Net neutrality is the principle that Internet service providers and governments should treat all data on the Internet equally, not discriminating or charging differentially by user, content, site, platform, application, type of attached equipment, and modes of communication (source: Wikipedia).
Net neutrality proponents claim that telecom carriers seek to impose a tiered service model in order to control the data pipeline and thereby remove competition, create artificial scarcity, and oblige subscribers to buy their otherwise uncompetitive services (source: Wikipedia). Net neutrality opponents (the aforementioned telecom carriers) claim that the revenue earned from operating pure data pipelines (also known as bit pipes) is not sufficient to cover the investment required to build, maintain and expand their infrastructure.
Net neutrality reappeared in the news recently, when the United States Court of Appeals for the District of Columbia struck down the Federal Communications Commission’s 2010 order that imposed network neutrality regulations on wireline broadband services. The decision has been dubbed a nightmare scenario for several reasons, including that “carriers could charge different amounts for access to different tiers of the internet. The basic tier might include email and basic browsing; the next could include Facebook and Twitter; the final tier could include Netflix, YouTube, or Spotify. These tiers would be divided not by bandwidth or speed requirements, but by content type. The internet would become a club with various VIP sections, arbitrarily laid out to benefit internet providers’.
While figurative and vivid, extreme predictions and nightmare scenarios usually create an emotionally charged context that blurs the vision and hinders opinion forming. We will therefore focus on this article to explain net neutrality in simple terms using a real-world example that everyone can relate to: the mail parcel delivery service.
Delivering a parcel (with content) has, in a way, a lot to do with the way the Internet works and telecom carriers approach net neutrality. The metaphor provides the means to re-frame the discussion towards a less emotionally charged context and allows to objectively present the argumentation of net neutrality proponents and opponents. The following table contrasts and compares Internet access and mail parcel delivery services and provides notes on how those relate to net neutrality and telecom carriers.
Based on the above, it seems the key issue lies in the disagreement of net neutrality opponents and proponents on who deserves to charge for content delivery. The answer to the question could define the future value chain positioning of the whole carrier industry segment. It is therefore no surprise that the approach to portray carriers as bit pipes has resulted in the strongest push back from the whole carrier industry and the recent court decision.
Even with net neutrality off the table (for now), carriers have a lot of work to do to secure the positioning in the value chain. For the sake of argument let’s run through the-day-after scenario:
Let’s assume that a carrier decides to charge differently based on the content delivered over its network. It is unlikely that this carrier would do so by dividing the Internet in tiers and charging users differently based on the content they access. The reason is that in the current competitive environment, the first carrier to do so would see its users migrating in masses to its competition. Content providers like Netflix have already stated that they would actively motivate users to defend the open internet in case a carrier would go down this route. Thanks to regulations against cartel-building, it is also unlikely that carriers could orchestrate such an action.
What is more likely to happen is that a carrier will start advertising differentiated business models. For example, while everyone will still be able to access Youtube, if YouTube wants its users to watch higher quality or longer videos, YouTube will most likely consider paying the carrier for delivering those videos without eating on the users data package. AT&T has recently created such a sponsored data offering.
Contrary to what is claimed, sponsored data offerings are neither anti-competitive, nor do they stifle innovation for those who cannot afford to pay. If that would be the case, then the whole advertising industry neutrality would need to be revisited as well, as those who can pay, get a disproportionate amount of eye balls, click-through visits etc. If advertising does not stifle innovation, neither do sponsored data offerings.