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Eliminating net neutrality incentivizes ISPs to build auxiliary services that they can artificially support by throttling the bandwidth of competing products.

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.

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.