A Technical Perspective on Net Neutrality: Usage-Based Economic Modelsby@netneutrality

A Technical Perspective on Net Neutrality: Usage-Based Economic Models

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Internet economics involve various usage-based billing structures, from bandwidth-only plans to combinations of bandwidth and data allocation. Encapsulation ensures efficient data transmission, and ISPs bill customers based on usage, not content. Different countries use stimulus methods to encourage broadband availability and speed improvements.
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(1) William P. Wagner IV, Claremont Graduate University.

Abstract & Introduction

Definition of Key Terms

Fundamentals of Internet Operation


Usage-Based Economic Models

Net Neutrality

Legal History

Researcher Conclusions

Areas for Further Exploration & References

5. Usage-Based Economic Models

5.1. Traditional Analog Usage-Based Billing

To understand basic Internet networking economics, we can start with a comparison to analog phone lines.

Advantage: Because each line was separate, a user was guaranteed a certain level of service once a connection was made.

Disadvantage: If there were too many users and not enough lines, there was no connection – “All Circuits Are Busy.”

Disadvantage: The line and its bandwidth are unused when no-one is talking on that line.

Economic Impact: Fixed cost makes upfront budgeting linear, but very susceptible to overuse or underuse leading to either poor user experience or wasted resources.

5.2. Digital “Best-Effort” Connections

A digital Best Effort network connection means that the network does not guarantee the delivery of a given packet. It is up to the sender and receiver to confirm that all information was transferred correctly. The Internet is a best effort delivery system, and this has advantages and disadvantages.

Advantage: Shared circuits mean more flexibility in allocating loads.

Advantage: The same networking hardware can be used to carry Voice, Video, Multimedia, and Data.

Disadvantage: If there are too many users and not enough bandwidth, the connection may slow down.

Disadvantage: If the connection slows too much, certain applications may fail. For example: A voice conversation may no longer be intelligible, or video quality may suffer or even stop.

Disadvantage: Both end-points will require computational power for error checking.

5.3. Measuring Internet Usage

Because the Internet is 100% digital, all information can be measured in 1s and 0s. Binary.

Usage is measured by how many 1s and 0s can pass through a given point in a certain amount of time.

Each 1 or 0 is a bit. A bit is the smallest possible unit of measure.

There are two basic measures of usage: speed and total data.

Speed refers to bits per second. The faster a connection, also referred to as higher bandwidth, the more 1s and 0s that can pass through that point in a given second. This measurement takes into account all factors that affect speed at a given point but does not necessarily give a full picture of end-to-end speed. Measured in bits per second (bps, Kbps, Mbps, Gbps).

Data refers to the total amount of data to be transmitted regardless of time. Usually measured in Bytes (Byte, KB, MB, GB, TB). 1 Byte = 8 bits.

5.4. Basic Internet Billing Structures

5.4.1 Bandwidth Only

A customer buys a certain amount of bandwidth. Can be thought of as a pipe of fixed size. The customer is paying for the diameter of the pipe. Home users buy a smaller pipe. Corporate users buy a bigger pipe.

5.4.2. Data Only

A customer buys the ability to download a certain amount of data at whatever speeds the network wants to allocate. The pipe diameter can change, and the customer cannot control it. Not a very common solution.

5.4.3. Combination of Bandwidth and Data.

A customer agrees to pay a certain amount for guaranteed speed up to a certain amount of data, so the diameter of the pipe is fixed at a larger size, up to a certain amount of data, at which point the pipe may get smaller based on the network’s needs or the customer pays a premium for a larger pipe.

5.4.4. Dark Fiber

Additional flexibility is gained from Dark Fiber (not Dark Web). Larger customers may use Dark Fiber – fiber that is allocated as shared use. The line is said to remain “dark” until a given customer leasesit for a short period of time. The same resources are allocated to a small number of companies to share on a first-come / first-served basis as needed. Dark fiber may be allocated in advance (more expensive) or on the fly (less expensive), however dynamic switching on the fly may result in delay, so you would not want to use dynamic for something like the Superbowl.

5.5. Encapsulation, Usage and Billing

None of the aforementioned billing structures needs to address content because of encapsulation.

Any application data is encapsulated before going on the network.

The network engineers and administrators do not need to know what application or content is travelling over the network because it is all encapsulated. And application programmers and engineers don’t need to worry about hardware.

Usage can be measured at any point very easily down to the smallest unit – 1 bit.

Currently the Internet Service Provider (ISP), who owns the lines, satellites, and bandwidth carrying the data, bills their customer based on usage – not content.

The ISP sets a price for their bandwidth and it is up to the ISP’s customer to determine their individual needs or the needs of their customers. The customer may be a single individual household, a large internet streaming service, or another ISP. The customer decides what is necessary to meet their needs and purchases sufficient bandwidth and data from the ISP.

The Hardware and Networking layers of the Internet by definition, do not care what content that data is carrying.

Further, it is up to the customer to make sure that they have sufficient infrastructure, computational power, and bandwidth to serve their own customer’s needs. The ISP is only responsible for their side of the network connection.

5.6. Stimulus

As noted in the introduction, it is beyond the scope of this paper to discuss the effects of any stimulus to the equation, however it should be pointed out that various countries including the U.S., most of Europe, Japan, Australia and many others, have employed different methods of supply-side stimulus to encourage the spread of broadband availability and speed improvement – as well as differing methods to affect demand-side consumer price[11].

This paper is available on arxiv under CC BY-NC-SA 4.0 DEED license.