Diversity and Net Neutrality

It wasn’t meant to be this way. The domain of a mere handful of tech giants, today’s internet is a far cry from the almost anarchic virtual space – a chaotic online universe that encouraged diversity, innovation, and – yes – revolution, or at the very least, the good-humoured subversion of any and all attempts to impose order, oversight, and structure. Today’s worldwide web is to surprisingly large degree dominated by the FAANG Group – Facebook, Amazon, Apple, Netflix, and Google.

At peak times in the United States, almost half of the available downstream bandwidth is taken up by just two services: Netflix (approx. 25%) and YouTube (approx. 20%). According to Cisco, the world’s largest network hardware manufacturer, by 2021 video streaming will represent 82% of all internet traffic – up from 73% in 2016. In just three years, video services – including live streams and on-demand programming – will generate in excess of 187 exabytes (187 billion gigabytes) of traffic. By contrast, traditional web surfing and data traffic – the latter including the demands of the Internet-of-Things – requires less than a sixth of the bandwidth dedicated to video streaming.

As Amazon Video and Hulu gain market share, and Facebook begins streaming video, the consolidation of internet traffic into the hands of just a few large players has put net neutrality under pressure. The concept, now transposed to the digital world, is rooted in the provisions of ‘common carrier’ law as it applies, amongst others, to telephone networks. Net neutrality laws force internet service providers (ISPs) to treat all traffic equally. A network operator may not cap, block, slow down, exploit, or otherwise discriminate between traffic streams.

ISPs have long argued that the bandwidth they provide is not unlike a highway system with the only difference that heavy users are charged at the same rate as occasional ones. Without net neutrality rules, ISPs could charge bandwidth-hogging services such as Netflix for the use of their infrastructure and, on a more positive note, establish digital fast lanes that improve the video streaming experience.

The flip side of the argument is that charges for premium network access may snuff out competition by erecting barriers to the entrance of possibly disruptive newcomers, leading to a further consolidation of business interests on the internet. Also, net neutrality is probably not to blame for the natural inclination of ISPs and telecoms to concentrate their efforts in more lucrative urban markets, leaving an estimated ten million US consumers stranded in the dial-up era and many millions more stuck on slow ‘broadband’ connections.

Hugely Profitable

Even with net neutrality, ISPs and telecoms are hugely profitable both in the US and elsewhere. There is scant empirical evidence that the rules stop these providers from investing billions in network upgrades. Even so, the US Federal Communications Commission (FCC) allowed most of its net neutrality rules to lapse in early June. Users barely noticed the change as all major network operators promised not to restrict or throttle traffic in any way. The country’s largest ISP, Comcast, is actually forbidden to do so under the terms of its 2011 acquisition of NBC Universal which requires the company to observe net neutrality until September, whilst Charter – the second-largest US network operator – must do so until 2023 as a condition of its takeover of Time Warner Cable in 2016.

Meanwhile, the US Senate late last year passed legislation to force the FCC to keep, or reinstate, net neutrality. That Congressional Review Act is now set to face a vote in the House of Representatives where it stands a good chance of benefiting from a consensus that crosses the aisle as pollsters found that almost 83% of voters, including 63% of declared Republicans, favour the reinstatement of net neutrality rules. President Donald Trump may, however, refuse to sign the act since his opposition to the initiative is well-documented.

State governments are mulling legislation of their own, in many cases considerably stricter than the provisions just scrapped by the FCC. In California and New York bills have been tabled that would force non-discriminatory practices on ISPs. New York has taken the indirect route with Governor Andrew Cuomo signing an executive order that bans state agencies from doing business with providers who do not observe net neutrality.

Though this may seem a discussion about semantics, it is, in fact, an important battle. Big Tech companies – the FAANG Group – represent a sizeable slice of the US economy. Without their buoyancy, the US stock market would have retreated this year. To put things into a sobering perspective: according to The Economist, the FAANG Group’s market cap is now worth more than that of all FTSE 100 companies combined.

These five supersized corporates also represent the US economy’s face of success. Though the federal administration puts in considerable effort into narrowing the overall trade deficit, it fails to account for the absence of detailed rules of origin. In value-added terms – the bits added during final assembly in China to manufactures that contain components sourced from elsewhere – the US trade deficit with China is about 36% smaller than the $375 billion often quoted. The wider US current account deficit would also be a lot less worrisome when the global profits of Big Tech are included.

Though today’s internet is unrecognisable from what it was just a single decade ago, the perceived loss of diversity to the emergence of the FAANG behemoths is perhaps less than it seems. Whilst traditional web surfing amounts to just 14% of all internet traffic, that share is part of a pie many times larger than it was ten years ago. In absolute terms, diversity has actually improved: the world now boasts about 1.5 billion websites (of which only some 200 million are active) – a sevenfold increase over 2008.

© 2013 Photo by Ron Cogswell