Net Neutrality: To Be, or Not to Be?

I grew up in Latin America, so I think I know what bad regulations can do to technology investments, innovation, consumer interests and progress in general. It scares me to see that the issue of net neutrality may end up being regulated in the wrong way. Those who defend net neutrality, maintain that "the Internet fosters innovation and investment in new business opportunities because it's an open platform, and the network operators who build on-ramps to the Internet thrive when they maximize the returns on their invested capital" ("Why Network Neutrality Is Good for Business," Kevin Werbach, August 18, 2010, Harvard Business Review). "We regulate the financial system, health care, electricity and every other essential infrastructure for a modern economy… The success of those regimes is a big reason for America's global economic strength," says Werbach. So why not regulate the Internet as well? Apparently, if we 'kill' net neutrality, content companies would suffer, as the Internet won't be open anymore. "In other words, on mobile phones or on special access lanes, carriers like Verizon and AT&T could charge content companies a toll for faster access to customers or, some analysts worry, block certain services from reaching customers altogether… Content companies, the theory goes, would have to pay for favored access to a carrier's customers, so some Web sites or video services could load faster than others," ("Web Plan Is Dividing Companies," Claire Cain Miller and Brian Stelter, August 11, 2010, The New York Times). Net neutrality is supposed to be good for consumers too. It prevents discrimination between subscribers that can afford to pay against those who can't pay for a premium service. Also, apparently, freedom of information would be at risk. Some people have this notion that if you are in favor of something that big corporations defend, then you are not defending consumer rights. Is this the case with net neutrality? Believe me, I grew up during a military dictatorship, and I'm a former journalist, so I value and defend freedom of information more than anyone else, because I know what it's like not to have it. So let me tell you why I think we should be careful with the issue of net neutrality. "Non-discrimination under the FCC's net neutrality proposal means that ISPs cannot offer enhanced services beyond the plain-vanilla access service to content providers at any price" ("Why Business Should Oppose Net Neutrality," Robert E. Litan and Hal J. Singer, August 13, 2010, Harvard Business Review). Litan and Singer are right on the money when they say that "up until now, the debate over net neutrality has largely focused on how broadband consumers would be affected by net neutrality. But with price regulations, consumers lose." If Communications Service Providers (CSPs) that invest billions of dollars to build their infrastructures are not able to charge an initial premium to early adopters and get a return on their investment, then what's their incentive to invest in next-generation technology in the first place? And look at what happened with the flat monthly unlimited plans initially implemented by Verizon and AT&T. Did it work? No. (See my TM Forum blog: "The War of the Roses 2010: The AT&T-Verizon Saga," published last July.) My argument (just like Litan and Singer also suggest) is that regulation on net neutrality would actually imply price regulation, and price regulation obstructs innovation. In fact, as a particular technology gets adopted, prices will go down anyway, so let it follow its course. Litan and Singer argue that "it is well established that price regulation often truncates the returns on an investment in a regulated industry, and thereby decreases investment." Anything that would imply price regulations means that operators would have to charge everyone for their investment in new technology (not just the few that are willing to pay a premium fee for something new). Some folks that defend net neutrality as free expression and free access to information are forgetting that the Internet may not be so "open" right now. There were 234 million websites as of December 2009 on the Internet (47 million websites were added last year). How much of that data do we get to access? It depends on algorithms and search rules created by the Googles, Yahoos and Microsofts of the world. How much information shows up on our screen because someone actually paid advertisement fees for it? Dan Frommer recently wrote for Business Insider, "If Verizon sells Google priority access to its pipes, my Internet connection is going to be bad. "No, that's not going to happen. ISPs like Comcast and Verizon are in business to sell Internet access to as many people as possible. They would not do anything that would jeopardize their subscriber retention. If even the slightest disruption occurred, the companies would retreat. They are not in business to lose customers." But things can get more expensive if net neutrality is imposed and badly regulated. "If ISPs don't get alternative revenue opportunities, they will have even more incentive to force subscribers over to metered Internet plans, capping monthly bandwidth allotments and charging for overages, like AT&T recently did for its new wireless data subscribers." Let's say for fun that Verizon and Google reach their agreement, and we end up getting differentiated access to the Internet. Then AT&T would do the same and so on… Right now, they are differentiating basically on what smartphone and monthly plans they offer, but nothing else. They still need to lock you for a 2-year contract so that you don't run away from them! With this new business model, they would start to differentiate and compete based on more variables, making competition a lot more sophisticated. With deregulation and more competition, prices have been going down in the communications industry, so why will things be different now? Another viewpoint that I've seen going around is that companies like Google and Apple can afford priority fees for bandwidth access, but it would disrupt innovation, as smaller content developers will be at a disadvantage. How would start-up companies compete with the big fish? What will happen with innovation? Frommer states that "bandwidth and infrastructure costs for startups have been getting cheaper… And the ones who do will figure it into their costs of doing business, the same way they do with rent, staff, health insurance, etc. If startups need to raise more money from venture capitalists, then they need to raise more money from venture capitalists. Or they can be creative and evolve and figure out other advantages." Let's be clear. It's not that companies like Verizon or Google are the bad guys for trying to establish some sort of tiered access to the Internet, and those that defend net neutrality are the good guys that defend freedom of information and consumer rights. They defend net neutrality, because they built their businesses on an "open access to Internet model." So both sides are defending their own business interests. Nothing wrong with that, but let's set the record straight, it goes both ways. Everyone in the Internet business is there to make money. So the question is whether or not net neutrality will make more business sense in the long run. Deregulation is what has transformed the communications industry for the past decade, enabled mobile access for over 5 billion subscribers worldwide and affected the lives of millions of poor people worldwide, including Africa. There's even a proven correlation between economic development and mobile growth (see my previous columns on the TM Forum leadership blog for more information on this subject). So the question actually is what model will ultimately encourage more innovation, benefit a lot more consumers and create more winners than losers? I've pretty much made up my mind. What about you? (Source: Monica Zlotogorski, Vice Chair, TM Forum's Latin American Advisory Board, and Editor, Inside Latin America)