‘Net neutrality’ continues to be a headline-grabbing topic in the political and public sphere. Coined by a Columbia University professor in 2003,[1] at its most basic level it describes the principle that all traffic on the internet should be treated equally, and that there should be no ‘gatekeepers’ or ‘toll roads’.

This can be an emotive topic for some who believe that a ’free internet’ is as sacrosanct as, or even a part of, the right to freedom of speech. The scare story, which consumer groups and many U.S. Democrats promote, is that the big bad cable and telecommunications (telco) companies will violate this principle and do things like:

  • Control what users can and cannot view online, potentially blocking access to some content, e.g. competitor services or opposing political views.
  • Create paid-for fast lanes for large internet companies such as Netflix, leaving everything else in a slow lane, consequently strangling innovation and competition from start-ups. The charges for fast lanes will likely be passed on by the internet companies to consumers.

In 2014, President Obama made a direct intervention to the supposedly independent regulator, the Federal Communications Commission (FCC), effectively forcing the then Chairman Tom Wheeler to perform a U-turn and reclassify internet providers as ‘common carriers’ in order to promote an “open and free” internet.[2] This meant that they came under ‘Title ll’ legislation, which is an 80-year-old communications statute that was designed to set the rates for telephone companies back in the 1930s. The main objection which the large cable and telco companies have with this is that it creates the risk of future broadband price controls by the FCC. That in turn, they believe, reduces visibility and supposedly curtails network investment.

Furthermore, many telcos feel that it is unfair that internet companies such as Netflix can dump huge amounts of data onto their networks at locations of their choosing. This can have a direct impact on network quality, and necessitates capital investment. So while the telecommunications industry may have no intention to block, censor or use discriminatory throttling, they make the case that they should be allowed to charge companies like Netflix a “fair price” for the extra demands placed on their network.

To some extent, we think this is about who funds network investment. Currently it is funded fully by end users via their broadband subscriptions, whereas many telco and cable companies believe that internet companies should pay at least part of the bill and have some cost attached to the data they transmit.    

The new administration in the U.S. is bringing about changes in this area. President Trump appointed Ajit Pai as Chairman of the FCC at the start of 2017. Mr. Pai is an open advocate of lighter regulation and is in the process of repealing the Title ll regulation for internet providers. This has faced a public backlash, which many technology companies have jumped on the back of, repeating the same old scare stories about the already disliked big cable companies getting control over what people see and do online.

Behind closed doors, we expect some large internet companies would probably admit that the ability to pay internet providers for preferential network access would be an attractive proposition. For what would probably be a relatively immaterial amount, it would potentially improve the experience for some of their users while creating a barrier to entry for smaller challengers.

While this makes for dramatic headlines and has been a political football for over a decade, we do not expect any dramatic changes to existing profit pools for either internet providers or the large internet/technology companies. It is worth watching closely though.

 

[1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=388863

[2] https://obamawhitehouse.archives.gov/node/323681

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