Making sense of Net neutrality

01 Aug 2006

There has been much debate globally, and particularly in the US, over what has been called net neutrality. The debate has been mostly polarized so far with opposite sides taking extreme positions. Network providers have made statements that the content providers have been free riding on their networks, while the content providers state that allowing the network providers to discriminate traffic will see the end of the Internet as we know it.
There are really two issues involved here. The first is whether to allow network providers to offer services with a higher quality than the best-efforts of the current Internet and to put in place technical and commercial arrangements to provide this quality of service on an end-to-end basis. The second issue is how to finance the funding that will be required to construct networks with sufficient bandwidth and quality to satisfy customers at a price they are willing to directly pay for.

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Some commentators are taking the view that the current Internet is already neutral with all packets being treated equal (equally bad that is) and allowing discrimination will break the current model and kill innovation. As most readers would be aware, the current Internet arrangements are far from neutral. As elsewhere, Australia has worked through the issue of network providers peering versus paying for access to other networks. Interconnection of networks is negotiated on a value basis, and arrangements between different operators will differ in terms of bandwidth and quality as well as price. Packets traversing private peering connections will have vastly different treatment from those going via public Internet exchange points.
Content service providers are likely to earn revenues both directly from customers as well as being able to charge the owners of certain content for distributing their content to end customers (the polite term for which is advertising). By allowing network providers and content service providers to negotiate commercial arrangements, the end customer is not required to directly fund the full cost of the network required to deliver their services.
The main argument against allowing a tiered network scenario is that by providing higher quality to some packets, the remaining packets could effectively be downgraded. There has also been much concern voiced that network operators could block particular Web sites or traffic, or deliberately degrade it, if payments from the content providers are not forthcoming.
The main trigger point for net neutrality issues today is VoIP. Voice revenues are already under threat, and with the increasing growth of third-party VoIP services, network providers with voice revenues could be tempted to impair VoIP services to protect their own product.
For most countries, including Australia, existing anti-competitive behavior regulation should be sufficient to manage these cases as (and if) they occur. Introducing ex ante regulation that tries to enforce net neutrality is likely to be more of an impediment to innovation than not doing so. Net neutrality is a difficult concept to accurately capture in regulation and could result in a rigid regulatory structure that might end up giving more power to the network providers to delay the introduction of new services.
It should also be remembered that network providers have actively resisted the scenario of being held responsible for the content that is passing through their networks. Initiating traffic discrimination based on content might open a larger can of legal worms than they are willing to face.

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