Cutting to the Chase of Net Neutrality - How Much Will It Cost?

Net neutrality debates are raging again. With a new tactical approach that would regulate broadband as though a traditional phone service, the FCC has reignited the fire that had gone out when Comcast (CMCSA) was awarded a court victory against the FCC last month. For all the legal maneuvering and regulatory loopholes, however, there is a more profound reality underneath the surface, that none of the oratory and passionate postulating seems to address. The battle, namely, is not over “freedom,” “openness,” and, least of all, “neutrality,” but over ways in which diminishing returns are to be split. The battle, in short, is over picking up the tab.

On one side, the infrastructure owner is being squeezed by competition to keep pricing low, while throughput in the broadband pipe is pushing at its walls and begging for more capacity. To add capacity and maintain service standards is not inexpensive, and so this gentleman is guarding his wallet closely. On the other side, Internet content that is offered free of charge (or at comparatively low prices) and that does not generate enough advertising revenue to augment profitability, has to protect a business model predicated on a low-cost operation. Paying for access to the broadband pipe, and thus subsidizing the capital expenditure of infrastructure, could damage current or prospective cash flows. This fellow has a small wallet, if any, and is excusing himself to find the restroom before the bill has arrived.

Which leaves the third party at the table, the quiet one, and that would be us: the end users. For us, neither infrastructure nor content is worth anything on its own, and it is we who must necessarily have both (or otherwise, really, neither). We have a vested interest in the peaceful resolution of the described dynamic. And so, inevitably, we will find ourselves reaching for our wallet – no, it’s ok, I’ll get this, awkwardly – and we can see where this neutrality thing is going. So… how much is this open web thing going to cost?

What the net neutrality debate could use, in the end, is not so much oration, a little less eloquence, less emphasis on theory of entitlements and injustice of monopolies, not so much back and forth about more or less regulation, and certainly much less legalese that some of the surveyed pretend to understand. Instead, let’s try to figure out the only thing that will in the end matter, and let’s begin immediately to conduct a mathematical analysis of the subject, preferably on a per capita basis.

Once the cost is better understood, perhaps it will be more meaningful to orate. Once the project is priced out, perhaps the legalese will seem less convoluted. After we understand the economic impact of “neutrality,” maybe we can begin to make progress at last, and focus our attention next on education, Europe, and the rest of our consumer’s to-do list.

Disclosure: No positions.