T-Mobile Forced to Stop Hiding Slow Speeds From Throttled Customers

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Thursday Lunchtime Links: The Startup Bubble

Every Thursday I will try to provide an assortment of links on a prevalent issue in the internet, gaming, and legal areas.

GeekWire:  Yes, Things Are Hot in Startup Land, But This Ain’t No Dot-Com Bubble

The Economist:  The Startup Explosion

CBS San Francisco:  Silicon Valley Venture Capitalists Warning of Tech Bubble Due to Startup Spending

BBC:  Silicon Valley’s Billion Dollar Start-up Failures

Business Insider:  Here’s the Evidence That the Tech Bubble Is About to Burst

The Atlantic:  The View From the Valley

Bloomberg:  Twitter Engineering, Analytics Executives Leave in Reshuffle

A Quick and Dirty Guide to Net Neutrality

For the past month, the internet has been publishing articles, blogs, opinions, and quotes on “net neutrality.”  It effectively blew up last week when the White House released a statement on net neutrality with President Obama throwing his full support behind it.  However, for well over a year, net neutrality has been a concern for gamers, internet users, and business owners that depend on internet “traffic” for revenue.  I touched on it months ago, but now that it is getting the attention it deserves, it’s time to give people a crash course on net neutrality and the potential effects of what the FCC may decide.

How does the internet currently “work”?

To understand net neutrality, we need a basic understanding of how the internet works.  Admittedly, I lack the technical knowledge to describe the transfer of data and packages between computers in a coherent way.  However, the term “information superhighway,” though dated, is aptly suitable to understand how it works.  Essentially your computer/phone/laptop communicates with other devices or servers.  It does this by sending streams of data through cables or routers.  Imagine your computer as a small shack connected to a 2-way road.  Up the road, it connects to a 4-way road, and further on it connects to a 8-lane highway.  The roads all intertwine and connect to each other, but essentially you are sending data out and also receiving data coming in.  At the top-level of this superhighway are the Internet Service Providers (ISPs).  These establish the rules of the road.  Costs, speeds, usage, and access are controlled by them.  We know of them as Comcast, Time Warner, RCN, AT&T, Verizon, etc.

What has changed?

For the longest time, the internet was governed by a simple principle: all content, know matter its size or origin, should be treated equally.  Data from a Google server travels at the same speed as data from a site bought on GoDaddy.  Furthermore, ISPs could not prevent access to competitors.  This rule was formally established in 2011 by the Federal Communications Commission (FCC).  However, Verizon challenged the rule in court and won.  The result was that the FCC could not enforce net neutrality rules against ISPs as they are not “common carriers.”  Skipping through a lot of legal definitions, the practical result was an elimination of net neutrality.  The FCC announced it would establish new rules, but a new chairman and recent events have given rise to concern as to who would benefit from the new rules.

What are the “Special Lanes” I hear about?

The “special lanes” that keep getting tossed around come from the FCC proposed rules earlier this year.  If put into effect, they would allow ISPs to build special lanes allowing faster internet service to customers for certain websites.  Returning to our highway analogy, let’s imagine the internet having a speed limit of 65mph.  The rule would allow the ISPs to build a special lane with a 90mph speed limit.  However, access to this new lane would cost you.  The ISPs would be able to affect the flow of internet traffic to websites depending on the price they set for faster lanes.

Do you have any examples of such actions?

Yes. Yes I do.  Just this past February, Netflix came to an agreement with Comcast on usage rates, paying a much higher level.  At first, the deal was considered just a market-based agreement to deal with Netflix’s higher demand.  However, something stunk.  Netflix speeds were slowing leading up to the deal and then quickly surged afterwards.  While the surge was expected, some began calling foul play.  Sure enough, the data speeds seemed off than just mere congestion.  In fact, it’s becoming clear that Comcast had decided to start “throttling” Netflix’s usage speeds.  Prior to the negotiations, Netflix used a 3rd party provider that had an agreement with Comcast.  As usage increased with the 3rd party, Comcast would adjust the routes to allow more data to flow freely.  However, once Comcast learned that Netflix was the cause of the increases in usage, the adjustments stopped.  What had been an amicable agreement quickly turned sour as Netflix customers could no longer stream content quickly.  Forced to the table, Netflix eventually paid more money for direct connections through Comcast.  While there was no rule against it, the idea of restricting someone’s access to users in exchange for money starts to feel like extortion pretty quickly.

How can this affect me?

If you stream video, work online, or use the internet regularly, the costs of faster lanes will undoubtedly get passed on to you.  Furthermore, once a precedent of charging for usage is set, ISPs could easily turn it back on customers that have high usage rates as well.

However, the bigger issue is the effect on internet businesses.  As the internet becomes an even more necessary part to running a business, greater rates for more access to customers will become a problem.  The costs for owners to run an online marketplace will increase.  Established companies such as Google, Amazon, and Facebook will survive the rate increases, but the sluggish speeds for smaller companies could easily kill their chances to succeed.  Companies that try to pay the higher rates will eventually pass on the costs to consumers.  Such lanes hurt competition, which hurts consumers.

What else could the ISPs do?

There are major concerns about blocking, throttling, and the effect a lack of regulation would have on both the ISP market and internet businesses.  Let’s look at them individually.

  • Blocking:  Blocking refers to the ISPs blocking access to a website for certain consumers.  For example, Comcast provides television, phone, and internet access.  In addition, the company recently acquired NBC Universal.  As an internet provider, Comcast controls the flow of data from Netflix, YouTube, Amazon, etc. to its consumers.  However, as a television provider and network owner, Comcast also has an incentive to increase viewership of NBC and its television properties.  Since internet video providers are a threat to NBC properties, there is an inherent conflict of interests in having to provide internet access to competitors.  What blocking allows is for Comcast to deny their customers access to competitors.
  • Throttling:  Throttling is the purposeful slowing down of data speeds.  The perfect example is the Netflix and Comcast deal above.  Essentially, ISPs can control the speed of websites as a negotiating tactic.  The problem is that the higher prices of those contracts will get passed on to the average consumer at the end of the day.

Won’t competition among the ISPs keep these things from happening?

Short answer: No.  Long answer: No because competition does not exist.  While there are dozens of internet providers across the country, the top 3 (Comcast, AT&T, and Time Warner) cover the vast majority of Americans (almost 50 million customers).  On top of that, Comcast and Time Warner are still seeking to merge and effectively monopolize the internet.  In Chicago, I currently have a choice between Comcast or AT&T in my building.  While RCN and some smaller providers to exist, their service is only found in certain locations.

The fact is that infrastructure costs, existing market shares, and the opposition of current competitors make it difficult to start an ISPs.  So far only Google and small municipalities have been able to start their own internet services.  While regulation is often seen as the bane of a free market, in this situation a free market simply does not exist.

So what is net neutrality then?

Well, net neutrality can mean a lot of things to a lot of people.  But the overarching theme is equal speeds and equal data.  A rule enforcing net neutrality would seek to outlaw throttling, blocking, and special lanes.

The common idea thrown around is establishing the internet under Title II of the Telecommunications act with forbearance to rate regulation and provisions not related to broadband service.  This would effectively establish net neutrality by equating broadband with your phone service.  Under Title II you are allowed access to a phone line and you cannot be restricted in calling someone else who has another provider.  Basically, it would make it illegal to throttle, block, or prioritize data.  What the forbearance line means is that the government will not set rate prices or use regulations that clearly don’t relate to broadband services.

So why are all these politicians getting involved?

Money, youth vote, anti-government, freedom of internet.  You can pick your reason and find an opinion out there to match.  When President Obama made a statement on the issue, it became the forefront topic of politicians for the week.  Some politicians immediately came out against net neutrality, likening it to “Obamacare”.  However, such rhetoric serves no one.

The simple thing you need to remember is that regardless of your politics, 3.7 million people sent comments to the FCC in favor of Net Neutrality, the most comments on any FCC rule.

Welcome!

Thanks for stumbling upon my newest venture.  As a law student about to graduate and an avid PC gamer, I have been struggling to find places where you can find the information on where these two intersect.  So instead of continuing to look, I figured I would make my own place to consolidate information and perhaps provide some knowledge to people in gaming, legal, and internet circles.  Like, comment, share, and as always do not construe what is written as legal advice.

-Tim