Net neutrality moves up the agenda

Charice Wang/Ovum
11 Aug 2010
00:00

Focus of the debate 

Broadband providers wish to continue what they see as the unregulated nature of the internet, which is competitive and therefore subject to market forces, and essentially self-regulating. Intervention by regulators might inappropriately second-guess the market and distort normal market forces.

Internet content and service providers (ICSPs) wish to have an open internet in which all data is treated equally. Most big names on this side (such as Google, eBay, Skype, Facebook, Amazon and Sony Electronics) would like to preserve what they see as an open, non-discriminatory internet in which innovation can flourish, where broadband providers don't unreasonably discriminate against different types of traffic.

However, despite having quite clear views, both groups perceive threats to their agendas. For the broadband providers, the biggest threat is that NRAs are formally attempting to introduce regulation imposing net neutrality. For the ICSPs the threat is the perceived intentions of broadband players to introduce tiered services, as well as possibly degrading, filtering or even blocking competing content and services.

Finding new revenue sources to finance their investment and innovation is at the heart of the debate for both sets of players. New revenues in this ecosystem mostly come from content and video-streaming services rather than from traditional voice and access fees. As such, strict net neutrality regulation could have a negative impact on the ability of broadband operators to profit from their huge investment in infrastructure. Nevertheless, the introduction of tiered services, which might directly or indirectly degrade or throttle ICSPs' content and services, could hurt their revenues.

The key principle of net neutrality may appear simple, but it presents complex implications for regulators to contemplate. To regulate or not to regulate? How to handle network congestion? How to encourage investment? If only "unreasonable discrimination" is to be outlawed, how to define "reasonable" discrimination? Ultimately, regulators have to seek a balance between the competing demands of these two sides.

Perhaps the ultimate arbiter of policy in this area should be the needs of consumers, which are distinct from those of both the ICSPs and the broadband providers. Traffic management, as well as any limits imposed on it, will affect consumers most of all. Most consumer groups have taken a supportive position on net neutrality regulation on the basis of freedom of speech, and therefore tend to be keen advocates of ex-ante rules. As such, the groups claiming to represent consumers have so far overwhelmingly sided with the ICSPs.

However, regulators should bear in mind that net neutrality rules could also thwart two objectives the NRAs support: giving broadband providers ways to legitimately recover infrastructure investment costs and ensuring quality of service for consumers. In addition, the regulators need to ensure fair competition, which is one of key objectives of imposing regulation.

Therefore, regulators have to assess whether there is sufficient competition in the content and services market to prevent network operators using their market power to thwart competitors, or whether only net neutrality rules can preserve that competition. Considering all of these issues together, it appears that regulators are rightly hesitant to adopt formal measures at this time.

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