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> How on earth does letting ISPs milk more money out of their existing network incentivize those ISPs to expand that network? The fundamental idea is that the

> How on earth does letting ISPs milk more money out of their existing network incentivize those ISPs to expand that network? The fundamental idea is that the amount of investment done in a venture is directly proportional to the profitability of that venture. If govt makes a regulation saying that Google can provide Hangouts service, but it cannot charge more for Enterprise Hangouts features, then Google has no additional incentive to expand the hangouts service than what it gets by having the business of consumer market. If Uber/Lyft is previously not allowed to provide priority Corporate service to corporate clients (and let's just say they do it by letting the corporate Uber cars bypass the consumer Uber cars using their Map service) then Uber/Lyft are allowed to do that, then their increased profit margins will allow them to fund their autonomous car other operations to build the network faster. You may disagree with the ethic of overnight delivery services of UPS, but at least not pretend that if UPS is allowed to charge more and deliver packets overnight then this allows them invest more into their infrastructure.

outsidetheparty 9y ago
Eliminating net neutrality incentivizes ISPs to build auxiliary services that they can artificially support by throttling the bandwidth of competing products. It incentivizes them to seek profit by favoring some net traffic over other net traffic. It does not in any way incentivize them to build larger or better networks. It does not incentivize them to invest in their infrastructure. All it does is let them make more profit off what they already have. I mean seriously, if the whole argument is that they're not making enough money as it is: if a 97%[1] profit margin isn't enough money for them to build out their networks, just how much more do they need? [1] http://www.huffingtonpost.com/bruce-kushnick/time-warner-cables-97-pro_b_6591916.html http://www.huffingtonpost.com/bruce-kushnick/time-warner-cab...
- rayiner 9y ago
  That 97% number is bogus. It is computed by assuming that all the costs of the network are borne by video service, and that the broadband service is essentially pure profit. Look at carriers' actual audited financial statements: https://www.verizon.com/about/sites/default/files/annual/verizon-annual-2015/downloads/15_vz_ar.pdf https://www.verizon.com/about/sites/default/files/annual/ver.... Verizon's wireline division had an operating profit margin of 5.8% in 2015, 2.7% in 2014, and 0.9% in 2013 (see page 24).
  - outsidetheparty 9y ago
    Fair. That number did seem improbably high, I should not have included that in my argument.
  - guelo 9y ago
    Comcast's profit margin has been 10-12% on $84 billion revenue. $14 billion in capex last year, though a big chunk of that is upgraded set top boxes, which customers would happily buy 3rd party like TiVo if Comcast weren't an abusive monopoly and would let us.
- spott 9y ago
  To play devil's advocate: If they don't have overhead in their networks, they cannot offer faster service to some net traffic over other net traffic. The ability to sell faster connections to some services incentivises them to have overhead in their networks to sell, which means investment into their infrastructure.
  - Goronmon 9y ago
    You're making the assumption that they won't just slowdown the connections for people who aren't paying for the "fastlane".
  - outsidetheparty 9y ago
    Ah, but that only works if we keep net neutrality as is! With Pai's changes, why would they spend money improving their pipes to handle more traffic, when instead they can just throttle their competitors' traffic down to the point where their existing pipes are sufficient?
    - splintercell 9y ago
      Because that can't make you more money. The only reason why doing that would make sense if you want to purposely do harm at the cost of making profits. If UPS slows the packages of Amazon down because they're accepting money from Jet.com then they would be violating their consumer agreement with Amazon. If UPS provides faster delivery for Jet.com for higher fee, then Amazon's products would be delivered slower but cheaper, but Jet.com's products would be more expensive. Remember, speed isn't the only thing people care about on the Internet. Features and costs matter too. In a non-net neutrality world, faster == expensive, and there is no business model for ISPs where they can provide cheaper services AND provide faster delivery.
      - kevin_b_er 9y ago
        You are looking at it the wrong direction. This is a model where average residential person is paying UPS to deliver all packages they ask for. But UPS has decided that jet.com must pay extra or their packages will be arbitrarily delayed vs amazon because UPS has invested in amazon. Then the customer cries foul because they thought they were paying for arbitrary package delivery. The government tried to say packages should be treated equally by treating the package delivery as the USPS, but UPS has paid off the party members to ensure they can continue to double dip. Also remember it isn't that a given company isn't paying for "priority" it is that they're going to be actively underprioritized unless they pay.
- splintercell 9y ago
  Business Model 1: Build your own services and throttle everyone else's services unless they pay a premium (in which case your own services would be cheaper, but the profit they get from their own services must be higher than the profit they get from NOT selling the bandwidth their premium service uses, to third parties). Let's put it this way, if a hotel builds a Jacuzzi, you're argument is that the hotel owner will only let their own family and friends use the Jacuzzi whereas they will charge anyone else more money to use it. But the time their buddies are using the Jacuzzi could be sold for a fee to the third party, so in order for them to rationally do this, they must gain enough favors that it justifies them to NOT make the extra profit. In case of the ISP scenario, the Verizon Music better offer them higher profitability than letting it be used by actual Spotify and charging them. If they charge Spotify's $5 per month per user, then Verizon Music better bring them same or higher revenue or else running Verizon Music isn't worth it. Business Model 2: Invest in infrastructure and try to take over bigger market. You're claiming "There is no way they will go for business model 2, they will go for business model 1". But you have no presented any reason why they would do that? We have reasons to believe that even when companies are very good at doing something internally, the parent company sells them off because it's a more profitable model.
  - outsidetheparty 9y ago
    Because it's obvious. Business model 2 involves significant capital expenditure. Business model 1 involves the same profit without the risk; all they have to do is cut deals and act as rent-seekers on their existing infrastructure. They'd have to be fools to go for model 2.
    - splintercell 9y ago
      You're not thinking it clearly. As long as you assume them to be profit seeking individuals and not some inconsistent model, then their choice leans far too heavily towards investing in their own infrastructure (even if you assume a bully who is ripping people's lunch money to invest some of that lunch money into a gym membership). If they launch Verizon Music, then they'll have to build a service as good as Spotify (if not better) in order compete with Spotify. The capital expenditure is still there. On the top of that, they will have to gain expertise in a new field. On the other hand, investing in their own infrastructure makes sense because this is their own domain and this is how they got into this position at the first place.
- nickbauman 9y ago
  Exactly this. Eliminating net neutrality is all about incentivizing rent-seeking business models for incumbents. Not about encouraging innovation.
deleted 9y ago
[deleted]
leereeves 9y ago
Incentives to encourage competition do little good when regulations prevent competition. Even if there's a lot of money to be made providing better service than Comcast, who will receive approval to dig up the ground and place new cables?
- splintercell 9y ago
  > Incentives to encourage competition do little good when regulations prevent competition. Well then why introduce more regulation like 'Net Neutrality'?
  - deleted 9y ago
    [deleted]
  - jimktrains2 9y ago
    Because non promotes completion, not hinder it. Not all regulations are bad.
  - s73ver 9y ago
    Because the market itself cannot provide decent competition. Even if you got rid of most regulations, you'd still have barriers in the forms of having to tear up roads, and the massive investment in equipment you have to buy up front. That would still keep other players to a minimum. Net Neutrality is there to ensure that we still have the internet as we know it even if most people don't have competition between providers.
ComradeTaco 9y ago
The comparison between shipping services and Uber/Lyft with broadband connections is absolutely absurd. Hangouts has the infrastructure cost of a server and UPS warehouses and vehicles. An ISP has the infrastructure and maintenance costs of a buried or hung line to every single home it serves. Unlike an App or shipping company, it takes literal years to take a hard wired ISP to any sort of fruition. Building an ISP also means serving a concentrated market, where the bigger ISP can lower their prices until your new ISP goes bankrupt. If you really wanted to break up the regional monopolies, you would force competitive bidding for all last mile connections and let companies do their own backbone infrastructure. It would introduce actually competition to a market where most consumers literally have no choice.
prklmn 9y ago
Not having adequate competition plays a major role in this. If the market was actually competitive, they would have to invest more to stay alive, regardless of the regulations. It's the lack of competition that's driving the industry.
- ThePurpleKnight 9y ago
  And to be fair to Pai, he has consistently said his main goal is to reduce the regulatory burdens preventing people from getting in to the market.
  - deleted 9y ago
    [deleted]
  - prklmn 9y ago
    That's lip service so the big players can have their regulatory burden reduced. High startup costs and anticompetitive practices are the most significant mechanisms preventing new market entrants.
    - rayiner 9y ago
      The FCC just released an NPRM to speed up access to utility poles, which is pretty much the only regulatory hurdle Google Fiber ran into. One of the options being considered is allowing new attachers to do make ready work themselves, which is similar to the one touch make ready laws Google pushed for in places like Louisville (the current pole attachment process requires existing attachers to move their own lines instead of letting new attachers move other attachers' lines themselves).
      - manicdee 9y ago
        Google is hardly a startup or a new entrant into the market. They had a huge operations revenue to cover the costs of deployment. The fact that Google Fibre exists only reinforces the assessment that you must be this big to enter the ISP market in the USA.
MrFantastic 9y ago
ISP's are not a free market in most rural areas. They were subsidized by taxpayers and given sweet non-compete contracts in return for Lobby money.
zkms 9y ago
There's a fundamental material difference between Uber/Lyft/UPS and ISPs -- the initial costs to get into business for people/package transportation services are orders of magnitudes less than for ISPs. The minimum cost of a transportation venture is extremely cheap -- a working vehicle and its operating costs (petrol, insurance, maintenance). Of course, it won't be as profitable as UPS and such a venture won't be able to out-compete UPS nationwide but there certainly are small local courier services that provides faster and cheaper service than UPS for limited use-cases. There is no equivalent of a public national roads network for ISPs -- stringing up fibre is expensive as all hell and involves having to get permission from land owners, municipalities, and utilities. National-scale incumbents (who can easily afford to throw a few million dollars here or there to put in fibre of their own in a new region/market) currently are not subject to real competition from local ISPs (who don't have a comparable ability to throw cash around).
lurker456 9y ago
That fundamental idea is wrong for oligopolies and monopolies. Utilities such as ISPs have a natural monopoly.
s73ver 9y ago
Uber and Lyft have competition. UPS has competition. Most ISPs do not. And while you might say that it allows them to fund things faster, it also allows them to simply give more money to executives and shareholders. Please don't also pretend that giving them more ways to make money at the expense of the internet as we know it means that they will invest in their infrastructure. In fact, history shows us that they most likely will not.
foxylad 9y ago
Thanks for explaining the point, and I note that you are not necessarily supporting what you are explaining. To be honest, I'm unsure about the whole "make it worth more and they'll invest more in it" argument, but I do think that abandoning net neutrality has a chilling effect on small startups. Or small bloggers, or small anyone.

outsidetheparty 9y ago

Eliminating net neutrality incentivizes ISPs to build auxiliary services that they can artificially support by throttling the bandwidth of competing products. It incentivizes them to seek profit by favoring some net traffic over other net traffic. It does not in any way incentivize them to build larger or better networks. It does not incentivize them to invest in their infrastructure. All it does is let them make more profit off what they already have. I mean seriously, if the whole argument is that they're not making enough money as it is: if a 97%[1] profit margin isn't enough money for them to build out their networks, just how much more do they need? [1] http://www.huffingtonpost.com/bruce-kushnick/time-warner-cables-97-pro_b_6591916.html http://www.huffingtonpost.com/bruce-kushnick/time-warner-cab...

rayiner 9y ago
That 97% number is bogus. It is computed by assuming that all the costs of the network are borne by video service, and that the broadband service is essentially pure profit. Look at carriers' actual audited financial statements: https://www.verizon.com/about/sites/default/files/annual/verizon-annual-2015/downloads/15_vz_ar.pdf https://www.verizon.com/about/sites/default/files/annual/ver.... Verizon's wireline division had an operating profit margin of 5.8% in 2015, 2.7% in 2014, and 0.9% in 2013 (see page 24).
- outsidetheparty 9y ago
  Fair. That number did seem improbably high, I should not have included that in my argument.
- guelo 9y ago
  Comcast's profit margin has been 10-12% on $84 billion revenue. $14 billion in capex last year, though a big chunk of that is upgraded set top boxes, which customers would happily buy 3rd party like TiVo if Comcast weren't an abusive monopoly and would let us.
spott 9y ago
To play devil's advocate: If they don't have overhead in their networks, they cannot offer faster service to some net traffic over other net traffic. The ability to sell faster connections to some services incentivises them to have overhead in their networks to sell, which means investment into their infrastructure.
- Goronmon 9y ago
  You're making the assumption that they won't just slowdown the connections for people who aren't paying for the "fastlane".
- outsidetheparty 9y ago
  Ah, but that only works if we keep net neutrality as is! With Pai's changes, why would they spend money improving their pipes to handle more traffic, when instead they can just throttle their competitors' traffic down to the point where their existing pipes are sufficient?
  - splintercell 9y ago
    Because that can't make you more money. The only reason why doing that would make sense if you want to purposely do harm at the cost of making profits. If UPS slows the packages of Amazon down because they're accepting money from Jet.com then they would be violating their consumer agreement with Amazon. If UPS provides faster delivery for Jet.com for higher fee, then Amazon's products would be delivered slower but cheaper, but Jet.com's products would be more expensive. Remember, speed isn't the only thing people care about on the Internet. Features and costs matter too. In a non-net neutrality world, faster == expensive, and there is no business model for ISPs where they can provide cheaper services AND provide faster delivery.
    - kevin_b_er 9y ago
      You are looking at it the wrong direction. This is a model where average residential person is paying UPS to deliver all packages they ask for. But UPS has decided that jet.com must pay extra or their packages will be arbitrarily delayed vs amazon because UPS has invested in amazon. Then the customer cries foul because they thought they were paying for arbitrary package delivery. The government tried to say packages should be treated equally by treating the package delivery as the USPS, but UPS has paid off the party members to ensure they can continue to double dip. Also remember it isn't that a given company isn't paying for "priority" it is that they're going to be actively underprioritized unless they pay.
splintercell 9y ago
Business Model 1: Build your own services and throttle everyone else's services unless they pay a premium (in which case your own services would be cheaper, but the profit they get from their own services must be higher than the profit they get from NOT selling the bandwidth their premium service uses, to third parties). Let's put it this way, if a hotel builds a Jacuzzi, you're argument is that the hotel owner will only let their own family and friends use the Jacuzzi whereas they will charge anyone else more money to use it. But the time their buddies are using the Jacuzzi could be sold for a fee to the third party, so in order for them to rationally do this, they must gain enough favors that it justifies them to NOT make the extra profit. In case of the ISP scenario, the Verizon Music better offer them higher profitability than letting it be used by actual Spotify and charging them. If they charge Spotify's $5 per month per user, then Verizon Music better bring them same or higher revenue or else running Verizon Music isn't worth it. Business Model 2: Invest in infrastructure and try to take over bigger market. You're claiming "There is no way they will go for business model 2, they will go for business model 1". But you have no presented any reason why they would do that? We have reasons to believe that even when companies are very good at doing something internally, the parent company sells them off because it's a more profitable model.
- outsidetheparty 9y ago
  Because it's obvious. Business model 2 involves significant capital expenditure. Business model 1 involves the same profit without the risk; all they have to do is cut deals and act as rent-seekers on their existing infrastructure. They'd have to be fools to go for model 2.
  - splintercell 9y ago
    You're not thinking it clearly. As long as you assume them to be profit seeking individuals and not some inconsistent model, then their choice leans far too heavily towards investing in their own infrastructure (even if you assume a bully who is ripping people's lunch money to invest some of that lunch money into a gym membership). If they launch Verizon Music, then they'll have to build a service as good as Spotify (if not better) in order compete with Spotify. The capital expenditure is still there. On the top of that, they will have to gain expertise in a new field. On the other hand, investing in their own infrastructure makes sense because this is their own domain and this is how they got into this position at the first place.
nickbauman 9y ago
Exactly this. Eliminating net neutrality is all about incentivizing rent-seeking business models for incumbents. Not about encouraging innovation.

deleted 9y ago

[deleted]

leereeves 9y ago

Incentives to encourage competition do little good when regulations prevent competition. Even if there's a lot of money to be made providing better service than Comcast, who will receive approval to dig up the ground and place new cables?

splintercell 9y ago
> Incentives to encourage competition do little good when regulations prevent competition. Well then why introduce more regulation like 'Net Neutrality'?
- deleted 9y ago
  [deleted]
- jimktrains2 9y ago
  Because non promotes completion, not hinder it. Not all regulations are bad.
- s73ver 9y ago
  Because the market itself cannot provide decent competition. Even if you got rid of most regulations, you'd still have barriers in the forms of having to tear up roads, and the massive investment in equipment you have to buy up front. That would still keep other players to a minimum. Net Neutrality is there to ensure that we still have the internet as we know it even if most people don't have competition between providers.

ComradeTaco 9y ago

The comparison between shipping services and Uber/Lyft with broadband connections is absolutely absurd. Hangouts has the infrastructure cost of a server and UPS warehouses and vehicles. An ISP has the infrastructure and maintenance costs of a buried or hung line to every single home it serves. Unlike an App or shipping company, it takes literal years to take a hard wired ISP to any sort of fruition. Building an ISP also means serving a concentrated market, where the bigger ISP can lower their prices until your new ISP goes bankrupt. If you really wanted to break up the regional monopolies, you would force competitive bidding for all last mile connections and let companies do their own backbone infrastructure. It would introduce actually competition to a market where most consumers literally have no choice.

prklmn 9y ago

Not having adequate competition plays a major role in this. If the market was actually competitive, they would have to invest more to stay alive, regardless of the regulations. It's the lack of competition that's driving the industry.

ThePurpleKnight 9y ago
And to be fair to Pai, he has consistently said his main goal is to reduce the regulatory burdens preventing people from getting in to the market.
- deleted 9y ago
  [deleted]
- prklmn 9y ago
  That's lip service so the big players can have their regulatory burden reduced. High startup costs and anticompetitive practices are the most significant mechanisms preventing new market entrants.
  - rayiner 9y ago
    The FCC just released an NPRM to speed up access to utility poles, which is pretty much the only regulatory hurdle Google Fiber ran into. One of the options being considered is allowing new attachers to do make ready work themselves, which is similar to the one touch make ready laws Google pushed for in places like Louisville (the current pole attachment process requires existing attachers to move their own lines instead of letting new attachers move other attachers' lines themselves).
    - manicdee 9y ago
      Google is hardly a startup or a new entrant into the market. They had a huge operations revenue to cover the costs of deployment. The fact that Google Fibre exists only reinforces the assessment that you must be this big to enter the ISP market in the USA.

MrFantastic 9y ago

ISP's are not a free market in most rural areas. They were subsidized by taxpayers and given sweet non-compete contracts in return for Lobby money.

zkms 9y ago

There's a fundamental material difference between Uber/Lyft/UPS and ISPs -- the initial costs to get into business for people/package transportation services are orders of magnitudes less than for ISPs. The minimum cost of a transportation venture is extremely cheap -- a working vehicle and its operating costs (petrol, insurance, maintenance). Of course, it won't be as profitable as UPS and such a venture won't be able to out-compete UPS nationwide but there certainly are small local courier services that provides faster and cheaper service than UPS for limited use-cases. There is no equivalent of a public national roads network for ISPs -- stringing up fibre is expensive as all hell and involves having to get permission from land owners, municipalities, and utilities. National-scale incumbents (who can easily afford to throw a few million dollars here or there to put in fibre of their own in a new region/market) currently are not subject to real competition from local ISPs (who don't have a comparable ability to throw cash around).

lurker456 9y ago

That fundamental idea is wrong for oligopolies and monopolies. Utilities such as ISPs have a natural monopoly.

s73ver 9y ago

Uber and Lyft have competition. UPS has competition. Most ISPs do not. And while you might say that it allows them to fund things faster, it also allows them to simply give more money to executives and shareholders. Please don't also pretend that giving them more ways to make money at the expense of the internet as we know it means that they will invest in their infrastructure. In fact, history shows us that they most likely will not.

foxylad 9y ago

Thanks for explaining the point, and I note that you are not necessarily supporting what you are explaining. To be honest, I'm unsure about the whole "make it worth more and they'll invest more in it" argument, but I do think that abandoning net neutrality has a chilling effect on small startups. Or small bloggers, or small anyone.