Comcast is destroying the principle that makes a competitive Internet possible

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[Commentary] People who love the Internet's lack of regulation have its bill-and-keep structure to thank.

Unlike the telephone industry, which had a sender-pays model (the customer who dials the phone pays for the call; the payment goes to the long-distance company of the customer's choice; the long-distance company, in turn, makes a payment to the local phone company that operates the other end of the connection), in the bill-and-keep Internet, companies at each "end" of a connection bill their own customers -- whether that customer is a big web company like Google, or a an average household. Neither end pays the other for interconnection. Instead, the Internet Service Provider (ISP) at each end is responsible for ensuring that its traffic can reach the ISP at the other end.

This is part of the service that the ISP sells to its customers, a guarantee that traffic will get where you want it to go. The terminating monopoly problem occurs when a company at the end of a network not only charges its own customers for their connection, but charges companies in the middle of the network an extra premium to be able to reach its customers.

In a bill-and-keep regime, the money always flows in the other direction -- from customers to ISPs to transit companies. And because the market for transit is highly competitive, there's no need for government regulation of transit fees. It's an ordinary market where if a transit company tries to charge too much, ISPs will switch to another company.

By solving the terminating monopoly problem, bill-and-keep makes possible a robust and competitive market for Internet connectivity that requires minimal government oversight.

Since 2010, Comcast has engaged in a campaign to undermine the bill-and-keep system. In a letter to the FCC defending its handling of a pay dispute with Level 3 for Netflix content delivery, Comcast argued that the two companies' "traffic ratio" -- the ratio between the traffic Comcast was sending Level 3 and the traffic Level 3 was sending Comcast -- had been thrown out of balance by the growth of Netflix streaming. Comcast portrayed it as a standard industry practice for the network that sends a disproportionate amount of traffic to pay the receiving network for the costs of carrying the traffic.

The traffic ratio rule Comcast advocated with Level 3 in 2010 was a variation on the sender-pays rule. It will create the same kind of terminating monopoly problem that plagued the long distance telephone market. But that might not seem like a bad thing if you own the monopoly.

Comcast is destroying the principle that makes a competitive Internet possible