Features and Analysis

Net neutrality: The perspective of telcos and cable companies

Net neutrality is a hotly debated topic in the communications industry. Simply put, the principle upholds neutrality for all types of data on the network. Internet service providers (ISPs) should provide access to all content and applications regardless of the source, and without favoring or blocking specific products or websites, voice or video.

There is a global campaign supporting net neutrality. In 2015, the Federal Communications Commission (FCC) promulgated the ‘Open Internet Order’, in which it reclassified broadband services as a telecommunications service, subject to common carrier regulation under Title II of the Communications Act.  ISPs appealed against the ruling but last week a three-judge panel at the US Court of Appeals for the District of Columbia Circuit, rejected the appeal with a 2:1 decision, the challenges to the FCC’s reclassification of broadband.*

In Europe, after 18 months of negotiations, the European Parliament inked the first EU-wide rules on net neutrality on 30 June 2015. In South America, Chile amended its telecommunications law in order to preserve network neutrality in 2010, and Brazil followed suit in 2014. Israel, Japan and Republic of Korea have built provisions into their law, requiring net neutrality. India too saw policy action, where the Telecom Regulatory Authority of India (TRAI) prohibited telecom service providers from levying discriminatory rates for data, thus ruling in favor of net neutrality.

The issue is far from being resolved – ISPs and the lobby groups now have the option of moving for an ‘en banc’ review, in front of all of the court’s judges in the same court, instead of just a three-judge panel. And if they receive a similar verdict, they can appeal to the US Supreme Court too.  While governments, technology companies and Internet activists hold on to their position, the arguments against net neutrality by communication companies have merit. It is evident from the fact that the DC circuit panel arrived at a split decision where Judge Stephen Williams wrote an opinion concurring in part and dissenting in part to the decision wrote by Judges David Tatel and Sri Srinivasan.

Let me present the case of telecom and cable companies across seven dimensions:

  1. Economic argument:

    Supporters of net neutrality compare the Internet to public utilities and especially to carriage roadways, which is in itself faulty. Treating all data on the Internet as equal is akin to charging the same toll charge on all vehicles on the tollway. Telcos, ISPs and cable MSOs (multiple system operators) have sunk billions of dollars into building the infrastructure, and current net neutrality clauses deny them the opportunity to recoup their investments. Marc Andreessen, technology visionary, investor and web browser pioneer, articulated the situation well in his interview in the Washington Post,

    “If you’re a large telco right now, you spend on the order of $20 billion a year on capex. You need to know how you’re going to get a return on that investment. If you have these pure net neutrality rules where you can never charge a company like Netflix anything, you’re not ever going to get a return on continued network investment – which means you’ll stop investing in the network. And I would not want to be sitting here 10 or 20 years from now with the same broadband speeds we’re getting today.”

    The current construct of net neutrality is beneficial to users in the short-term, but in the long-term, it will result in little or no investment in the underlying infrastructure.

  1. Innovation argument:

    The skewed economics will result in a massively reduced competitive market. While the current net neutrality rules encourage innovations on the ‘edge’ of the network, telcos and ISPs will have no incentive to make the initial investments needed to develop advanced networks. The regulatory action on net neutrality will prohibit a company from trying out different business models, such as creating a fast-lane for high-bandwidth services or offering a select number of services for free.

  1. Efficiency and effectiveness argument:

    The core argument in favor of net neutrality is that “all bits are created equal”, while in reality it is not so. For example streaming videos or streaming video calls need higher speeds, while access to applications like email or Twitter can happen even at slower speeds. To deal with this reality, the network has to be flexible and we need to grant network managers the flexibility to deal with congestion, latency, malware and other unforeseen problems. Managing congestion on networks will make the Internet better for everyone, while net neutrality stands in its way.

  1. Legal argument:

    The main legal objections to the FCC’s reclassification is that the FCC lacks statutory authority to reclassify broadband as a telecommunications service. Some ISPs like San Antonio (Tx) based Alamo Broadband extend the argument, stating that it should be allowed to favor some Internet content over others, because doing so qualifies for freedom of speech protection, guaranteed under first amendment.

    Another legal objection is on the public carrier analogy used to describe the business of ISPs. ‘Public utility rules’ is not an apt regulatory framework to govern industries characterized by constant technological innovation. Until the recent reclassification through the Open Internet Order, the Internet was not classified as telecommunications service, but was classified as an information service, which enjoyed a light-touch regulatory approach, which resulted in rapid proliferation of technologies and investments.

  1. Regulatory capture argument:

    A core tenet of ‘Internet freedom’ is that the Internet should be free from government intervention. A bigger threat to Internet freedom arises from giving the government the power or, more accurately, the government appropriating the power.In many cases, it results in ’regulatory capture,’ where regulations are used to benefit preferred incumbents – a familiar problem of fettered markets.

  1. Internet’s fundamental inequality argument:

    It is a myth and a socialistic utopia that the Internet is a great equalizer. Cash-rich companies have an inherent advantage over smaller companies, as they can achieve higher performance advantage by investing in server-side computing. Richard Bennet, who co-invented Ethernet over Twisted Pair, the Wi-Fi MAC protocol, calls the bluff of the idea of ‘inherent equality’ in the following words,

    “Initially, network neutrality was the demand that network carriers ignore the Internet’s fundamental inequality. Google had good reason to advocate this, because it is advantaged by a status quo in which money buys privilege. Any move by carriers to selectively boost speeds for fees dulls the advantage Google has secured for itself by building huge complexes of hundreds of thousands of computers.”

  1. Governance:

    in an interview with CNBC, Max Levchin, co-founder of PayPal quipped, “The Internet is not broken, and it got here without government regulation and probably in part because of lack of government regulation”. The final argument of those who oppose Net Neutrality is that government is ill-equipped and is incapable of developing relevant laws to govern the always-evolving technological environment of the Internet and instead it should be left to the market to govern this evolution.

Good intentions

Cistercian abbot Saint Bernard of Clairvaux, who lived in 11th century made the famous statement – “L’enfer est plein de bonnes volontés ou désirs”, which translates as “hell is full of good intentions and wishes”. American post-hardcore band from San Diego, In Fear and Faith, made it popular when they sang “The road to hell is paved with good intentions”.

Playing the devil’s advocate, net neutrality, as a concept, suffers from the same syndrome. It is laden with good intentions but can result the exact opposite effect, unless the above raised arguments are addressed.

The arguments raised by ISPs question the efficacy of net neutrality to bring about its desired results – namely to develop the Internet as an environment free of control; an environment that stimulates ISP competition, promotes innovation, prevents unfair pricing practices, promotes the spread of ideas and protects freedom of speech.



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