The future of net neutrality

The debate over net neutrality predominantly has centred on the idea that all data delivered over the Internet should be treated equally, irrespective of their nature (eg email or video) or origin (Netflix or a small start-up). The media revolution, however, has created a reality in which YouTube and Netflix account for half of all Internet traffic in the US during peak hours of 6-10 pm, with YouTube representing 20-30% of peak traffic for at least one European service provider.

Cable and telecom firms therefore argue that some data packets should count as first among equals and that “fast lanes”—and differentiated pricing—should be set up to accommodate high-traffic services.

“It sounds reasonable on the surface, but it’s yet another step in creating monolithic oligopolies that hinder innovation and competition, whether those oligopolies be ISPs [Internet service providers] or the Internet behemoths,” says Seth Shapiro, business innovation consultant and professor at the University of Southern California. He and other net-neutrality proponents argue that giving preferred status or priority to those who wield the clout and/or money to enter fast lanes could deter the next potential Facebooks et al from entering the fore.

Google, a start-up-turned-giant thanks to the Internet, has largely sat out the net-neutrality debate. Yet it and other Internet behemoths have taken steps to solidify their positions at the head of the traffic lines. In the US, for example, Google, Facebook and Netflix already have created dedicated content delivery network (CDN) servers to run inside ISPs, effectively bypassing at least part of the front end of the traffic system. Apple so far has remained mum about whether it is, indeed, building CDNs, although rumours were heard last May that the company was negotiating paid interconnection deals with ISPs in the US.

“Fast lane is how the Internet is built today,” DeepField Networks CEO Craig Labovitz recently confirmed to Wired magazine. And not just in the US: Deutsche Telekom, which provides both mobile and fixed broadband services, announced in 2013 that, starting in 2016, it would include an upper limit of high-speed data transfer per month for new German landline contracts. (Currently, in much of the world, fixed broadband access—as opposed to mobile—is unlimited.) After an ensuing lawsuit, Telekom revised the plan to include (more expensive) flat rates or fixed data volumes.

An important point here, says Antonios Drossos, managing partner at Helsinki-based telecom consultancy Rewheel, is that the customer doesn’t encroach the data-usage ceiling if using Deutsche Telekom’s own Internet services or those of its partners, such as Spotify.

Referred to as ‘”zero-rating”, this method of not counting in-house or partner traffic against bandwidth caps is becoming common practice in the US and European mobile industries. “The intention is to own the customer experience by creating de facto fast lanes for which they don’t pay extra, an irresistible premise,” says Mr Drossos, calling zero-rating “blunt anti-competitive price discrimination designed to … [place] competing apps at a disadvantage”.

Mobile Internet consumers already are feeling the effects of the weakening of net neutrality, with zero-rating, vertical integration of product offerings and the consolidation of the telco industry contributing to wide discrepancies in pricing across the globe. According to Rewheel’s Digital Fuel Monitor report, for example, smartphone users in the US and Germany—where telco competition is protected—tend to pay 25 times more than users in Finland. There are also wide regional differences, with mobile Internet consumers in Europe paying anywhere from 0.1 euros to 10 euros per gigabyte.

This doesn’t just affect consumers but content and service producers as well, says Mr Shapiro.

“If you allow the price of a megabit to be whatever AT&T or a European telco decides it wants it to be, you’re going to kill innovation culture in that sector because the consumer, if given a choice to pay to use zero-rated Facebook or the new thing, is going to choose Facebook.”

Perhaps more concerning than the question of net neutrality is the current trend of consolidation and lack of competition in the Internet service provider industry.

On the mobile side, which relies on the public spectrum, licences go to those who can afford them; the latest Federal Communications Commission auction collected a record $34m in bids by major carriers. As for fibre, “it doesn’t take too much digging to see that if competition drives down prices and improves quality, then there are some major barriers to competition when it comes to starting an ISP, the largest being access to lay cable”, says Joshua J. Steimle, Hong Kong-based CEO of digital marketing firm MWI.

Mr Steimle, who has called himself “the only techie against net neutrality”, argues that the biggest barrier to competition is regulation.

“Governments regulate who can put cable where, and so large ISPs, who are better at negotiating, tend to get preference and are effectively handed a government-supported monopoly,” he says, adding that “the revolving door between the large telecoms and the FCC [impede] any hope of net neutrality making sense.”

On the other end of the “spectrum”, net-neutrality proponents argue that governments must step in to ensure that ISPs and telcos don’t have a stranglehold over customers who have no other options if throttling or poor connectivity impede their abilities to use the Internet as they intend. “The Internet is a basic utility at this point,” says Mr Shapiro. “It’s not about downloading gifs of some actress; it’s about meeting the digital registration deadline for health insurance or paying the county tax assessor online because they may someday no longer take checks.”

Both proponents and opponents of net neutrality express concerns that a consolidated Internet may evolve into a “top-down” arena wherein fewer, larger companies control what consumers see.

Mr Steimle doesn’t see ISPs “actively throttling bandwidth for Internet publishers they disagree with, [as] it would cause a massive backlash”. But the influence could be more subtle. Mr Drossos, Mr Shapiro and others hold a dystopic view wherein large ISPs could wield a disproportionate amount of influence over who gets access to them and what their customers view and read. Proprietary apps, partner services and other contributors to what The Economist has called “mega-sites” could shape cultural and political information, for example.

This, of course, is the more dystopic view. And it might not occur at all: Services might switch stream altogether and focus on machine-to-machine (M2M) apps for the Industrial Internet and Internet of Things. In an “ubernet”, world, bandwidth providers might exercise most of their differentiated pricing on M2M data flows, which raise perhaps fewer ethical issues.

Still, in today’s world where Internet data flows may become subject to differentiated pricing from ISPs, one can’t help but wonder what might become of innovation. Some—mostly for-profit—entities could be able to strive, provided competition between ISPs is in place. Future nonprofit innovations and services may find this environment a hard one in which to flourish, while existing nonprofits with large volumes of traffic such Wikipedia or Khan Academy may struggle to remain free.

What do you think? Is net neutrality worth fighting for in the changing landscape of the digital economy? And how involved should government regulators become in the issue?

This article is published in collaboration with GE Look Ahead. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Holly Hickman writes for GE Look Ahead

Image: Internet LAN cables are pictured in this photo illustration. REUTERS/Tim Wimborne