the likes of Comcast and Verizon took the FCC to court arguing the agency lacked
the authority to apply Title II regulations to services classified as Title I. The court ruled in favor of the corporations,
and rightfully so. But the judge also invited Tom Wheeler, then
chairman of the FCC, to reconsider classifying Internet Service Providers as telecommunications
services and thus make them abide by the net neutrality order as common carriers. The Commission is bound to follow the exact
rules laid out in the Act and it cannot take regulations from one Title and apply them
to another. Which means that if FCC wants to enforce net
neutrality as a public policy, it can only apply them to telecommunications services
and no other service classifications. So as long as they aren’t challenged in
courts, by states, or by the Congress, whatever the FCC says goes. All commission members are unelected US citizens,
so they have no electorate to respond to either. Every time a new elected administration appoints
a chair the Commission is free to rewrite its rules completely. Which is exactly what we’ve been witnessing
over the past years. Second, the Internet was never neutral. And it will never be. In reality, Internet Service Providers are
nothing more than just huge networks of consumer and business computers that connect to other
networks in the world that connect them with other computers running websites, services,
applications, or content. There is no single global magical Internet. Internet is really just a network of networks
that interconnect among each other. Each time you want to connect to a website
or do some instant messaging, your ISP has to exchange your traffic with someone (some
other network) to fulfill your request. If you want to watch this Youtube video, your
ISP has to exchange your traffic with someone who has that Youtube video on their network. If Youtube wants to reach its audience, it
has to exchange their traffic with someone who has access to that audience. These exchanges don’t happen automatically. Real people need to meet often times in real
life and make arrangements. But they’re mutually beneficial because
by exchanging the traffic, customer demands of both networks are satisfied. A traffic exchange can be arranged either
directly with another network, or they can pay someone else to do it on their behalf. These exchanges of traffic can range anywhere
from handshakes or simple email communication, to paid contracts to ensure the fulfillment
of their promises. When two networks can connect to each other
directly, it’s called peering. Usually it’s done for free, because both
networks benefit from exchanging their traffic to their respective customers. In which case it’s called settlement-free
peering. But sometimes one network might need to pay
for peering to another network to increase their invectives to give them open access
to their network. Or some network might not want to dedicate
their own equipment and staff to get direct access to another network, so they can choose
to pay a transit provider to exchange their bits for them. Everybody has to work this way – If a website
wants to go online, it has to exchange its traffic with someone who’ll forward their
traffic. If you want to connect to the Internet, you
pay your ISP to make that exchange of your data for you. If someone wants be an ISP, they have to make
deals to exchange their customers’ traffic with someone else’s customers’ traffic. In economics terms the Internet is an incredible
amount of mutually beneficial deals made between network operators. None of these deals happen automatically. They all have to be done manually with every
single network operator. It requires staff and equipment to settle
them, and a little bit of staff to maintain them. Which is why sometimes it’s necessary for
one party to pay another. Therefore, the limit of any net neutrality
policy is that it cannot adapt to the very nature of this globally interconnected network
of networks. All an ISP needs to do to throttle someone’s
traffic is to do nothing at all. No deals, no settlements, no upgrades of infrastructure. If we tell ISPs they can’t block a certain
traffic, they can say they didn’t manage to make a deal with that network and rightfully
so. If we tell them they can’t throttle certain
traffic, they can say they just didn’t manage to upgrade their network and rightfully so. If we want to enforce net neutrality rules
from an ISP’s network to its customers, they will violate net neutrality rules when
making deals with edge providers. Unless we want to regulate how people can
make deals amongst one another, we should start thinking about how to promote the right
incentive structures that will give consumers back their power. We need to solve this problem by going straight
for its root. And that root is that Internet Service Providers,
which hold local monopolies on the backbone infrastructure are on top of the market food
chain. Every deal about Internet traffic exchange
has to have a final confirmation from these ISPs. Without their approval, no Internet traffic
is going to reach consumers and therefore – no Internet is happening. Consumers have absolutely no say in this. If they can’t chose another Internet Access
Service, they can’t vote with their wallet. Corporations don’t fear cosmetic regulation
because they can always afford to dump enough money into lobbying and bribing officials
to make sure no laws endanger their dominant position. No net neutrality regulation will ever be
able to encompass the entire nature of the Internet unless you want to turn it into a
totalitarian monstrosity. A cable TV provider can use the same infrastructure
to offer Internet access service to its customers. It has both incentives and opportunities to
discriminate Internet traffic to favor their cable TV products. A telephone network operator can use the same
copper wires that transfer your calls to transfer bits of Internet traffic. A DSL broadband Internet provider has both
incentives and opportunities to throttle competitive Internet traffic to favor their telephone
products. The problem isn’t innovation or the amount
of bandwidth available. It’s the lack of companies with the ability
to bring broadband to American households. The reason for this is that all cable and
telephone infrastructure is owned by private corporations and now no one else can use their
pipes or lay their own backbone infrastructure next to them. So the root of the problem we need to address
has everything to do with the abuse of something called DMP – Dominant Market Position. In the real world, some things are going to
be done by a single entity. Some work that needs to be done simply isn’t
open to the competitive market. There only needs to be one road, one electrical
wire, one gas pipeline, one sewage system, and one water pipe going into your house. Empirically, governments around the world,
and even in the US, chose to deal with these infrastructure needs by either regulating
a natural monopoly, or building its infrastructure by a dedicated state-run organization. Either of these options try to resolve the
same problem – any entity that holds a dominant market position in any uncompetitive infrastructure
market, shouldn’t be allowed to dictate terms of every other competitive market built
on top of it. This was already captured in the 1934 Communications
Act that created the Federal Communications Commission. Dominant infrastructure monopolies were regulated
as common carriers so that new markets could be developed on top of them. This was to minimize the amount of regulation
to an absolute necessity – regulate monopolies so that you can let free market regulate itself
through competition. Road builders shouldn’t dictate what cars
people can and can’t drive and for how long. A gas provider can’t mandate its customers
to only use certain devices. An electricity provider shouldn’t be allowed
to select which appliances can and can’t run in the house. In other words, what’s in the network is
decided on by the provider. But how it is being used should be completely
up to the end users. Only then can other markets flourish on top
of the backbone infrastructure. Without this principle, laying down infrastructure
only builds a prison of opportunities operated by the monopoly provider. And thus we will never have a competition
of telecommunications infrastructure operators which the Internet has been built upon. But we still can have a fully competitive
market of Internet Service Providers, where users will once again be the ones enforcing
net neutrality with their market power. The only difference is that we shouldn’t
enforce net neutrality as a public policy, but rather a principle called “maximum separation”. Maximum separation was coined by the FCC in
the 1970s. This is when first computer networks saw an
exponential innovation. They were built on top of the telephone networks,
which were then operated by AT&T as a nation-wide monopoly. The FCC realized that AT&T served as both
a provider and a competitor for other computer networks. Their incentives and opportunities were colliding
with the existence of this new innovative and competitive market of computer networks. The economic potential of what the computer
networks could enable simply couldn’t be ignored by the US government in the era of
deadly Cold-War competition with the Soviet Union. They needed to speed up competition but realized
that all the efforts won’t mean anything if telephone monopolies aren’t put in check. So they came with a simple principle: if a
business operates in a market with Dominant Market Position, and it has both incentives
and opportunities to harm competition in other markets, it needs to be broken up before it
can enter unregulated markets. The maximum separation rule required that
all telecommunications carriers give undiscriminated and open access to any information service
provider. This would give any computer network business
an equal chance to just connect to the whole telephone network at the “last mile”,
without having to build their own pipes. A telecommunications carrier could also enter
an unregulated market as a computer network provider, but only through an entirely independent
entity, with completely separate accounting, staff, facilities, and offices. To require telecommunications carriers to
open up their infrastructure to competition in computer networks had been developing for
two decades and over three different administrations. It is what enabled the Internet to take over
the world in the 1990s as virtually anyone could become an Internet Service Provider. In 1998 North American households could choose
from 7,000 independent ISPs. The maximum separation rule then translated
more technically into a process known as “local loop unblundling” in the 1996 Telecommunications
Act. To understand local loop unbundling the easy
way, picture this: imagine AT&T provides a direct telephone line to your house as a voice
service. Right now, AT&T is the only company that use
that wire to transfer Internet bits over Digital Subscriber Line (DSL). The final part of the telephone line that
loops connection from AT&T local telephone exchange directly into your house can only
be used by AT&T. The owner of the local loop, which is also
referred to as “last mile”. However, if the company was made to open up
access to its telephone exchange at a neutral rate, they would still provide you with that
DSL broadband, but any competing business could hook up to that local exchange, connect
to the AT&T’s telephone pipes, and provide you with their fully independent ISP service. The telephone exchange operator would become
an “incumbent local exchange carrier”. The only thing that would be regulated is
the open and equal access to the exchange to make sure no parties are favored over the
others. The local telephone exchange carrier would
be regulated as a common carrier under Title II of the Communications Act. They would be barred from any unreasonable
discrimination or preferential treatment in their telephone network traffic. And what happens after that would be completely
up to the market. With local loop unbundling in place, broadband
Internet Access Service would be regulated as an information service, outside of the
tight Title II regulations of common carriers. If AT&T wanted to, they could still violate
net neutrality, just like any other broadband provider, but they would be challenged by
a competition of an unrestrained number of competing Internet Service Providers that
would suddenly appear at your doorstep. The local loop unbundling is the necessary
limited government. It enables competition where it otherwise
would never be possible. And while incumbent local exchange carrier
would argue that this would stifle infrastructure-based competition, the ones behind most of the damaging
anti-competitive behavior, are the very monopolistic infrastructure operators. They do everything that’s within their power
to prevent any new competitors from laying down their own infrastructure. A common practice for established monopolies
is to make as many lawsuits as possible so that their competitors would incur unbearable
losses and just give up. Most of the local governments are also reluctant
to grant new businesses permission to interfere with the infrastructure and cause some disturbance
for any amount of time. The financial, operational and legal costs
are simply too high for new competitors to enter the infrastructure market. If you want to become an independent ISP in
a certain area and even have means to lay down your own wires, you would most likely
have to wait until that area makes some major road repairs to let you in. A city doesn’t need dozens of telephone
line providers. It’s actually way more convenient for the
infrastructure to have just a single operator. It only has to lay copper wires once and then
build the roads on top of them. Copper has extreme endurance and resistance
so it requires next to zero maintenance for decades to come. With the current technology there simply isn’t
enough room for infrastructure-based competition. So the easiest and the least harmful thing
to do is to turn telephone operators with Dominant Market Position into “incumbent
local exchange carriers”. This means that you as an end user could receive
a telephone line as a voice service straight into your house from an incumbent carrier,
like AT&T. But now you would be able to choose from a
handful of broadband providers acquiring bandwidth from the telephone exchange of the same carrier
you receive your voice service from. But wait a minute. If this was written in the 1996 Telecommunications
Act, how come there is still no competition of broadband providers in the US? Good question. It’s because the local loop unbundling was
never implemented. The FCC decided cable broadband and fiber
optic were not telecommunications services and thus never followed common carrier regulations. Only DSL broadband was because it was using
telephone lines. But even that was abandoned as early as 2005. The impacts of this are visible. The United States no longer leads the world
in broadband deployment. It’s been replaced by countries that strongly
implement local loop unbundling. The number one country with the highest average
broadband speeds, South Korea, implements local loop unbundling since 2002. The same goes for most European countries
that on top of easily accessible competition with reliable high speed broadband also get
it at a lower price than in the US. But what’s most important is that consumers
finally get access to a proper broadband competition. Internet Service Providers don’t have to
follow government regulations on how to manage their networks. And incumbent carriers can still offer Internet
Access Service to their customers, only now they have to face competition. There is plenty of room for various implementations
of local loop unbundling. Most countries with this regulation only apply
it to DSL, because that’s their dominant way of consumer broadband. Digital Subscriber Line, is one of the most
widespread in the world but not in the US. But it would still be good enough even for
the US were cable broadband is dominant even if it didn’t have to follow the same DSL
unbundling rules. Competition to cable enabled by the abundance
of DSL providers would include cable broadband providers just as equally, because DSL forms
a perfect substitute for consumer Internet access. But even if that turns out to be false, local
loop unbundling could be just as feasibly applied to cable incumbents as well. And on top of that, regulating older technology
and deregulating new ones have proven to incentivize innovation. Seeking escape from unbundling requirements
of the DSL, incumbent companies will have more incentives to upgrade their network to
fiber optic or develop new technologies that don’t need to abide by this regulation. Local loop unbundling isn’t a permanent
solution. It’s possible that future technological
progress will bring new ways for open Internet access were further government regulation
won’t be necessary. But it is a far better regulation than net
neutrality because net neutrality recognizes Internet Service Providers as natural monopolies
where they shouldn’t be. While local loop unbundling only recognizes
companies as monopolies at infrastructure-based market where there is objectively no room
for competition. It enables competition where net neutrality
would mandate its doomsday. It’s also a far better solution than doing
nothing which is what has been proposed by the architects of the repeal of net neutrality. It’s not an ideal solution but a necessary
one. Telephone network providers have been natural
monopolies pretty much everywhere in the world for the past century or so. Virtually all of the modern economy has moved
to the Internet. If you can’t be reached on the Internet,
you don’t exist. Sometimes, a simple Google Search algorithm
change can make small businesses go dark over night. To give Internet Service Providers the same
power Google enjoys with their search engine monopoly, would be to surrender the entire
economy to a handful of telecommunications monopolies. It’s easy to switch a search engine or a
social network. But for many people it’s almost impossible
to switch an Internet Service Provider. 20 years of cable TV consolidation has led
to the creation of multi-billion dollar conglomerates that control our media, economic establishment,
and political discourse. A simple change of words from “telecommunications”
to “information” can completely rewrite all net neutrality rules made by the previous
administration. So we either break up broadband providers
and create free market, or we settle AT&T, Comcast, or Verizon as monopolies and hope
they won’t try to take over the government and the rest of the economy again like they
did multiple times in the past.

Danny Hutson

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