June 19, 2006

The false dichotomy of net neutrality, and the Tariff Rebate Passthrough solution

The hot technology-related public policy issue right now (at least in the US) is of course net neutrality. Here’s my take on it:

Both sides are being too extreme, and are painting a false dichotomy. But the proponents of net neutrality are much closer to being right than the laissez-faire telecom industry advocates. The principle that should guide net neutrality policy is Tariff Rebate Passthrough. What that means is:

More precisely, a Tariff Rebate Passthrough scheme would work like this.

  1. Telecom providers could put in whatever equipment (hardware or software) they want to implement differentiated QOS.
  2. They could charge whatever they wanted for any level of QOS, but that charge would have to be on a metered, per-byte basis, with bytes tracked on a per-service basis. (Thus, there would be a defined Tariff.)
  3. Any information service provider would have the option of paying the per-byte charge for its service on behalf of the end-user, in which case the end-user would not be charged for those bytes. (I.e., the information service provider could arrange with the telecom provider to Rebate the Tariff to end-users on a Passthrough basis.) This is the only kind of QOS-related financial arrangement that would be allowed. Telecom providers would have to make QOS options equally available for all information service providers, whether the tariff was paid by the end-user or the information service provider.
  4. Clearly, there are no reasonable technological objections to this proposal, since the billing software would rely on exactly the same information as is used to deliver differentiated QOS. And the only serious regulatory implementation problems, if any, would surely be in the area of “unrealistic charges for a given level of QOS,” ala the problems with competitive broadband “arm’s-length” pricing under the Telecommunications Act of 1996. (Think about it; there really isn’t anything else that could easily go wrong.)

    But where might pricing problems arise? Only two areas come to mind:

    A. Overly high prices, amounting to generic price gouging.

    B.  Overly high prices, letting the telecom provider’s own services compete on an unfair basis.

    A should be defused by competition and/or normal regulation, just as telecom prices are controlled today. So if there’s any regulatory problem with my proposal, it lies in B — which is of course the analog to the problems independent DSL providers had competing with the telecom vendors’ offerings.

    Let’s go to some concrete examples. The local telecom vendor might make the costs of VoIP prohibitive, so that it can keep the voice business for itself. It might make the costs of video downloads prohibitive, so that it can continue to sell HBO subscriptions. But while we can easily construct more examples of the same kind, they all reduce to what in my mathematical youth I would call “a problem previously solved” – i.e., the price-gouging I dismissed in one sentence above.

    That’s because the broadband case isn’t a perfect analogy. In that instance, telecom monopolists offered exactly the same thing as independent competitors. But in this case, what they’d have to overprice would be a large superset of what they were actually competing in. Thus, the competitive (or regulatory) pressures holding prices in check would have a much greater effect than they had in the failed broadband instance.

    Besides, the broadband failures weren’t all that bad anyway. Indeed, I use an independent DSL provider to this day.


6 Responses to “The false dichotomy of net neutrality, and the Tariff Rebate Passthrough solution”

  1. The Monash Report»Blog Archive » Great debate on net neutrality on June 20th, 2006 8:10 am

    […] The Save the Internet folks report on a wonderful net neutrality debate. And what they have to say is totally compatible with my Tariff Rebate Passthrough proposal. […]

  2. The Monash Report»Blog Archive » Why I feel qualified to pontificate about public policy on June 20th, 2006 1:27 pm

    […] Maybe I should explain why I feel motivated and qualified to hold forth at such length about public policy issues such as net neutrality, free-world privacy, authoritarian censorship, economic development, and so on. […]

  3. Dave Siegel on June 22nd, 2006 11:57 am

    The main problem with your proposal, as I see it, is that it is too hard to understand or predict what the costs will be, both for the consumer as well as the content provider.

    Secondary problems are: Consumer will revolt at the idea of getting a huge bill, and then having to submit enormous amounts of paperwork, wait for their rebate checks to come in the mail, delayed payments may result in them not being able to pay their bill, resulting in disconnection…ick.

    Additionally, the administration overhead in administrating the billing by the broadband provider, the verification of valid rebate requests by the content providers and processing of outgoing payments may be so staggering that it adds substantial cost to the whoel affair, perhaps doubling or tripling the price of that content.

    The only people this solution satisfies are the ones that provide billing software and solutions.

  4. Curt Monash on June 25th, 2006 9:20 pm


    I don’t see why billing should be NEARLY such a burden. The rebate is a reduction in charges on your bill, noted as a line item that you don’t even have to drill down to if you don’t (this assumes you check your bill online).

    The problem of metered vs. flat-rate pricing that you also raise is, unfortunately, a more serious one. Consumers love their flat-rate pricing, for all sorts of reasons, many of which are good. I’ll need to think on that.



  5. Curt Monash on June 25th, 2006 9:22 pm

    OK. This is weird. I could have sworn I saw another comment here, and now it’s gone. Something about high pricing for QOS, which doesn’t make a lot of sense to me unless I can read the whole line of reasoning.



    EDIT:  Double damn.  I deleted the post by error, clearing spam comments.  And the email address wasn’t accurate, or in any case caused a bounce.  Hopefully, my second try at reaching the poster will work.

  6. The Monash Report»Blog Archive » How Tariff Rebate Passthrough would work on June 26th, 2006 12:50 am

    […] Dave Siegel posted a challenge to my Tariff Rebate Passthrough net neutrality proposal, claiming that technical implementation would be unduly burdensome, and also touching on the fact that consumers generally prefer flat-rate to metered pricing. I think the best response would be to spell out, in a little more detail, how it would work. Along the way, I think I can answer Dave’s (and anybody else’s) concerns. […]

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