Why the big carriers won’t build out their networks

The big ISPs and wireless carriers keep promising to build out their networks, which we all want. But while they make those promises with one side of their mouths, they talk to Congress and the regulators in Washington, D.C., with the other, pushing for policies that discourage more investment in their networks.

Yeah, you’ve heard some of this before. But before you tune out, consider this: The less money the carriers and ISPs invest, the more congestion users at home and at work will experience. That’s the risk we face.

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You’re already facing data caps and data throttling when you fire up your smartphone or tablet. On the wired broadband side, few people have more than a couple of choices of providers, and the backbone is controlled by a handful of companies with the potential to decide what type of content can move across their networks. Telecommunications policy can be snore-inducing, but it affects us all in what we do every day.

What prompts me to give this little lecture is a research paper by profs at the University of Florida and Notre Dame offering solid proof that when providers are allowed to favor one type of content over another — the opposite of Net neutrality — they have little incentive to invest.

“ISPs would profit from a congested Internet in which some content providers will be more than willing to pay an additional fee for faster delivery to users,” say the authors, Hsing Cheng and Subhajyoti Bandyopadhyay of the University of Florida, and Hong Guo of Notre Dame.

More congestion equals more profits

To understand their logic, consider this thought experiment: Imagine that you own a freeway — say, Highway 101 through Silicon Valley — and you had the power to pluck a car from a traffic jam with a helicopter and deposit it on a clear stretch of the road. Naturally, drivers who could afford the service would be happy to sign up.

“That highway is like the Internet, and the individual cars are the packets of data. The ISP is essentially the gatekeeper that controls the flow of cars on the highway. If the ISP is allowed to snatch any car from the back of a very long line and put it in front of everybody else when the driver of the car pays a priority delivery fee, would the ISP have an incentive to keep the road congested or to expand the road capacity?” they wrote.

The answer is pretty obvious: If you can make more money by keeping your network congested, why would you invest money to make it less crowded?

How the researchers prove their conclusion is complex. In essence they built an economic model based on game theory that compared industry returns under two conditions: one in which Net neutrality is mandated and the other when it is not. That may sound abstract, but game theory has become a well-accepted tool of researchers in economics and business.

To be fair, carriers do invest to some extent because, even though competition in the wireless market is limited to just a few carriers (AT&T Wireless, Verizon Wireless, Sprint, T-Mobile, and in the voice sphere Metro PCS), they fight to win new customers and retain existing ones. Therefore, they have to offer something. On the wired side, the vast majority of the pipes that constitute the backbone are owned by just four companies: AT&T, Verizon, Comcast, and Cox. They too compete in the backbone market.

Net neutrality is defined in a lot of ways, “but it usually means that broadband service providers charge consumers only once for Internet access, do not favor one content provider over another, and do not charge content providers for sending information over broadband lines to users,” according to the Florida/Notre Dama researchers.

We’re not talking about politics or some notion that a company would restrict free speech. That’s highly unlikely. The issue is the ability of everyone — from the tiny startup with a new type of application to giant content providers like Google, Yahoo, and the New York Times — to move whatever type of content they choose across the network with no surcharge or delay.

The providers and carriers, not surprisingly, argue that Net neutrality will stop them from investing. The money from fees levied on content providers, they say, would be an incentive to improve and expand infrastructure.

That’s an argument they made to Congress this month as they tried to throw out rules by the FCC that favor Net neutrality. They didn’t succeed. But late last year, their lobbyists managed to convince the FCC to exempt the wireless space from those rules and even weakened the rules covering wired broadband. Given that the future of the Internet is mobile, the FCC’s decision is very troubling and will likely cause significant problems for users and content providers in coming years.

It would be trite to urge you to write your representative and senator. But you really should. The argument over Net neutrality speaks to a broader view of the rule of government in the economy. Because the market for Internet services is no longer competitive, it makes sense that the government protect the rights of all of us.

Writing about Net neutrality and the FCC’s refusal to take a stronger stand, my colleague Paul Venezia said it well: “If we let this outright thievery happen, we probably will get what we deserve: a castrated Internet, where innovation will be difficult at best, at least in the United States, and where the very basic delivery of content over the Internet reverts to the handout-based model of cable networks. You’ll get your Facebook, your Twitter, and your other small-bandwith services, but beyond that you’ll pay — dearly.”

I welcome your comments, tips, and suggestions. Post them here (Add a comment) so that all our readers can share them, or reach me at bill.snyder@sbcglobal.net. Follow me on Twitter at BSnyderSF.

This article, “Why the big carriers won’t build out their networks,” was originally published by InfoWorld.com. Read more of Bill Snyder’s Tech’s Bottom Line blog and follow the latest technology business developments at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.