Net neutrality seems to have lost its momentum. Little by little (as evidenced by the latest federal court ruling), the reality of an unfiltered internet seems more and more remote. Once thought of as a sacrosanct protection from traffic prioritization by internet providers, the practicality of a usage based pricing model seems no longer out of the question. On the one hand, we shouldn't give infrastructure incumbents free reign to charge whatever they want for internet traffic, but we can't also expect the Napsters of the world to get a free pass given the network buildout costs. Despite the pendulum shift, it's still a controversial and important issue; after 20 years of debate, where should society end up on net neutrality?
In the early days of broadband, pro-net neutrality was an easy position to have (see my perspective from four years ago). During those times, options such as DSL relied heavily on existing copper wire infrastructure to provide internet access. These legacy networks were owned by a single entity in each market (the Ma bell spinouts) and precisely because the government mandated that incumbents grant access to competitors is why early adoption flourished. A bustling industry of CLECs, ISPs and others that leased lines brought innovation to century old networks. As a result, email, AOL, and the web was brought to the masses. Internet based startups such as Google (NASDAQ:GOOG) came to prominence. But more importantly, it permanently changed the way we live.
The world has significantly changed since the dial up days. The copper infrastructure was insufficient. Despite billions of investment into equipment and fiber cables to build the next generation of networks, supply cannot keep up with consumer demand. Distributed content is the new normal as a streamed Netflix (NASDAQ:NFLX) video is as common as checking email. The strains on internet networks are real. Why shouldn't infrastructure companies like AT&T (NYSE:T) and Comcast (NASDAQ:CMCSA) be able to charge more for increased usage? It also seems to make sense for bandwidth-intensive content companies that demand more of them to bear some of the burden.
Further, our current fixed price arrangement in which all consumers pay the same inherently charges everyone equally rather than specifically to those that use more bandwidth. And perhaps by allowing content providers to subsidize some of the network costs (like in television), consumers might even see better rates. If providers were able to better match revenue to actual costs, we may benefit from a more efficient pricing scheme.
The problem is that the internet toll takers are the same companies that are the gatekeepers to the internet. And much like the older days, there isn't much competition at a local level. A typical consumer may still only have one or two choices of providers at their home or business. Not only that, the bad actors that we knew from the monopoly days are the same ones that are making the investments and gating the entrance onto the superhighway.
Should we trust AT&T and Comcast to do the right thing? Given history, it's a hard pill to swallow. And on the other side, content providers are starting to get bigger as well. As evidenced this week by Netflix's access deal with Comcast, well capitalized content companies can afford to "pay to play". Google, Facebook (NASDAQ:FB), and the like, despite their net neutrality advocacy (which seems to have subsided throughout the years), can afford to make sure their needs are met. But what about the next round of startups, how will they fare? Who will make sure those without deep pockets have fair access to consumers?
Are there lessons to be learned from the AOL days? Perhaps a middle ground solution could force the current infrastructure players to lease access to their networks much like the ILECs did. What if the likes of AT&T and Comcast could begin to charge content providers but in return were mandated to lease a portion of their networks to competitive access providers? New competition could bring new models and innovation much like the CLECs of the past. Perhaps AT&T could realize a utility type return on this leasing arrangement while at the same time promoting choice. This is probably an oversimplification of the issue, but this type of solution would not only keep the network companies' power at bay, but also help them monetize their networks better.
As an early net neutrality supporter, it would be hard for me to say that the incumbent telco and cable providers should have an unencumbered right to filter traffic, charge discriminately, and leverage their unique market position. We've seen that movie before. On the other hand, free market and changing times should also be factored into the equation. As we lean on the private sector to lay down the cash to buildout networks, we can't expect them to work solely on altruistic motives. It also still remains to be seen how new technologies and innovations can change the paradigm; Google is building fiber networks, mobile infrastructure is becoming more prevalent, and even satellite talk is back. Consumers deserve unfettered access to any content they want. But as I have wrote throughout the years, the days of free are over. We all have to bite the bullet at some point.
Disclosure: No positions