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Thursday, December 8, 2016

Faced with the profound issue of net neutrality, America’s consumers still struggle to understand its complexities. Part of the problem may be the usual analogy of express lanes on a highway.

Most people understand the Internet through its impact on them. So they take the fast lane/slow lane description and translate it into their own choices, like paying to take a toll road when they’re in a hurry. They know they pay extra for high-speed Internet to avoid dial-up, and they don’t see anything wrong with that. In fact, some local cable companies currently provide several speed levels for several price levels, which also seems “fair.”

People fundamentally suspicious of government (comparisons to the Post Office and Amtrak keep coming up) only think about their Internet choices at home, and the fact that competing technologies have delivered faster service without regulation, and assume that it will only get worse with regulation.

So let’s try this version instead:

Think of the Internet as the entire interstate highway system, complete with on-ramps, high-speed freeways, higher-speed tollways, interchanges and off-ramps.

At your home, you’re paying for the off-ramp from the system, and you already pay more if you want a 60 MPH off-ramp instead of a 10 MPH off-ramp with a stop sign. The big issue, the one Comcast, AT&T, Netflix, Silicon Valley and serious geeks everywhere are fighting over, is the on-ramp and access to those high-speed off-ramps.

Once your data is on the highway, slower speed only means more delay from the time your packets of data were sent until they are delivered. Not the end of the world, unless you’re a High-Frequency Trader. I’m sure by now most of us know that when we watch “live” television that there is actually a delay. Even switching from low definition to high definition often adds a few seconds’ lag, but seeing the big play in high def can be worth the cost of not knowing as quickly.

That could all change if the “slow lane” turns into a massive traffic jam. At that point, it won’t matter how much you’re paying for your fast off-ramp. If your content vendor can’t or won’t pay for fast transmission at each stage – getting on, transmitting, and getting off, then you might as well have a dial-up line. Remember “buffering?” Without net neutrality, it’s about to make a comeback.

What is really being debated is a brand-new trend in Internet commerce – charging the vendors extra to get faster on-ramps, and charging the vendors again to get access to the faster off-ramp that you’re paying for already.

Silicon Valley hates it, because it’s the land of garage startups, and if you have a hot new application, the $10 million-a-month fee for the fast on-ramp and fast customer off-ramps might keep entrepreneurs from ever getting into business.

The big ISPs (Internet Service Providers) love creating another source of profit from their control of the Internet “backbone” and their exclusive relationship with the end customers. That’s why Comcast is spending so much on Washington lobbyists, and is currently outspent by only Lockheed.

There is an upside to letting the ISP oligopoly continue unfettered by regulation: they’ll have so much money that they may decide to spend some of it upgrading their systems. They may even decide that the extra revenue for high-speed transmission is good enough to extend high-speed service to areas where other providers enjoy monopoly pricing, lowering subscriber prices. Or they could extend their networks to lower density populations, a development that might let the government get out of the business of subsidizing rural Internet deployment.

Just don’t be surprised to hear the ISPs try to call cutting those rural subsidies a “tax” the way Florida sugar growers described the trial balloon of cutting sugar subsidies. For the sugar kings, that tactic killed the idea and they kept their “emergency” subsidy that’s been in place since the Spanish-American War. You can bet the ISPs like that kind of government interference.

For those who argue that regulatory action on this issue will change the Internet forever, just remember, the one-speed-for-all-content network you’re used to is about to change dramatically unless regulation keeps it that way.

So my question to the “free market” folks who are against net neutrality is this: Are you sure that — for the rest of your life — you only want Internet services that the big boys will come up with? If you think Google, Netflix, iTunes, Amazon and a couple of others will invent everything you’ll ever want, and that they won’t gouge you with their pricing, then by all means, oppose net neutrality.

Howard Hill is a former investment banker who created a number of groundbreaking deal structures and analytic techniques on Wall Street, and later helped manage a $100 billion portfolio. His book, Finance Monsterswas recently published.

Photo: Joseph Gruber via Flickr

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