When thinking about the performance of any computer system or network, the first question to ask is “Where is the bottleneck?” As demand grows, one part of the system reaches its capacity first, and limits performance. That’s the bottleneck. If you want to improve performance, often the only real options are to use the bottleneck more efficiently or to increase the bottleneck’s capacity. Fiddling around with the rest of the system won’t make much difference.

For a typical home broadband user, the bottleneck for Internet access today is the “last mile” wire or fiber connecting their home to their Internet Service Provider’s (ISP’s) network. This is true today, and I’m going to assume from here on that it will continue to be true in the future. I should admit up front that this assumption could turn out to be wrong – but if it’s right, it has interesting implications for the network neutrality debate.

Two of the arguments against net neutrality regulation are that (a) ISPs need to manage their networks to optimize performance, and (b) ISPs need to monetize their networks in every way possible so they can get enough revenue to upgrade the last mile connections. Let’s consider how the last mile bottleneck affects each of these arguments.

The first argument says that customers can get better performance if ISPs (and not just customers) have more freedom to manage their networks. If the last mile is the bottleneck, then the most important management question is which packets get to use the last mile link. But this is something that each customer can feasibly manage. What the customer sends is, of course, under the customer’s control – and software on the customer’s computer or in the customer’s router can prioritize outgoing traffic in whatever way best serves that customer. Although it’s less obvious to nonexperts, the customer’s equipment can also control how the link is allocated among incoming data flows. (For network geeks: the customer’s equipment can control the TCP window size on connections that have incoming data.) And of course the customer knows better than the ISP which packets can best serve the customer’s needs.

Another way to look at this is that every customer has their own last mile link, and if that link is not shared then different customers’ links can be optimized separately. The kind of global optimization that only an ISP can do – and that might be required to ensure fairness among customers – just won’t matter much if the last mile is the bottleneck. No matter which way you look at it, there isn’t much ISPs can do to optimize performance, so we should be skeptical of ISPs’ claims that their network management will make a big difference for users. (All of this assumes, remember, that the last mile will continue to be the bottleneck.)

The second argument against net neutrality regulation is that ISPs need to be able to charge everybody fees for everything, so there is maximum incentive for ISPs to build their next-generation networks. If the last mile is the bottleneck, then building new last-mile infrastructure is one of the most important steps that can be taken to improve the Net, and so paying off the ISPs to build that infrastructure might seem like a good deal. Giving them monopoly rents could be good policy, if that’s what it takes to get a faster Net built – or so the argument goes.

It seems to me, though, that if we accept this last argument then we have decided that the residential ISP business is naturally not very competitive. (Otherwise competition will erode those monopoly rents.) And if the market is not going to be competitive, then our policy discussion will have to go beyond the simple “let the market decide” arguments that we hear from some quarters. Naturally noncompetitive communications markets have long posed difficult policy questions, and this one looks like no exception. We can only hope that we have learned from the regulatory mistakes of the past.

Lets hope that the residential ISP business turns out instead to be competitive. If technologies like WiMax or powerline networking turn out to be practical, this could happen. A competitive market is the best outcome for everybody, letting the government safely keeps its hands off the Internet, if it can.