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Net neutrality: An American problem?

Executives at three Australian ISPs say that unlimited-access plans just aren't sustainable today and that the U.S. could learn a lesson from Down Under.

This story was written by Brett Winterford and Julian Hill.

The leaders of three of Australia's largest ISP's have declared the Net neutrality debate as solely a U.S. problem--and further, that the nation that pioneered the Internet might want to study the Australian market for clues as to how to solve the dilemma.

Net neutrality is a term coined by Internet users who oppose the increasing tendency among network owners (telecommunications companies) to tier or prioritize certain content on the network.

The debate was sparked after several American and British service providers offered to charge a premium to prioritize traffic connecting with some sites over others. These service providers claim the Internet is "running out of capacity" due to excessive use of rich content like video and file-sharing traffic. The only model with which capacity can be expanded, they argue, is to charge large media companies to prioritize traffic to and from their sites.

But Simon Hackett, the managing director of Adelaide-based ISP Internode, argues that it is ridiculous to suggest bandwidth is "running out."

"I don't subscribe to the view that network capacity is finite at all... Optical fiber basically doesn't run out of capacity, it's just a question of how fast you blink the bits at each end," he said in a recent interview with ZDNet.com.au.

ZDNet Australia video

"The (Net neutrality) problem isn't about running out of capacity. It's a business model that's about to explode due to stress. The problem, in my opinion, is the U.S. business model," said Hackett.

"The U.S. have got a problem," weighed in Justin Milne, group managing director for Telstra Media and former chief of Australia's largest ISP, BigPond. "Their problem is that unlike Australia, they (offer) truly unlimited plans."

The problem with an unlimited-access plan, explains Hackett, is that it "devalues what a megabyte is worth." American customers have never been able to put much of a dollar value on traffic, as historically, U.S. ISPs have "had it very easy" in terms of bandwidth costs. The United States invented the Internet and developed the first content for it, and the rest of the world essentially subsidized the U.S. to connect to that content.

"It was quite rational to charge (users) a fixed amount of money for access (in the U.S) because the actual downloads per month were trivial," said Hackett.

Today, there is as much local traffic floating around the rest of the world as there is in the United States, and America is as much a consumer of the world's content as it is a distributor of content to the world. In addition, the traffic being carried is far richer in terms of content, so the cost of feeding capacity to the YouTube generation is considerably higher.

"Now everybody file-shares and sends video all around the place," said Milne, "and the problem for the telcos in the U.S. is they are having to expand their networks as they go, but they are not getting paid any more money."

Who pays?
American ISPs are thus faced with a choice as to whom to charge in order to build out their networks to accommodate the increased traffic.

The first choice is to absorb the costs themselves, the status quo to date, which is less than desirable as a business model. The second choice is to cease to offer unlimited plans, which passes the cost of excessive bandwidth use onto those users that consume the most.

The final choice, says Michael Malone, CEO of ASX-listed ISP iiNet, is to charge content providers, the model that has stirred up controversy.

"The attempt is being made certainly in the U.K. but also in the U.S. to push that cost onto the content owner by saying, you pay, and we'll prioritize your traffic," he said. "(And) if you don't pay, your traffic will be really crap."

American ISPs are hesitant to take the option of charging customers for excessive use, Milne says, because they will "probably all knick off and go to my competitors who are not charging them." Instead, they plan to "charge the guys who are putting big gobs of video traffic into my network--which would be people like Microsoft and YouTube and Google etc."

"Those guys say, you're kidding, what about Net neutrality? The Net is supposed to be free, man! You can't charge us for putting traffic in there because that's denying the natural rights of Americans! I think the argument is thin but nevertheless Congress seems to be picking it up."

Lessons from Down Under
The right choice, all three Australian ISP leaders agree, is to put the onus on the user, a model that has worked well in Australia.

As an Australian ISP, around 60 percent to 70 percent of traffic comes from overseas. "You've got to haul the traffic," explains Milne. "All of that traffic is volumetrically charged--the more traffic you haul from overseas, the more you pay.

"So all ISPs in Australia, because of our unique geography, have got used to pay-as-you-go and have handed those pay-as-you-go principles on to their customers."

Malone says that when users are offered truly unlimited access to download as much as they want, 3 percent of customers use over 50 percent of all the downloads. Download quotas can eradicate that problem if they are set at such a level that it affects this 3 percent, while having zero affect on the majority.

Quotas, Malone says, aren't designed to be punitive.

"Quotas are meant to be able to say that for 95 percent of customers, this (much data) is enough...This is an effectively unlimited connection for most people.

"From my point of view, (Net neutrality is) an artificial problem created out of fear of modifying the business model," says Hackett. "The idea that the entire population can subsidize a minority with an extremely high download quantity actually isn't necessarily the only way to live," said Malone.

The Australian model gives ISPs predictability about income and network costs, explains Hackett.

"If a user uses much more stuff, they wind up on higher plans, so we can actually afford to bring in more (network equipment and capacity)," he said. "So it's kind of self-correcting. In the U.S., an ISP is visibly afraid of the idea of customers pulling video 24/7. (Whereas) if our users use more traffic, it doesn't actually scare us. You get the sense that it actually does scare (U.S. ISP) Comcast."

Milne says a number of U.S. cable companies have taken the hint and started charging "volumetrically."

"I think that's actually where things will finish up," he says. "Be it electricity, travel, petrol, we as humans have got used to the idea that the more you use the more you pay, albeit with a discount. The Net in the U.S. just magically decided to avoid that, and now I think they'll have to come back to reality."

"You can't just keep on building these networks forever for free. You can build them bigger and bigger and bigger, but somebody has to pay for it. There has to be a business model by which the network is paid for," added Milne.

Brett Winterford and Julian Hill of ZDNet Australia reported from London.