The key to understanding net neutrality: Anonymity=good, egalitarianism=bad

For a long time I was terribly confused and conflicted about net neutrality (and embarrassed about being uncommitted on such a core issue in my industry). On the one hand, paying more for higher quality of service is only natural and leads to better provisioning of resources and less waste. HD movie watchers can pay for low latency streaming while email users need not. Treating their packets the same is madness, even worse legislating it so. On the other hand, many people I respect including economically literate ones vociferously argue for net neutrality. And Comcast “shaping” Skype traffic scores an 88 on the Ticketmaster scale of evil.

The key to understanding this debate is recognizing the difference between anonymity and egalitarianism. A mechanism is anonymous if the outcome does not depend on the identity of the players: two players who bid the same are treated equally. It doesn’t matter what their name, age, or wealth is, what company they represent, or how they plan to use the item — all that matters is what they bid. This is a good property for almost any public marketplace that ensures fair treatment, and one worth fighting for on the Internet. AppleT&T should not block Google Voice just because it’s a threat. In fact, even without legislation, it’s almost impossible to bar anonymous participation on the Internet. Service providers can, if forced to, encrypt their packets and hide their content, origin, and purpose, making them indistinguishable from others.

However no one would argue that everyone in a marketplace should receive identical resources. Players who bid more can and must be distinguished (for example, by winning more items) from players who bid less. So, while it’s wrong to discriminate based on identity, it’s absolutely essential to discriminate based on willingness to pay. That is the difference between an egalitarian lottery (silly) and an anonymous marketplace (good).

Somehow the net neutrality debate has confounded these two issues. I agree that any Internet constitution should include that all packets are equal regardless of their creator or purpose (charging $30 for “unlimited” data and in addition 30 cents per 160-char text message scores 72 on the ticketmasterindex). However, users or services who are willing to pay for it can and should receive higher quality. To do otherwise virtually guarantees wasting resources.

Update 2009/08/27: Mark Cuban (as always) says it well. [Via Tom Murphy]

11 thoughts on “The key to understanding net neutrality: Anonymity=good, egalitarianism=bad”

  1. Another aspect is that the Internet is not as distributed as we like to think — there are Tier-1 ISPs which can act as choke-points in the network, and which may, if so inclined, decide to behave badly with (potentially) massive negative effect for everyone else but a gain for themselves. This increases their own profit, but decreases overall social welfare and efficiency.

    To my mind, it makes the most sense to draw a rough equals sign between the worries of network neutrality, and worries of monopoly or oligopoly control of the network. Then, the folly of enumerating all forms of bad behavior becomes obvious. Ticketmaster scores a 100 not just because they gouge consumers, but also because there is no way around them. If they didn’t gouge people, or they were avoidable, they wouldn’t be nearly so evil.

    Lots of things that are okay-but-questionable for small actors become evil when put into place by a monopoly or oligopoly, which muddies the waters for network neutrality debates considerably. A small ISP shaping Bittorrent traffic is qualitatively different from a large ISP shaping its competitors’ VOIP traffic, but it’s not clear how to describe the problem in such a way that the second is not okay, and the first is okay. The main differences seem to be in the market power and intentions of the two firms, but those are both extremely fuzzy criteria.

  2. I think many people reason for net neutrality based on a different criteria. The reasoning starts with the observation that many-or-most locations in the US have at most 2 choices for reasonable internet service, with this often enforced by crony-laws. One famous example is when Philadelphia started it’s own internet service plans, with the standard ISPs reacting by getting legislation passed to make that sort of thing illegal within Pennsylvania.

    Further evidence is provided by comparing the price and quality of internet service in the US with that in many other countries where a factor of 10 more bandwidth might be available for $20/month.

    In this monopoly or duopoly situation, it’s reasonable to expect any price discrimination power given to ISPs will simply result in the ISPs extracting greater profits while perhaps even intentionally worsening the average service level. For the uninitiated, intentionally damaging a service to extract greater profits seems counterintuitive, but consider the use of dynamically changing IPs, which is often a form of intentional damage designed to force businesses (or anyone else who wants to run a server) to pay more.

    In some ways, this is echoing what Peter Boothe says, but from a different angle.

  3. Peter and John: thanks for the thoughtful comments. I see your point(s). Basically, I am envisioning a marketplace optimized for social efficiency, and you are pointing out that a monopoly or duopoly owner of the marketplace will optimize for revenue, hurting efficiency, something a small player or a highly competitive player would not be able to do. So the situation is indeed more complex. Still, I’m not sure that enforcing neutrality is the right solution.

  4. I guess that being for or against net neutrality is also a matter of where you live. For example in France we have only a few ISPs and basically one of them owns most of the (phone – e.g. DSL) pipes while another one got all the cable related technology. Other players (maybe it is different for the late arriving FREE – that’s the name of the company – which is currently running a strategy of constructing its own infrastructure of communication) are here mainly for the purpose of maintaining a “competition”. Without net neutrality my opinion is that we will soon converge to a situation with one real player that will dictates the offers for users, thus leading to less competition and less quality of service.
    BTW, another point in favour of net neutrality is more political, not everyone see the web as a playground for big companies, for some people it is just a space of liberty (I know it seems naive, and I don’t necessarily agree with that, but hey, some people have this opinion).

  5. Key to Understanding Network Neutrality — David Pennock neatly identifies the crucial issue, that service quality and price levels be uniformly applied and not arbitrary based on how much the service provider thinks they can gouge from the customer. The key to understanding this debate is recognizing the difference between anonymity and egalitarianism. A mechanism is anonymous if the outcome does not depend on the identity of the players: two players who bid the same are treated equally. It doesn’t matter what their name, age, or wealth is, what company they represent, or how they plan to use the item — all that matters is what they bid. This is a good property for almost any public marketplace that ensures fair treatment, and one worth fighting for on the Internet

  6. Re:AppleT&T should not block Google Voice just because it’s a threat.

    I am from Europe and here Nokia was a pretty widely used brand before the iPhone arricved. I remember that back in 2006 I was already making Skype calls over 3G with my Nokia N95 phone. Today I have an iPhone and because it is not unlocked, I am unable to do the same…

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