On net neutrality: How the internet works and where the money flows

November 12, 2014 · 6 minutes read

In the past few months, a lot has been written about net neutrality. Arguments for and against it, rumors, speeches, discussions. Almost all of them have one thing in common: a basic misunderstanding of how the internet works and where the money flows. Now, I won’t go all-in on the intricate details, but rather give you a broad overview over the way the system is designed. Enough to give you a better understanding of the issue and get you started. We will also discuss why the system is broken right now and, at the end of this article, talk about throttling and why it sometimes isn’t what we expect it to be.

Let’s start with a simple example: imagine you have a Dropbox account. You upload a file on one device and then download it again on another one on the same network. There are at least 4 parties involved in that task: you, your ISP (Internet Service Provider), a backbone provider and Dropbox.

Connections to Dropbox

Every physical connection on the path between you and the Dropbox Server has to be installed, run and paid for by someone. Usually there are two types of cost involved: 1) initial cost to install the connection (e.g. to buy the router, run the fiber between the routers) 2) cost to maintain the connection (e.g. protect it against attacks, replace faulty hardware, etc.). You can see this, when you sign-up for a broadband connection. There’s usually a setup fee (which is sometimes waived on longer-term contracts) and a recurring fee. Aside from the consumer space where we sometimes have “unlimited” plans, this recurring fee is usually based upon the amount of traffic you send or receive (measured in GB or TB). This is especially true for the connection between your ISP and the backbone provider. Every time you send a 1GB file to your dropbox account, your ISP (whom you paid) has to pay a small amount to the backbone provider. And every time you download a file, Dropbox has to pay the backbone provider who then pays your ISP. The amount each party has to pay another party was agreed upon in advance in so called “Peering Agreements”. At least, that’s the theory.

This also means that services that use a lot of data, e.g. video streaming services or services like Dropbox, pay more than the ones that only use very little (e.g. Email providers or us consumers). Sounds fair doesn’t it?

Now if you think about it some more, you’ll come to the conclusion that tracking all those GBs send to or received from another provider is really tedious. That’s what most ISPs and other providers thought, too. In an ideal world, back in the day when the internet was very young, the amount of data send and received by any given provider should be about the same. So they changed their Peering Agreements and basically agreed not to charge each other. While this might have sounded like a good idea in the past, it isn’t working anymore. Especially with video streaming services, consumers (and businesses) receive way more data than they send.

Then, there’s another part to this story. Back in the day, ISPs weren’t just transporting data they were also providing services of their own (thus their name): things like email, search or online banking. Just think about what AOL was offering back then. We all know what has happened to those services in the last decade or two. Competitors emerged that could do it better/cheaper and thus the ISPs services became obsolete. Sadly that also meant, ISPs couldn’t make money with those services anymore. You can imagine, that they didn’t like that very much.
Combine that with overall lower prices for internet access and you should be able to understand, why ISPs are looking for new sources of income.

That’s where we get to the real issue of why ISPs are trying to undermine the very thing that made the internet so successful: net neutrality. Keep in mind that services like Dropbox, Netflix, Google and Amazon are still paying for their traffic. That money just never reaches the ISPs. ISPs have to provide more and better connections to the backbone providers and customers, while only getting a small portion of the pie, namely what you, me and other businesses pay every month for our internet access. Granted, they aren’t really poor, but this system creates no monetary incentives whatsoever to invest in their network. As long as they at least invest some money (to keep the majority of customers and shareholders at bay) everything is fine. Of course, that’s not how the system was intended to work or how we’d like it to work.

ISPs are just businesses like any other and are supposed to grow their profits. And where do you think is more money to be made: charging customers a few bucks more each month or charging large internet services (like Netflix or Google) that make a lot of money anyway for their access to the ISPs customers? If you’ve said the latter, you’re absolutely spot on. And because this can’t happen under net neutrality rules, they are fighting it like it was the flu.

At the end of this article, I want to talk a little bit about throttling. Especially since most people use it as an argument for net neutrality. Throttling in this context is the act of deliberately slowing down connections to certain services for the purpose of either convincing customers to use a different service, or forcing someone to pay extra for it. Most people talk about throttling when their videos are buffering or stuttering, or their connection to a particular service just isn’t as fast as they expected it to be. In those cases, ISPs are regularly accused of throttling connections to this service. And while we don’t know whether that’s actually the case, there’s a far more plausible explanation for this kind of issue.

Throttling example

Let’s expand our earlier Dropbox example a little bit, to make this point. Again, we have you, your ISP, two backbone providers and two services (e.g. Youtube and Gmail). Now imagine, every single customer of your ISP suddenly watches the funny cat video on youtube everybody is talking about today. What do you think happens? The connection(s) between your ISP and the backbone provider that connects you to Youtube can’t handle the traffic anymore. This is called a congestion. If you check the connection to Gmail, everything looks fine. And still you just can’t watch this damn cat video.
Is your ISP throttling youtube connections? No, although it might very well look that way. And because of the fact that different ISPs might use different paths to reach youtube, everything might be fine for your friend a few miles away while you can’t watch anything.

Of course, in reality this whole issue is way more complicated than that (throw things like CDNs or routing into the mix), but I hope you get the point. Just because it might look like you’re being throttled, doesn’t mean that you are.

I hope I could clear up things a little bit. In reality, the whole story is a convoluted mess, that needs some serious work to be cleaned up. For our sake, and for the sake of the businesses involved.