Net neutrality laws could endanger operator revenue

Mike Jude, Frost & Sullivan
23 Mar 2010
00:00
News
Commentary

Most people in the wireless community now understand that the Federal Communications Commission (FCC) intends to impose net neutrality regulations on wireless carriers in one form or another. Although this may seem innocuous, it could not come at a worse time for the industry. Failure to understand the implications could have a damaging impact on the wireless business, especially in terms of deploying high bandwidth 3.5G and 4G networks.

On the surface, net neutrality seems like a good idea because it would prohibit carriers from content discrimination. When you examine what that really means, things start getting murky.

For example, define content. Is it simply a stream of data, or does it include a service that utilizes that data? If it is the latter, does non-discrimination mean that wireless carriers can't differentiate their content from third-party content on the basis of their control over the network infrastructure? If the FCC adopts that interpretation in its net neutrality regulations, the business of wireless will quickly become very marginal.

Net neutrality laws threaten service differentiation advantages

According to numerical models we have constructed at Stratecast, it appears that once service differentiation is no longer possible or becomes significantly more difficult, wireless carriers become simple access providers. In the access game, competition is already driving prices down to cost and margins are becoming nominal.

The implication is that wireless operators will either have to raise their access prices or curtail investment. Neither is a good deal for consumers. In fact, the likely impact over the long term (three to five years) is that network investment will slow by as much as 50% beneath current levels. That means the coverage maps for Long Term Evolution (LTE) are likely to look more ragged than those receiving so much attention in wireless carriers' ads.

When expressed as best-effort principles of operation, net neutrality makes sense, but at the end of the day, carriers deploy networks to make money. The expectation of revenue provides the incentive to make investments and improve technology. If net neutrality regulations begin to erode that expectation, then carriers will likely find other ways to employ their capital and benefit their shareholders.

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