A couple of weeks ago, I was dismayed to see the headlines about how ESPN is looking to strike a deal with U.S. cellphone companies to exempt its video services from data caps. According to the reports, the sports network wants cellphone users to watch more of its videos so it can make more advertising money, and it’s prepared to subsidize their usage to make it happen.
It was alarming news that hit the old net neutrality reflex, which was also evidently the case with many observers. Public Knowledge proclaimed such a deal to be a clear violation of net neutrality and urged the Federal Communications Commission to step in. Net neutrality has different definitions, but as the advocacy group puts it, at its core it is about:
…making sure that the company that connects you to the internet does not get to control what you do on the internet (if you ever forget that, just head on over to WhatIsNetNeutrality.org for a reminder). Imposing data caps on consumers and then allowing wealthy content holders to buy their way around them is a recipe for stagnation online.
Free market defenders see it the other way. ESPN’s arrangement is not unlike 800 numbers, which are specialized priority services that companies can buy from phone companies. Indeed, AT&T has itself used the analogy. It would like to be able to provide prioritized mobile apps to companies that are exempt from its data caps. As RedState argues:
Do these Leftist ‘consumer’ groups oppose 800 numbers? Do they claim 800 numbers prevent you from calling other numbers? Do they claim 800 numbers hurt you –- the consumer? They would look ridiculous if they did.
Many neutral observers seem to agree that such a deal would indeed violate net neutrality principles. If big companies are allowed to buy their way around data caps, that will surely disadvantage smaller companies or individuals. As Andrew Leonard puts it over on Salon:
The pay-for-unlimited-bandwidth option actually restricts competition. That up-and-coming app developer with the cool new video streaming product who can’t afford to pay off AT&T or Comcast or Verizon ends up losing out. Entities with access to capital get a preferred position on our phones.
I wasn’t convinced it’s quite that simple, so I talked to some people. One individual pointed out that there isn’t really anything wrong with what the sports network is trying to do because nobody is clearly losing out. It’s the Pareto efficiency at work – ESPN wins because it gets users watching more of its video, cellphone providers win because they get more money and consumers win because they don’t have to pay anything extra.
The same person pointed out that if the network simply mailed cheques to subscribers to compensate them for their data use, rather than to the cellphone providers, nobody would be complaining.
It can be argued – as Salon’s Leonard, Public Knowledge and others are doing – that there are indirect losers, since smaller competitors can’t afford the same prioritized bandwidth. Yet, that really isn’t an issue since consumers can still use their regular data packages to access any of those services, the same way they do now.
The problem occurs because cellphone providers – not to mention wired broadband providers as well – then have the impetus to lower data caps and/or raise prices on the non-prioritized traffic, which is an entirely warranted fear if history is any indicator.
It’s therefore not ESPN’s plan that is specifically the issue, but rather with regulators ensuring that data caps keep growing in size and shrinking in price, as they should being doing due to the continually improving price-performance ratio that governs all technology (aka Moore’s Law) as well as market demand.
It’s that second point that creates the worry. If big companies with heavy traffic are allowed to exempt their services from data caps, overall “official” traffic counts will be much lower. If Netflix, for example, were part of this scheme, total internet traffic in the United States would be lower by a third. A lower total therefore makes it a lot easier for internet providers to offer lower caps. They can easily say, “Why provide big caps if they’re not needed?” That would certainly present a competitive problem.
ESPN’s plan isn’t a clear violation of net neutrality and indeed, there are a lot of positives to it. But if it is allowed to proceed, it can’t be done in isolation. Regulators will have to look at how to keep data caps growing in size and shrinking in price, rather than the other way around.