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Can Net Neutrality Bring About Competition and Differentiation?

March 3, 2014 by Esmeralda Swartz, CMO

competition-blog

In the ongoing debate over net neutrality, brought to the forefront this past week by the Netflix, Comcast, Verizon deal, there is now increasing dialogue about what could happen if some form of real blocking and favoring starts to happen. For some this is the nightmare scenario: only popular and profitable services get capacity, because they can afford to pay. Rates go up significantly and niche applications are blocked or relegated to the slow lane. When you sign on with an internet service provider (ISP), you will then get access to only the restricted portfolio of services offered by the ISP. It will be just like signing on to a cable company and getting just the programming the cable company has chosen. What else should we expect? This is taming the wild west of the Internet and making it just the same as traditional cable TV. But, we have a right to ask, if service providers can adjust charging for the optimization of the increasingly scarce resource of bandwidth, what incentive is there for them to build more capacity?  Why not just keep the network the way it is, and command higher and higher prices for the privilege of using it? Actually, the way things are today, with most households and businesses having no choice of supplier (or a choice of two, each with the same philosophy) the ISPs can do what they like, as long as they maintain transparency.

So it seems we can expect to see ISPs each issuing their list of Internet “channels” – it will ultimately become simpler to provide a list of what we can access, rather than a list of what is blocked or slowed down. You can choose one ISP or the other, but don’t expect to get everything you want from either, or even both. That’s why net neutrality activists are a bit depressed. However, I can offer some hope.

The end of net neutrality can be a step forward for competition in the world of Internet access, as it will offer further differentiation opportunities. Differentiation opportunities are good for competition. If the only difference between services is price, then it’s tough for new entrants to make a business case for entering the market. However, if every access provider offers a different suite of preferred edge providers, this expands the opportunities for differentiation and hence for competition.

Who will step in and introduce the kind of heavyweight competition needed to prevent the nightmare scenario becoming reality? This is a network infrastructure business, and traditionally the cost of entry has been prohibitively high. That’s why we tended to think of telecom carriers and cable companies as “natural monopolies” and chose to live with it, mitigated by a modicum of regulation. But, once again, it’s worth pointing out that the world is not the same as it was twenty years ago when the net neutrality debate took off and legal wrangling began. The cost of bandwidth has plummeted, broadband wireless access technologies are much more capable and cost-effective, and there are many large corporations (Apple, Facebook and Google come to mind) around that are just as rich as the carriers. Also, there are investors out there, interested in anything disruptive and game-changing.

This net neutrality decision will almost certainly change the competitive landscape in ways that would have likely not happened under the old regime. For more blogs on this topic, follow us on Twitter to stay in the loop.

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