Understanding Net Neutrality: What If Your Kitchen Appliances Only Worked With One Power Company?

In the US, the regulation on Net Neutrality is coming to a showdown on February 26. For such a boring name, it has enormous implications, and well beyond the internet. Imagine that your electric kitchen appliances only worked with one particular power company? That’s what you get without net neutrality – or grid neutrality, as it would be in that case.

Households have had electricity for just under a century, so we’re well aware of the advantage – the self-evidentness, actually – that no matter which electrical appliance you plug into the power grid, that appliance will accept the power coming from the grid and just run on it. What if it weren’t so? What if the grid wasn’t neutral?

Right now, two corporate cultures are clashing. On one hand, you have Team Internet, which demands neutrality, which demands that anything should work with anything else, and that no corporations can be allowed gatekeeper roles and the right to determine who gets access to market and who doesn’t. The concept of the garage startup is sacred in Internet culture, and it lets anybody access the service they prefer.

On the other hand, you have the Telco and Cable culture, which is the exact opposite. That culture is called a Walled Garden, where you must be able to meet all the needs of every customer, either through your own services or through services you’ve signed up with. There is no free choice here. You get the whole package in the Walled Garden, but only the things in there, or you get nothing at all.

These two cultures are coming to a clash over Net Neutrality, which is what the Internet demands and requires, and which goes every fiber of being of the Telco and Cable industries.

In business lingo, the Walled Garden philosophy is called vertical bundling. It is good for the corporation doing it, at least short-term, because it creates lock-in effects and raises transaction costs enormously. It is bad for everybody else for the exact same reason.

Vertical bundling means that you’re taking an offering at one level and bundling it with an offering at another level. It could be bundling a detergent with a shop selling laundry products, for example (stores only selling store-brand items). It could be bundling a laundromat with detergent (requiring customers to use only their own detergent, at a hefty markup). It could be bundling a cellphone subscription with prioritized access to Pandora or Spotify (and locking out competing offerings like Grooveshark).

To understand why the absence of neutrality is bad, let’s look at the example with electricity. If your power company did vertical bundling, you’d have to buy everything that ran on electricity from them. They’d provide kitchen appliances, lamps, electric engines, everything that ran on electricity, and quite often remind you about how innovative they were, providing you with this great selection. Meanwhile, we reject that scenario as utterly ludicrous – both that one company would be able to provide a better selection than the entire market, and that it would be a desirable situation for anybody but the power company.

The lock-in effects would be enormous. If you wanted to change your power company, you’d have to replace every piece of powered hardware. This would be a situation the power company would salivate over; it would be prohibitively expensive to change power providers. It would outrage everybody else, for the same reason. Plus, the power companies would be in a gatekeeper position to determine who got access to market at all with any powered appliances.

This is the situation that Team Cable & Telco is salivating over. They see the potential for lock-in by giving preferential access to their preferred services, creating an artificial Walled Garden, and locking out or degrading competing services on the Internet. But this doesn’t just go against the entire concept of the Internet – that everybody’s an equal online; it also creates an enormous economic harm to all of society, and it puts Team Cable & Telco in a gatekeeper position to determine who gets access to market at all.

This is why we need Net Neutrality, just as we take Electric Grid Neutrality for absolutely granted.

If you’re based in the USA, take a minute out of your day today to call Congress about this. The FCC is voting on February 26.