Service providers can offer any product they wish. But consumers have certain expectations when a product is described as ‘Internet Service.’ So net neutrality regulations are similar to truth in advertising rules. The primary expectation that users have of an Internet Service Provider (ISP) is that it will deliver IP datagrams (packets) without snooping inside them and slowing them down, dropping them, or charging more for them based on what they contain.

The analogy with the postal service is obvious, and the expectation is similar. When Holland passed a net neutrality law last week, one of the bill’s co-authors, Labor MP Martijn van Dam, compared Dutch ISP KPN to “a postal worker who delivers a letter, looks to see what’s in it, and then claims he hasn’t read it.” This snooping was apparently what set off the furor that led to the legislation:

“At a presentation to investors in London on May 10, analysts questioned where KPN had obtained the rapid adoption figures for WhatsApp. A midlevel KPN executive explained that the operator had deployed analytical software which uses a technology called deep packet inspection to scrutinize the communication habits of individual users. The disclosure, widely reported in the Dutch news media, set off an uproar that fueled the legislative drive, which in less than two months culminated in lawmakers adopting the Continent’s first net neutrality measures with real teeth. New York Times

Taking the analogy with the postal service a little further: the postal service charges by volume. The ISP industry behaves similarly, with tiered rates depending on bandwidth. Net neutrality advocates don’t object to this.

The postal service also charges by quality of service, like delivery within a certain time, and guaranteed delivery. ISPs don’t offer this service to consumers, though it is one that subscribers would probably pay for if applied voluntarily and transparently. For example, suppose I wish to subscribe to 10 megabits per second of Internet connectivity, I might be willing to pay a premium for a guaranteed minimum delay on UDP packets. The ISP could then add value for me by prioritizing UDP packets over TCP when my bandwidth demand exceeded 10 megabits per second. Is looking at the protocol header snooping inside the packets? Kind of, because the TCP or UDP header is inside the IP packet, but on the other hand, it might be like looking at a piece of mail to see if it is marked Priority or bulk rate.

A subscriber may even be interested in paying an ISP for services based on deep packet inspection. In a recent conversation, an executive at a major wireless carrier likened net neutrality to pollution. I am not sure what he meant by this, but he may have been thinking of spam-like traffic that nobody wants, but that neutrality regulations might force a service provider to carry. I use Gmail as my email service, and I am grateful for the Gmail spam filter, which works quite well. If a service provider were to use deep packet inspection to implement malicious-site blocking (like phishing site blocking or unintentional download blocking) or parental controls, I would consider this a service worth paying for, since the PC-based capabilities in this category are too easily circumvented by inexperienced users.

Notice that all these suggestions are for voluntary services. When a company opts to impose a product on a customer when the customer prefers an alternative one, the customer is justifiably irked.

What provoked KPN to start blocking WhatsApp, was that KPN subscribers were abandoning KPN’s SMS service in favor of WhatsApp. This caused a revenue drop. Similarly, as VoIP services like Skype grow, voice revenues for service providers will drop, and service providers will be motivated to block or impair the performance of those competing services.

The dumb-pipe nature of IP has enabled the explosion of innovation in services and products that we see on the Internet. Unfortunately for the big telcos and cable companies, many of these innovations disrupt their other service offerings. Internet technology enables third parties to compete with legacy cash cows like voice, SMS and TV. The ISP’s rational response is to do whatever is in its power to protect those cash cows. Without network neutrality regulations, the ISPs are duty-bound to their investors to protect the profitability of their other product lines by blocking the competitors on their Internet service, just as KPN did. Net neutrality regulation is designed to prevent such anti-competitive behavior. A neutral net obliges ISPs to allow competition on their access links.

So which is the free-market approach? Allowing network owners to do whatever they want on their networks and block any traffic they don’t like, or ensuring that the Internet is a level playing field where entities with the power to block third parties are prevented from doing so? The former is the free market of commerce, the latter is the free market of ideas. In this case they are in opposition to each other.

Stacey Higginbotham posted an analysis of the FCC Net Neutrality report and order on GigaOM. She concludes:

As a consumer, it’s depressing, …it leaves the mobile field open for the creation of walled gardens and incentivizes the creation of application-specific devices.

Sure enough, just two weeks after the publication of the R&O, Ryan Kim reports on GigaOM that MetroPCS announced on January 3rd plans to charge extra based on what you access, rather than on the quantity or quality of the bandwidth you consume.

A story in Wired dated December 17th reports on a webinar presented by Allot Communications and Openet.

A slide from the webinar shows how network operators could charge by the type of content being transported rather than by bandwidth:

In an earlier post I said that strict net neutrality is appropriate for wired broadband connections, but that for wireless connections the bandwidth is so constrained that the network operators must be able to ration bandwidth in some way. The suggestion of differential charging for bandwidth by content goes way beyond mere rationing. The reason this is egregious is that the bandwidth costs the same to the wireless service provider regardless of what is carried on it. Consumers don’t want to buy content from Internet service providers, they want to buy connectivity – access to the Internet.

In cases where a carrier can legitimately claim to add value it would make sense to let them charge more. For example, real-time communications demands traffic prioritization and tighter timing constraints than other content. Consumers may be willing to pay a little bit more for the better sounding calls resulting from this.

But this should be the consumer’s choice. Allowing mandatory charging for what is currently available free on the Internet would mean the death of the mobile Internet, and its replacement with something like interactive IP-based cable TV service. The Internet is currently a free market where the best and best marketed products win. Per-content charging would close this down, replacing it with an environment where product managers at carriers would decide who is going to be the next Facebook or Google, kind of like AOL or Compuserve before the Internet. The lesson of the Internet is that a dumb network connecting content creators with content consumers leads to massive innovation and value creation. The lesson of the PSTN is that an “intelligent network,” where network operators control the content, leads to decades of stagnation.

In a really free market, producers get paid for adding value. Since charging per content by carriers doesn’t add value, but merely diverts revenue from content producers to the carriers, it would be impossible in a free market. If a wireless carrier successfully attempted this, it would indicate that wireless Internet access is not a free market, but something more like a monopoly or cartel which should be regulated for the public good.