No. 221

THE NET NEUTRALITY FIGHT: OLD TECH IN THE UNITED STATES BUT WIRELESS IS THE WORRY HERE

 

In the United States the Federal Communications Commission is under pressure to intervene in the market to create a level playing field so giant Internet Service Providers (ISPs) cannot charge giant media companies more for distribution.

The problem for the FCC looks like it comes from the creative competition that is capitalism. In essence, Internet service providers want to charge the heaviest traffic generators, notably Netflix, for the vast amounts of bandwidth it uses, sending movies to people. In 2010, real-time streaming of entertainment in prime time accounted for 42.7 per cent of downloads. In September last year, it was 67 per cent.[i]

ISPs like Comcast argue that companies like Netflix are free-riding the Internet and should pay to distribute their product. Fair enough, except in return Comcast will provide Netflix users with faster speeds than people accessing other sites.[ii]

It sounds like the market at work – except for the way it violates the principle that all Internet traffic is equal. This upsets enormous numbers of Americans. Of some 800,000 comments sent to the FCC, 99 per cent advocate regulation to ensure all content providers send at the same speed to fixed line accounts (wireless is not regulated under the same rules).[iii] The White House agrees[iv]

However, a minority (and not just on ISP payrolls) suggest the FCC should let the market sort it out, that in the end consumers always benefit from competition. They have a point. Yes Netflix will surely pass on any increased cost it pays to customers – but this will only work until competitors in the online distribution industry, or some as yet unimagined competitor, take it on. And if you suggest that this will not happen, that Netflix and Comcast will sort things out to suit themselves – ask somebody at your local Blockbuster franchise what they think.

But net neutrality is just a proxy for the real issue – crook Internet service. Comcast has taken a hammering over the speeds it sells.[v] And for the money makes. Comcast’s second quarter profit was $1.99 billion, (76c a share), up $260m or 65 cents a share for Q2 2013.[vi] As The Economist explains:

More than three-quarters of households have no choice but to use their local cable monopoly for Internet access. They also pay more for it than people in other rich countries, and get slower speeds in return. … On the content side, Americans are faced with quasi-monopolistic pricing power. If you want to watch a box-office hit on demand, your choice is essentially your ISP’s own content service, Amazon or Netflix.[vii]

We do not face the net neutrality problem – for now. Australians  pay by volume and generally have a choice of IP.[viii] But every now and again ISPs come at a Comcast, proposing different download speeds for types/suppliers of content. [ix]

And there are always warnings that companies here will price gouge if they can. “If the US moves further away from the concept of net neutrality, and the perpetrators get away with it, then you can expect to see roadblocks start to appear on Australian Internet services. They’ll be subtle at first, but if they’re met with little resistance they’ll grow – especially as bandwidth-hungry streaming video services take off.”[x]

For sure companies will try it on but the Crows can’t see them getting away with it – especially if the NBN is ever built and is provided as a cyber common carrier which companies use to sell us competing products and access.

Australians are not only early adopters, they will not stand for poor service and bad deals.

Telstra has 16 million mobile customers, twice its two biggest competitors combined, due its better quality network.[xi] And the way Foxtel sold Game of Thrones does not justify, but certainly explains, the way we led the world in downloading it without paying.[xii]

The challenge here will be to ensure the principle of net neutrality applies to wireless devices as much as fixed line internet. The US debate will ultimately occur here, just in a different form, as technology and consumption change – the market is like that.

 


Stephen4@hotkey.net.au

For speeches and strategies, faster, cheaper, better than your agency provides call me on 0417 469 093


 

ENDNOTES

 

[i] US Federal Communications Commission, “Fact Sheet: Internet growth and investment,” February 19 @ http://goo.gl/ZQg0Bw recovered on September 6

[ii] Edward Wyatt and Noam Cohen, “Comcast and Netflix reach deal on service,” New York Times, February 23

[iii] Brian Fung,”Sunlight:99 percent of net neutrality comments wanted stronger FCC rules,” Washington Post, September 2

[iv] Editorial Board, “President Obama: no internet fast lanes,” New York Times, August 13

[v] John Aziz, “Why is American internet so slow?” The Week, March 5 @ recovered on September 6 @ http://goo.gl/D56fEF recovered on September 6

[vi] Shalini Ramachandran and Anna Prior, “Comcast pares its video-subscriber losses,” Wall Street Journal July 22

[vii] Schumpeter, “Wheeler dealing: The FCC’s net neutrality plan,” The Economist, May 15

[viii] Ian Ranson and Renae Latty, “US net neutrality overturned: the recent Court of Appeals decision and what it means for Australia,” IP Whiteboard January 23 @ http://goo.gl/UQN4bM recovered on September 6

[ix] James Hutchinson, “ACCC takes aim at internet slowdowns,” Australian Financial Review, February 13

[x] Adam Turner, “Net neutrality – a debate we can’t afford to ignore,” Sydney Morning Herald, February 26 @ http://goo.gl/pHzkeq recovered on September 6

[xi] Max Mason and Sally Rose, “Telstra boosts market share to 16 million customers,” Sydney Morning Herald, August 14

[xii] Adam Harvey, “Game of Thrones piracy war,” ABC News June 18 @ http://goo.gl/y06qJI recovered on September 6

'2012