Net Neutrality – the US Internet is taking a wrong turning

Net Neutrality – the US Internet is taking a wrong turning

The Net Neutrality debate has always been as passionate as it has been polarised. Yet there remains a problem to be solved.  One set of enterprises, like Netflix and U-Tube, are driving up video traffic across the Internet and another set of enterprises, the ISP’s, are being expected to pick up the extra investment cost to carry their traffic.

I need to declare my own prejudices. My sympathies lie naturally with the ISP’s as I was once the MD of the networks division of one of the UK’s leading broadband providers. We desperately wanted the flat-rate “all you could eat” model to work. It was liberating. It gave our customers the freedom to explore the Internet without worrying about any usage cost. You cannot imagine my consternation at seeing the alarming rise in traffic from file sharing being driven by a tiny handful of users stealing DVD video content. Could we sustain this “free bandwidth” model in the face of this rising tide of video based traffic? That was 15 years ago. Today ISP’s are still confronted with the issue of how to keep investment flowing to match a rapidly rising tide of video content over the Internet.

The range of solutions is limited. There are only two parties to pick up the cost – consumers or content companies. Those costs can be met by a flat rate charge or by charges linked to the volume of data. So far the very openness of the Internet has precluded ISP’s from charging content companies. The costs have fallen entirely on consumers. ISP’s have tried to hang onto the flat-rate charging model but data caps have crept in.

This business model has had its virtues. Competition between ISP’s has kept in check data caps becoming unduly restrictive for most consumers. It has facilitated streaming companies like Netflix to expand their offerings to consumers. This has helped to fight Internet content piracy by offering consumers a low cost convenient means of viewing films legitimately. It also retains the openness of the Internet for all content providers – including the very smallest. Anyone with content has a chance to enter the market at a very low cost. This gives the Internet its most enchanting character for consumers of always being able to discover something new. It has been an almost perfect frictionless market.

But there remain issues. ISP revenues are flat lining but pressures to invest in new capacity continue unabated. The longer term prospects look even more daunting for ISP’s. The current model puts the Internet potentially into competition with broadcasting networks where the competition playing field is not level…broadcasters are charged a carriage fee to have their content delivered across terrestrial, cable and satellite networks to consumers. Carriage across the Internet has been free of charge.

You might expect me to support the FCC in allowing ISP’s to charge a fee to Internet video content enterprises for “a better quality of service” for their video streaming to consumers. But I think it is a really bad idea. Why? Because congestion has to be bad enough to make the proposition work. The ISP’s don’t have to do anything complicated to ensure enough congestion. They just slow the pace of their investment in capacity and congestion quickly follows. So, far from the new revenues leading to new investment, it rewards the ISP’s for not investing in new capacity.  That is the nub of my objection. It is not rewarding ISP’s to invest. It is encouraging ISP’s to use congestion to construct a walled garden where Internet enterprises pay a fee to be brought inside the walled garden.  I am not going to leap from this observation to prophesising the end of the Internet…but it certainly looks like a wrong turning.

An alternative solution has been proposed by ATT recently whereby video content companies would pay ISP’s to allow their video through without eating into the consumer’s monthly data cap. It is a very clever idea. Why this looks the basis of a superior solution is that competition will keep the pressure on ISP’s from unduly lowering their monthly data caps.  It is also more transparent. The “openness” of the Internet is directly observable by the size of the monthly data caps. It rewards investment. It looks to be the far better route for the future broadband Internet on both sides of the Atlantic.

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