Net neutrality – good in theory, but can it work in practice?


Net Neutrality

The passing of new net neutrality rules by the US Federal Communications Commission (FCC) last week has once again raised the argument about what these regulations actually mean for businesses.

On one side are those who equate net neutrality with an internet free from big corporate tomfoolery – essential to keeping it open and fair. On the other, are those who believe it will add to the regulatory burden technology providers already face and in the process stifle innovation. For instance, recently Nokia CEO Rajeev Suri argued that certain futuristic technologies will need to be prioritised, saying technology like self-driving cars will be held back by a totally open system.

The debate over net neutrality erupted last May when FCC Chairman Tom Wheeler released a plan that would have allowed large carriers to charge companies for the right to "premium" access to their customers.

Naturally, as a smaller provider on online services, we wouldn’t want to see larger players get preferential treatment from carriers because they’re able to pay for the privilege.

Imagine if one of the large New Zealand telcos decides to penalise all VoIP traffic on its network. That would have a detrimental effect on all VoIP providers and users, Conversant included.

While larger service providers would be able to negotiate superior access terms and pay more for it, as a smaller provider we probably won’t be able to do that.

So on face of it laws or regulations that guarantee net neutrality, like those just passed by the FFC and European Parliament last year, are a good thing.

Clearly there are benefits to end users and all providers of online services from rules that prevent large service providers from blocking or stopping certain web services, slowing down content from specific websites, and speeding up some traffic in return for payments.

However, as someone who believes in market economics, I wonder if this approach takes into account the realities of economics.

The internet has always been, and will always be, far from neutral. The reason for this is simple – internet bandwidth is not an infinite resource that can be allocated equally. And if we can’t ration resources through economic measures then what is left?

The issue is that bandwidth is something of economic value, which network providers and ISPs want to charge appropriately for.

Without a proper mechanism for allocating that resource, we could get distortions in the market and before long could end up with sub-standard services.

If ISPs can’t charge more for a premium product, where’s the economic incentive to invest in infrastructure and to offer a superior service?

There are different technical requirements for using data for video conferencing or voice calls or for email, but with net neutrality rules, ISPs won’t be able to charge for email traffic on one basis and video on another.

That would be like building two classes of road, but charging the same for them. So what incentive is there to build a better class of road?

The reality is that while our seemingly insatiable demand for video or streaming traffic are placing immense pressure on ISPs’ networks, they deliver no additional revenue.

Business users meanwhile are probably prepared to pay a premium to be able to make VoIP or video calls with guarantees of no network interference.

Net neutrality is a noble idea and there should be a level playing field. We shouldn’t disadvantage smaller participants in the market or allow large entities to dominate.

But why shouldn’t I be able to set up a business as a premium grade ISP where customers can get certain guarantees for certain types of traffic?

Economics is the one tool humanity has worked out for resource sharing – taking away that tool is not necessarily the right way to go.

Perhaps we should allow the market to decide.

What do you think?

This article first appeared on Computerworld New Zealand