The hope is that competition will work where regulation has not, but the fear is that there just isn't enough competition.
Thanks to the recent ruling by the United States Court of Appeals, the net neutrality debate is back on the front burner. While many portray the debate as a clash of high-minded principles, it is actually based on emotion, and more specifically, the fear of change.
The Appeals Court decision essentially tears down the Open Internet Order's rules that prohibit Internet service providers (ISPs) from site blocking and from providing preferential service. It does not overrule the transparency requirement, which says that ISPs must disclose their traffic management policies. ISPs are now allowed to block sites and give preferential service to some edge providers, but they must tell us all what they're doing.
But, business users and consumers alike have a common interest in being able to offer and consume content in a fair manner. The difference now is that competition, not regulation, is the primary mechanism through which that might be achieved. The hope is that competition will work where regulation has bailed out, but the fear is that the level of competition needed seems not to be there yet. Meanwhile, edge providers and consumers of content have to live with limited options.
Networks have finite capacity and are expensive to expand. How can a network provider justify such an expense, and what is the return on investment? Network providers have relied on tried-and-true models to keep things simple. They counted on a large number of low-utilization customers, investing slowly in capacity and maintaining flat, simple fees.
However, the bit-torrent users blew a hole in that approach many years ago. Fast-forward to today, and video streaming is a mass-market service (and also a capacity hog). With the majority of users now high-capacity users, the existing business model is going to fall on its head. Networks will need to be redesigned and upgraded. Where will the money come from?
In the network neutrality model, providers could simply increase broadband access fees across the board to cover the costs and keep healthy margins. However, providers are already at the price range where consumers start to ask, "What am I getting for this?" That question can only lead to people segmenting themselves into the "normal" group and the "expensive" group. In mobile, providers had to set data caps and charge heavy users more. People didn't like that the free lunch was over, but they understood it was fair.
By charging for the data itself instead of the connection, no one cares what service or technology is producing the packets. The network treats them all the same and costs and revenues are locked together, which is good. The downside is that providers could become commodity packet shippers and it's hard to differentiate within that model. If that happens, competition would be fierce, margins would be tight and shareholders would hate it. Providers would go back to being utilities, and they don't want that.
If providers can optimize charging for the sharing of increasingly scarce bandwidth, why build more capacity when you can just charge more for the right to the capacity that's already there? It is the nightmare scenario: only the most universally popular services will get capacity, customer rates will go up significantly, and niche applications will be rendered unusable in the slow lane.
Imagine you have two options: pay the provider an extra $20 per month for guaranteed levels of service on Hulu+ and Netflix, or instead take
Esmeralda Swartz is Chief Marketing Officer of MetraTech, a billing and settlement software provider. She has spent 15 years as a marketing, product management, and business development technology executive bringing disruptive technologies and ... View Full Bio
The Business of Going DigitalDigital business isn't about changing code; it's about changing what legacy sales, distribution, customer service, and product groups do in the new digital age. It's about bringing big data analytics, mobile, social, marketing automation, cloud computing, and the app economy together to launch new products and services. We're seeing new titles in this digital revolution, new responsibilities, new business models, and major shifts in technology spending.
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