Netflix Shows Why Net Neutrality Is Biased

Everybody is familiar with the arguments about net neutrality, in a vague kind of way. The word “vague” is important – most of the hypothetical scenarios used to discuss net neutrality make climate change seem like an exact science. On the one side, there are people that say any leeway to let one internet packet jump ahead of other internet packets will inevitably lead to an Orwellian future where nobody has free speech, our brains are controlled by evil corporations and the sky falls on our heads. (Woe betide anyone for suggesting they might be exaggerating…) On the other side, there are people who argue net neutrality will discourage innovation and investment, by which they mean it would discourage them from making investments, by which they mean it might discourage their profits.

If net neutrality advocates seek to point out the risks of businesses abusing their position, they are right to do so. There is always a risk of a powerful business abusing its position in the market. But if net neutrality advocates believe that network providers are the only kind of businesses that are capable of abusing their position then they must be really, really stupid. Any business might be motivated to abuse its position – as Netflix has recently demonstrated.

Most net neutrality arguments are based on highly theoretical doomsday scenarios, not actual evidence of bad behavior by present-day network providers. Any of us could imagine how businesses might abuse each other and their customers. But rule-makers do not normally get worked up about imaginary risks – not least because they normally lack the foresight. Usually rules are imposed after a disaster has already happened. The net neutrality advocates congratulate themselves for predicting abuse by network providers and then wanting to impose rules that will prevent it before it happens – so if their arguments prevail, it will be impossible to prove them wrong, because the absence of abuse will be treated as confirmation of their success. Netflix has shown these soothsayers are not as good at prognosticating business behavior as they thought they were. Whilst they have been ranting about the need to regulate network providers they failed to notice they were toadying up to a business which really was abusing its dominant market position. Netflix was doing exactly the kind of naughty things that the net neutrality advocates supposedly hate… whilst also lobbying aggressively for net neutrality controls over network providers!

Let us speak plainly: Netflix throttled its own videos. They admitted that they had arbitrarily decreased the quality for some networks, but not others. They had done this for five years – without telling anyone. Though they came up with some supposedly customer-friendly justification for this behavior, no outsider knows how Netflix’s throttling decision was made, or all the factors that were in the minds of Netflix’s decision-makers. One potential factor is that Netflix was punishing the networks they dislike and favoring the networks they prefer. And even if that was not part of Netflix’s motivation, their actions show it would be possible for them to bias the market for unscrupulous reasons.

Net neutrality advocates have always said arbitrary throttling should not happen… but some of them now equivocate on this point because they never imagined that a business other than a network provider would be doing the throttling. All their hypothetical examples related to a network provider restricting some content to give preference to other content. It never occurred to them that a content provider might arbitrarily throttle content to give preference to one network over another. That collective failure of imagination illustrates why a lot of the hypothetical ‘analysis’ of the risks relating to net neutrality was just ill-considered, one-sided, data-free malarkey. So Netflix has just done everybody a big favor. We should thank Netflix for providing some very solid data that the net neutrality advocates simply fail to understand how markets work, and so failed to appreciate that network providers could potentially abuse network users and vice versa.

Instead of just furnishing us with another hypothetical argument for why net neutrality may not be such a godsend, Netflix’s behavior has given us a tremendous example of why we need rules to stop any business from abusing a dominant position in the marketplace, and that those rules need to be evenly-balanced. The best part about this sorry episode is that Netflix have exploited their position in the market and there is nothing that can be done to stop them, because net neutrality rules do not apply to them.

Hal Singer neatly captured the hypocrisy of some net neutrality advocates in his article for Forbes.

Self-styled consumer advocates instinctively defended the company, arguing that the throttling was not a violation of net neutrality because the rules do not apply to edge providers such as Netflix.

While technically true, this defense misses the point: Netflix never told its customers it was throttling the videos they paid to receive, which amounts to fraud. Netflix’s discriminatory throttling is also peak Washington hypocrisy, as the company adopted a holier-than-thou tone of moral outrage over the mere prospect that Internet service providers (ISPs) could do the same without strong net neutrality rules.

Holman Jenkins writes in the Wall Street Journal about how Netflix actively lobbied for the imposition of net neutrality rules.

…Netfix appears to have acted out of especially puerile and venal motives. Netflix at the time was trying to use political pressure to cut favorable deals to connect directly to last-mile operators like Comcast and Verizon—a penny-ante consideration worth a few million dollars at best, for which Netflix helped create a major public policy wrong-turn.

Jenkins is right. Big businesses like Netflix and Google do not lobby for net neutrality out of some high-minded devotion to a technical rule about the ordering of packets delivered by an IP network. They do so because IP networks represent a potential cost for them… and they do not want to pay that cost.

A lot of people have jumped aboard the net neutrality bandwagon because it makes them popular. As a consequence, they will never admit that laws designed to stop businesses from abusing their positions should probably apply to all the businesses that might abuse their position, in an even-handed way. This is how Professor Know-Nothing described Netflix’s behavior.

Is [it] a good thing for Netflix users? Maybe, maybe not. But whatever it is, it’s not a Net Neutrality violation. Plain and simple. Anyone who tells you that it is — or that this practice undermines the case for Net Neutrality rules — is either in the business of misleading you, woefully ignorant of the law, or both.

Forgive the incendiary analogy, but in some countries there are victims of rape who are not protected by the law because the word “rape” is legally defined to exclude the possibility that they can be raped. In cases like these, it is wrong to argue the victim was not raped. We should instead recognize that the law is an ass. Self-promoting jackass lawyers like Professor Know-Nothing are not interested in justice; they are too desperate to be noticed. They are only interested in arguing about the law because these arguments benefit them personally. In short, they are guilty of all the vices that they throw at the feet of network providers – and the lawyers employed by them. If net neutrality advocates focus on the real interest of customers then they must agree that customers deserve to get the good service they have paid for, free from abusive manipulation by any of the businesses involved in its supply. Net neutrality conspicuously fails to deliver that protection because it represents a fundamentally biased view of the relationship between network providers and all the varied corporations and individuals that use networks.

Suppose I have a choice of watching the same film from IPFlix or FlixNet, and I can watch it via the network of BigTelco or that of TelcoGrande. Then suppose that BigTelco slows down the film from FlixNet, relative to the one supplied by IPFlix. Is that unfair? Obviously. And if that happens, there is a good argument for government intervention to prevent this abuse of the telco’s position. Now suppose the situation is reversed, and FlixNet chooses to slow down the film if it travels over BigTelco’s network, because they would rather people used TelcoGrande instead. Is that unfair? Obviously! As a customer, I got screwed in the same way as the previous scenario! The symmetry is obvious to you and me, but not to the legions of self-interested legal beagles and techno-experts who obsess about net neutrality trees at the expense of not being able to see the consumer protection woods. These people are totally incapable of identifying why content providers are capable to the same type and degree of abuse as a network provider. We need rules, and rule-makers, that are wiser than they shrill activists who prioritize their popularity over the pursuit of an equitable market.

So what will the US regulator do about Netflix’s behavior? Nothing. The Federal Communications Commission, the US comms regulator, cannot do anything because Netflix’s business falls outside of the scope of the net neutrality rules adopted last year. Whilst the FCC has given itself heavy-handed, outdated and draconian powers to control some businesses, they cannot even investigate other kinds of business, even though both are capable of the exact same kind of abuse. The FCC has tremendous power to probe and punish network providers, but can do nothing whatsoever if content providers are guilty of market manipulation – even though the harm done to customers is identical.

The debate about net neutrality has always been biased. Just because some Americans do not like the quality of service from their cable providers does not mean a market should be rigged so businesses like Netflix can get lower costs. By only seeking to bash the network providers, the net neutrality advocates lost sight of all the reasons why traffic might be manipulated, and so lost sight of the all the risks to customers. They became the pawns of big businesses, whilst congratulating themselves for standing opposed to other big businesses. Netflix has played them for fools, and no amount of nit-picking about the meaning of words should spare their blushes.

Governments and regulators need to go back to the drawing board, and remind themselves that their job is to ensure businesses have a level playing field, and that customers are protected from all kinds of abuse. That cannot occur if our starting position is that network providers are rapists who can never be the victims of rape. The irony is that the net neutrality advocates are far from neutral, and we need to dispose of the toxic hotchpotch of imagined grievances which currently motivates their arguments. In its place we need to pursue an objective and equitable regulatory program that allows for intervention only when real anti-competitive discrimination occurs, and does so no matter which kind of business is the guilty party.

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.

2 Comments on "Netflix Shows Why Net Neutrality Is Biased"

  1. Avatar Linda Smith | 7 Apr 2016 at 1:49 pm |

    I’ve not read on this topic but I do work for a telco and ISP.
    If a business used its own money to build a road, then said, I want to charge you for using the road. Does anyone object? Then if they build another road, which is faster and charge more money does anyone object? After some time different service providers come into being, who pay the road maker different rates. The car, the bus, the limo. You pay the service provider according to the Quality of Service that you want. Does anyone object? After a while, the government says to the business pay me taxes, the business does that. Then the government says this road should be for everybody. Because this is of national importance the government says it will let some people who can’t afford to pay also use the road. The road is now a thorough thoroughfare, many people not paying the business, also use the road. Some of these are making money, without paying for any transport. The government doesn’t care because its getting its taxes. The maintenance charges for the road keeps going up and the business is finding it harder to make money. The business discovers there is a market for a superfast highway for which service providers will pay a premium. However, people who have got used to not paying for using the original road object to the government, that they are being discriminated against.
    The government then orders the business to provide everyone equal access. The business says it will go bankrupt. Either all users now have to pay, or the government has to take over the roads. The government decides that it will take over all the road and fund them through taxation, whether you use them or not. Road usage goes higher and higher, the government is forced to introduce things like “speed limits” no parking areas. Also the public notices that premium services are now hardly worth it, as the general quality of roads and maintenance spiral downwards. Does this kind of continuing story apply to so-called net-neutrality as well?

    • Linda, I believe you are right. It makes economic sense to ration access to roads or networks, so they are most used by the businesses and individuals that most benefit from their use. But rationing can be unpopular – especially with those individuals who feel strongly about using the resource more than average, or about paying less for it. Somebody somewhere has to pay for these collective resources, but governments do intervene because they seek to be popular as a result of their intervention, whilst also (wrongly) convincing themselves they will be better custodians of the collective resource and thus able to give more whilst charging less.

      I think Gordon Brown gave the game away when he compared the supply of internet services to the supply of water, thus succinctly explaining the rationale for government control of the internet. And so many telcos and ISPs are doomed to becoming utilities. They may remain privately-owned but will be subject to more extensive government control. The telecoms liberalization boom that began in the 1980s is now over, and net neutrality and roaming pricing controls represent the turning point where commercial freedom becomes subordinate to the government’s agenda.

      This pattern has occurred many times before, not just with roads and railways but most tellingly with the history of telegraph services. The telegraph was also a comms network that boomed as a result of lots of private investment into many competing companies. Those companies progressively merged to achieve economies of scale, became subject to more government control in parallel, and were eventually nationalised.

Comments are closed.