Free Or Easy Riders Tax Ordinary Internet Users

Prices do not always reflect costs and often for legitimate reasons.  While somebody must pay for networks, it is common for some consumers or firms to pay more than others.  In some cases, however, users or suppliers find ways to avoid or shift costs to others and thereby enrich themselves. Absent some overriding public benefit, government policies tend to discourage these implicit tax and subsidy schemes that reward some at the expense of others.  A recent controversy was borne in part by the efforts of some to do just that.  This ConsumerGram discusses in the context of Internet service provision the notions of “free” or “easy riders.” 


Most of us share a sense of the literally descriptive term “free rider” as someone who tries to get something for nothing.  Free loaders find ways to use somebody’s property without paying.  Free riding differs from stealing only because government does not make it illegal.  Businesses and other organizations spend a lot of money in Washington trying to create or protect opportunities to get something for nothing while forcing others to foot the bill. 

A case in point is a for-profit company called VUZE.  VUZE sells Internet-based services and has all the characteristics of a free rider.  It has recently petitioned the Federal Communications Commission to create and protect a “right” for it to use the property of others without restriction, and without paying.  Offensive to some on its face and squarely at odds with consensus definitions of fairness, the petition has gathered the support of groups claiming that consumers’ interests are served by forcing 95% of us to pay for what VUZE and others are providing to 5% of users.  Skeptical?  As Yogi Berra said, “You can look it up!

Understanding this effort requires some context about how the Internet works and its costs recovered.  

The Internet links customers to each other and to information providers by millions of different paths.  Its architecture features two kinds of connected nodes.  First, there are servers or information storage facilities.  They serve the needs of clients or end users who access the Internet via computers and, increasingly, through mobile handheld devices.  The traditional business model has users paying Internet Service Providers for access to each other and to information on the servers of others.  Providers of servers also pay for them and sometimes for links to the network.    


The VUZE business model avoids the cost of both storage and distribution.  First, it converts end user computers into networked storage devices (small servers), and thereby eliminates the cost and need to pay for storage.  Secondly, the VUZE model uses “Peer-to-Peer” paths linking the computers of end users and thereby avoids most of the cost of distributing its content.  It pays a small content distribution fee to offset the cost of “seeding” end user computers with movies and other content, which content is then distributed among end users. 


Thus, VUZE effectively shifts a major element of its total business costs first to end users, who provide free storage, and to ISPs and other users who suffer the penalties of congestion.  Effectively, the VUZE business plan means taking control of users’ computers, converting them to quasi-servers, and using them as distribution points.  It finesses the cost of servers, but by free riding on users “all you can eat” usage contracts with ISPs, it also avoids the cost of buying bandwidth from ISPs. 


One critic likened the VUZE practice to encouraging and enabling restaurant customers to steal food from an “all you can eat” buffet.  While imperfect, the metaphor aptly calls attention to the fact that the costs of the added food (or peer-to-peer internet traffic) are borne either by the restaurant owner (or the ISP) and/or other customers in the form of shortages or probable price increases.  Either way, some of us pay to satisfy the large appetites of others.      


If VUZE does not pay, who does?  First, the network service provider finds its limited capacity being absorbed by the demands of a very small percentage of Internet users — so-called bandwidth hogs – who account for 50% of total traffic.  Revenue of ISPs is diminished, even though traffic and capacity demands are escalating.  One solution suggested is to let shareholders make up the differences.  Most of us understand that is not a viable solution.  Unfortunately, some advocates do not.  Failing that, ISPs must either throttle back the usage of others and/or raise rates.  In either case, the rest of us wind up paying for the free rides on the Internet of a handful of privileged users. 


Some ISPs are looking for ways to ration Internet capacity, to check the excesses of the Hogs and to protect the rest of us from increased rates or sacrificing service quality.  A coalition of advocacy groups is actively opposing ISP adoption of “reasonable network management” techniques.  The reasons focus variously on claims of free speech, possible anticompetitive behavior by ISPs, a potpourri of causes under the broad umbrella of “net neutrality,” or simply keeping the Internet free and open. 


As we understand it, the central claim of some advocates is that every user is entitled to applications, services and content of their choice without regard to the costs imposed on the owners or other users of the Internet.  Taken literally this claim has no basis in law, custom, or commonsense.  The notion of an unlimited entitlement to any good or service or action, without regard to collateral or downstream consequences, is unprecedented.  The Internet is no exception.