ISP X has 10Mbps connection to an apartment complex. And it has 5 customers who are paying 39.99 per month for a 1Mbps connection. ISP is just making a little profit thought its pipe is filled only 50%, because of the premium price. All customers always get their 1Mbps bandwidth. Always. They can not go beyond 1Mbps as it is restricted to 1Mbps.
Now, there is a new ISP in the area offering a similar service for 14.99.Â So to compete with the new entrant and ISP X also reduced its price to 14.99. Suddenly ISP X is in losses. So it has to bring more customers to stay in profitable. So they changed thier offer to 2Mbps connection for 14.99. It got 20 more subscribers. And ISP is profitable again. But here is the problem. They promised 2Mbps for each subscriber. Now they have 25 subscribers, but only got 10Mbps link. So if all 25 subscribers are using internet, they can only give 0.4 Mbps to each subscriber.
None of the subscribers felt the difference, as they were only browing simple websites until recently. Internet companies and smart entrepreneurs started offerening new media rich content on the websites. Not everybody started consuming that rich media content, but few, say 10 of those subscribers, say some geeks, started downloading video, podcasts and music streams, and thus consuming most part of the bandwidth. Now the rest of the 15 subscribers, were not even able to browse those simple websites. Everyone started noticing how much bandwidth they are actually getting. So they complained. Threatened to disconnect if they do not improve the bandwidth. They might migrate to another provider if ISP doesn't do anything about it.
ThereÂ areÂ other fewÂ not so obvious objectives. ISPs want to make lot more profits on the rising internet traffic. And ISP's want to provide the same services as Google / Yahoo / Microsoft / MySpace... are providing, to make money like they do.
To solve these issues, ISP need more bandwidth and should be able to charge more. But if they invest so much money to add two more 10Mbps links, they will not make enough profit with only the current subscribers at current subscription rates. So, they came up with these plans.
- Restrict those 10 geeks not to download video, music and not to use VOIP phone on the internet connection. If they can do that, everybody can browse simple websites without noticing their bandwidth issue.Â They can conveniently hide the fact that they overpromised the bandwidth and oversold.
- Start tiered internet, for geeks. If they want to download video, music and use VOIP service, they need to pay more, say 49.99 instead of 14.99.Â If you don't want to use any of them, you can get connection for 14.99. The companies are very optimistic that many would buy this premium plan, if they can impose, because there is no fun on internet without this rich media content.
- Ask the internet companies who are hosting these music, video and VOIP services to pay some amount to ISP.
- Threaten everebody that if they don't listen to those three plans, ISP will not invest any more on the networks.
I hope, this will clarify atleast a tiny little thing about the situation and why so many are interested in talking about net neutrality.Â Some think it is reasonable. Some say it is not. What do you think?
Update: I found a policy paper by Pheonix Center, discussing why net neutrality is not economically viable and if done how Telcom/ISP companies struggle.