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ESPN plan isn’t technically violating net neutrality

21 May

sportscenterA 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.

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4 Comments

Posted by on May 21, 2013 in net neutrality

 

4 responses to “ESPN plan isn’t technically violating net neutrality

  1. redneckonthetrainl

    May 21, 2013 at 1:29 am

    I would like to add that our current cellular data plan pricing in North America is based on scarcity of the ability to provide enough mobile data. This is why we no longer have unlimited plans and the pricing has increased as a result of this. Cellular companies continue to hold that the ability to deliver data is scarce and use this to justify their continuing high prices and data restrictions

    If data is, in fact, scarce or we play along with the assumption cellular companies have given us then usage deals with certain players is detrimental to the system. You can not have unlimited uage low cost services and restricted high cost services existing on the same network at the same time. The concepts are completely mutually exclusive, you either have one situation or the other. If both are actually true then there has to be a service which suffers detrimentally in a congested system

    If the assumption the above is NOT true then let’s just move back to unlimited plans and let the market do it’s thing. No need for special deals. If consumers have access to unlimited data they will increase viewership!

     
  2. Marc Venot

    May 21, 2013 at 3:30 am

    The elegant way would be podcast.

     
  3. Michael Elling (@Infostack)

    May 21, 2013 at 6:21 am

    We need open access in the lower layers. At the same time we need balanced (not necessarily two-sided) settlement systems. Interesting that you didn’t relate the ESPN issue with the US vs ITU issue, which illustrates the hypocrisy and unstable foundation of the ISPs.

    The problem with the internet model (bill and keep) is that there is no effective mechanism to clear supply and demand between the upper and lower layers and across networks over time. There are 3 major problems: precludes new entrants, stifles new service creation, and precludes centralized procurement. http://bit.ly/XOhhZS

    While we need balanced settlements, we also need open access in the layers 1-2; something that was ensured in the digital booms of the 80s-90s in long distance (dial 1), internet/data (computer 2, early 90s) and wireless (A/B-side mutual carriage in the 80s, which was extended to PCS in early 90s). Note, while we killed equal/open access about 10 years ago Steve Jobs resurrected it in 2007 paving the way for OTT applications. http://bit.ly/Lg7qtj

    The net neutrality debate misses these essential points, because both sides are lacking an objective reference model that illustrates supply and demand clearing across service layers, geographic dispersion of traffic and market segments. The internet has its flat, hourglass philosophy, which ironically reveals its flaws by the lack of robust middle layers. The carriers have their silo-ed, vertically integrated model, which is also wrong, as it results in average costs that preclude the bottom and top quintiles of demand, leading to diseconomies of scale and ultimate collapse (unless they are sustained by government policy).

    Two-sided settlements, which is what you are describing, is highway robbery. Balanced settlements, on the other hand, along with open access which will drive competition and pricing at all layers and boundary points to reflect marginal cost, can be highly stimulative and lead to market-driven universal access.

     
  4. Jean-François Mezei

    May 21, 2013 at 11:15 am

    The analogy with 800 numbers is flawed. ESPN or Netflix or another lareg content rovider already pay their share to deiver content to you. Your ISP pays the other share.

    In a toll telephone call, the caller ends up paying the whole share.

    What per gig rate will wireless carriers charge ESPN and why must they charge retail customers 10 times that amount ? And how much more expensive will the ESPN subscription be to subsidize your access ?

    The internet is a success today because of the way it was structured. Low rates compared to old X.25 networks is what made the transmission of images affordable.

    Funny how the wireless companies complain about scarce spectrum which forces high data rates, yet encourage us to view videos.

    When you look at canadian incumbents, they are ranked really poorly in terms of spectrum utilisation with much unused spectrum, yet they charge an arm and a leg for data.

    The minute you allow deals such as ESPN or even the Bell Mobile TV (where $5.00 gets you 10 hours of BellTV which woudl cost over $30 in data charges if you watched Netflix), you encourage wireless carriers to keep data rates as high as possible in order to give themselves (and their friends undue preference becasu those friends don’t pay the same per gig rates as you do.

     
 
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