The Economics of the Internet
In the last article titled Internet: The Commodity, we were introduced the concept of the World Wide Web and how data or traffic was traded as a commodity. We were also bombarded with too many jargon like Elasticity, Net Neutrality, Transit and Peering. All those jargon and concepts were just preparing us for this issue: theorizing the economics of the Internet.
The Internet Exchange
We know that Transiting require traffic costs in terms of currency and ISPs Peer with each other to bypass Transit costs. We also know that Peering between ISPs need to maintain a balance of trade, else charges would be incurred. In order to maximize the efficiency of traffic flow within the country, the Malaysian Internet Exchange (MyIX) was established. It is a center for all ISPs to trade traffic among each other while minimizing the outflow and re-entrance of bits across borders. Treat it like a place where a bunch of ISPs grab and throw their share of traffic around in order to, hopefully, reach Zero-Traffic at the end of each given duration.
To better understand the Internet Exchange one needs to look beyond two downstream ISPs to a multiple of them. This is because no two ISPs can always trade in- and out-flow equally at a given time. Let me explain this better:
Assume this:-
(for the purpose of easy understanding, we keep the transfer of bits between ISPs at a singular digit. We also disregard individual company peering and assume that bits transferred are put into a single pool of available bits in the MiIX)
Maxis: 2 +1 - 5 + 5 - 3 = 0
Digi: -2 +2 = 0
Celcom: -5 +5 = 0
TM: -1 +3 -2 = 0
Jaring: 5 -5 = 0
In the end we have balance of trade for all downstream ISPs. This is how the Internet Exchange works, basically.
Theory of Demand Creation
Individual downstream ISPs, being a product, would be silly if they only pack their lines with customers that demand more traffic than they give because it would create a perpetual negative in traffic flow. So in order to make some money, or generate greater demand at least, they would identify customers who are bit-generous (give out more bits than they take). This will give them a higher chance of maintaining bit surplus.
So if bank websites give more bits than they take, then it will make sense for them to market themselves heavily to banks. If given the intensity of competition they would even give ridiculously cheap packages to draw banks in, since they can easily make back from the bit surplus their customers can get them.
Revisiting Net Neutrality
We have to understand the difference between throttling the traffic speed of consumers and businesses, and businesses' websites.
It is a known fact that consumers, be it end-users or companies, are sold a few Internet packages at different prices and therefore different traffic speeds. This does not go against the law of Net Neutrality because in this context both end-users and companies are Consumers. Consumers are defined here as users who do not compete with each other for business. Example of these categories are homes and offices applying for Internet services for their own use.
Businesses, on the website end, are subject to Net Neutrality laws because websites are regarded as virtual shops. Throttling consumers' access to websites based on the amount paid by the operator of the websites (namely businesses owning those websites) to ISPs directly creates a discrimination that cannot be controlled by consumers, and therefore in violation on Net Neutrality laws.
Let's make the analogy simpler by referring traffic capacity as the width of roads and the number of parking spaces. On one side we have cheaper shop lots with smaller roads and less parking lots, and on the other side we have more expensive lots with wider roads and more parking spaces. Companies with deeper pockets who are able to pay for the rental of expensive lots will allow their customers better access, while smaller companies struggle trying to keep up with their more well to do competitors. This is discrimination through some form of monopolistic competition. It is also saying I am a rich company so I can pay the ISP to make customers get so fed up waiting for my competitors' pages to load, that they all patronize me instead for instant access.
Goal of the Internet
The Internet, as a product itself, should forever be free of any costs. The only costs consumers will ever have to bear are the costs of service provision by ISPs. And consumers should always have the option to choose the kind of transfer speed he/she requires.
We know that Transiting require traffic costs in terms of currency and ISPs Peer with each other to bypass Transit costs. We also know that Peering between ISPs need to maintain a balance of trade, else charges would be incurred. In order to maximize the efficiency of traffic flow within the country, the Malaysian Internet Exchange (MyIX) was established. It is a center for all ISPs to trade traffic among each other while minimizing the outflow and re-entrance of bits across borders. Treat it like a place where a bunch of ISPs grab and throw their share of traffic around in order to, hopefully, reach Zero-Traffic at the end of each given duration.
To better understand the Internet Exchange one needs to look beyond two downstream ISPs to a multiple of them. This is because no two ISPs can always trade in- and out-flow equally at a given time. Let me explain this better:
Assume this:-
(for the purpose of easy understanding, we keep the transfer of bits between ISPs at a singular digit. We also disregard individual company peering and assume that bits transferred are put into a single pool of available bits in the MiIX)
- Maxis gives 3 bits to Digi, and Digi returns 1 bit to Maxis - Digi (-2), Maxis (+2) bits
- Celcom takes 10 bits from Jaring, and returns 5 bits - Celcom (-5), Jaring (+5) bits
- TM gives Maxis 2 bits and Maxis returns 3 bits - TM (-1), Maxis (+1) 1 bit
- Maxis gives Celcom 3 bits and Celcom returns 8 bits - Maxis (-5), Celcom (+5) bits
- Jaring takes 6 bits from Maxis and returns 1 bit - Jaring (-5), Maxis (+5) bits
- Maxis takes 7 bits from TM and returns 4 bits - Maxis (-3), TM (+3) bits
- TM takes 5 bits from Digi and returns 3 bits - TM (-2), Digi (+2) bits
Maxis: 2 +1 - 5 + 5 - 3 = 0
Digi: -2 +2 = 0
Celcom: -5 +5 = 0
TM: -1 +3 -2 = 0
Jaring: 5 -5 = 0
In the end we have balance of trade for all downstream ISPs. This is how the Internet Exchange works, basically.
Theory of Demand Creation
Individual downstream ISPs, being a product, would be silly if they only pack their lines with customers that demand more traffic than they give because it would create a perpetual negative in traffic flow. So in order to make some money, or generate greater demand at least, they would identify customers who are bit-generous (give out more bits than they take). This will give them a higher chance of maintaining bit surplus.
So if bank websites give more bits than they take, then it will make sense for them to market themselves heavily to banks. If given the intensity of competition they would even give ridiculously cheap packages to draw banks in, since they can easily make back from the bit surplus their customers can get them.
Revisiting Net Neutrality
We have to understand the difference between throttling the traffic speed of consumers and businesses, and businesses' websites.
It is a known fact that consumers, be it end-users or companies, are sold a few Internet packages at different prices and therefore different traffic speeds. This does not go against the law of Net Neutrality because in this context both end-users and companies are Consumers. Consumers are defined here as users who do not compete with each other for business. Example of these categories are homes and offices applying for Internet services for their own use.
Businesses, on the website end, are subject to Net Neutrality laws because websites are regarded as virtual shops. Throttling consumers' access to websites based on the amount paid by the operator of the websites (namely businesses owning those websites) to ISPs directly creates a discrimination that cannot be controlled by consumers, and therefore in violation on Net Neutrality laws.
Let's make the analogy simpler by referring traffic capacity as the width of roads and the number of parking spaces. On one side we have cheaper shop lots with smaller roads and less parking lots, and on the other side we have more expensive lots with wider roads and more parking spaces. Companies with deeper pockets who are able to pay for the rental of expensive lots will allow their customers better access, while smaller companies struggle trying to keep up with their more well to do competitors. This is discrimination through some form of monopolistic competition. It is also saying I am a rich company so I can pay the ISP to make customers get so fed up waiting for my competitors' pages to load, that they all patronize me instead for instant access.
Goal of the Internet
The Internet, as a product itself, should forever be free of any costs. The only costs consumers will ever have to bear are the costs of service provision by ISPs. And consumers should always have the option to choose the kind of transfer speed he/she requires.
