Net-Neutrality Not for Everyone

‘Net-Neutrality’ for Everyone?

Last week, Google announced plans to enable app/web publishers to pay for data charges incurred by their products (zero-rating), i.e. the Internet provider is paid by the app publisher not the end-user. Facebook already seems to have such a deal with Reliance in India, where Facebook usage seems to be exempted from data limits on all Reliance data packs.

These initiatives offer a strange contrast to sentiments expressed by both companies in a letter to the US FCC, supporting ‘net-neutrality’. It specifically recommends that the FCC prevent cable and phone companies from making deals with individual companies and prohibit ‘blocking, discrimination and paid prioritization’. So it is interesting to see both firms enabling paid prioritization, a kind of arrangement that they describe as as a ‘grave threat to to the internet’.

US public opinion is heavily in favor of net-neutrality. After all no one likes their ISP and everyone wants to see them regulated. But the argument for net-neutrality gets weaker as we move to the developing world. Paid-prioritization deals between ISPs and publishers might actually be the key to getting the currently millions of unconnected people online. Google and Facebook might have a point in taking contradictory positions on the subject. In some ways net-neutrality might already be an antiquated idea.

‘What is ‘Net Neutrality’?

‘Net neutrality’ might be (simplistically) summarized as the principle that the ISPs have to treat all data on the internet equally.Customers pay ISPs for unrestricted access to all the data on the internet. So ISPs should not be able to make agreements to favour one Internet service or the other.

Under net-neutrality principles, Airtel cannot allow Indian Express to pay to have its webpage load faster than Times of India. Nor can Vodafone charge data fees for videos watched on Hulu while forgoing data charges for Youtube users. Net-neutrality creates a ‘firewall’ between the creators of Internet content and the middlemen the ISPs. This leaves customers as the sole arbiter of which Internet website/service/app they want to access.

ISPs in the US and EU have argued that they should be allowed to make agreements like the ones above, but are on uphill ground as regards public opinion. Internet consumers already dislikes ISPs for frequent outages and 10 Mbps connections that work at 1/10th the promised speed. So it is especially galling to think that the same ISPs can now ‘double-dip’ by charging internet publishers as well. Public opinion seems to have been effective, as the FCC recently proposed regulations in line with recommendations by net-neutrality advocates.

Internet publishers have an interest in prohibiting ISPs from charging fees to access their networks since that would increase the cost of reaching end-users. Moreover there were concerns that the cable/phone companies could launch competing internet products that would have favored network access. An example was Google’s struggles in launching Google Wallet even as the cellphone companies were working on their competing product, Softcard. As a result many Internet companies, most notably Netflix have been leaders in supporting net-neutrality regulation/legislation in the US and EU.

However net-neutrality is not always in the interest of established/deep-pocketed publishers.On the internet, the kid in a garage can (in theory) compete with Google as long as he has a better algorithm, the last true meritocracy. However in a world without net-neutrality Google could pay ISPs to make sure Google pages load quicker through a dedicated line, leaving the garage genius’s algorithmic brilliance defenceless against Google’s cheque-book. Similarly Netflix could (and does) pay ISPs for ‘direct access’ to their servers, a cost a new video service might find difficult to match. Why would any Reliance user now try a new social network like Ello, which they have to incur data charges to use Ello unlike Facebook which is free. Subsidising access costs for users can be a powerful tool for for Internet publishers to preempt competition.

To its proponents, net-neutrality is essential for a free and open internet. In its absence, ISPs might pick the ‘winners’ and ‘losers’ in the Internet business by determining which services user can see, taking the choice away from end-users. Consumer choice might be further curtailed by established firms making arrangements with ISPs to shut out competition. Without ‘net neutrality’ the internet cannot be a level playing field.

What Neutrality without the Net?

However in the developing world, the primary challenge for Internet publishers is the fact that users are not connected to the Internet. Most of Africa seems to have internet penetration rates of less than 10% of the population. For all it’s achievements in technology outsourcing, less than 20% of the Indian population is connected to the Internet.

The unconnected represent a veritable ocean of potential ad-clicks and e-commerce, giving internet companies a powerful incentive to assist in getting the world online. This is especially true of Google and Facebook whose revenues on any given day are essentially a function of how many people are online to see ads. This is to some extent the motivation behind initiatives like Project Loon and internet.org. Amazon, Flipkart, Uber, India Today and really any publisher whose profit per user is higher than the data costs has an incentive to participate in programs like ‘zero-rating’, that subsidize a customer’s internet use. So publishers can be powerful allies in getting the world’s unconnected online.

However individual publishers making deals to pay the internet bill is a breach of the net-neutrality firewall between publishers and ISPs. There is a clear risk of well funded firms creating ‘gated compounds’ for their users, providing them a considerable advantage over new services. And the consumer benefit of publishers providing ‘free data’ is a short-term benefit. Over the long-term, publishers will pass these costs back to consumers, either though more ads or higher usage fees for the internet service

However, it seems pointless to ensure a ‘neutral net’ when the customer cannot get online. So any regulations enforcing net neutrality in the developing world must be balanced against the tradeoff of curtailing the incentives of publishers to provide subsidized internet access to users. An internet restricted to publishers who can subsidize data costs might be better than no internet at all. Are the principles of ‘net-neutrality’ worth restricting the potential for free internet access to millions?

An Antiquated Idea?

The vision of a ‘neutral net’ and competitive playing field among internet publishers regardless of whether they work out of a garage or futuristic space-pod is lovely. It might also be a vision whose time has passed it by.

Large volumes of ink/keystrokes have been spent on detailing the difficulties creating a Facebook alternative because of the ’network-effect’ of ‘everybody’(>1 billion) already being on Facebook. Building a search engine to compete with seems be less about a ‘smarter’ algorithm and more about an index built over a decade and infrastructure costing billions. Netflix already pays ISPs for direct access to their network. Google might not have deals for preferential access with ISPs, but they do have distribution contracts with phone manufacturers (including the iPhone) and software publishers. These are deals out of the reach of garage geniuses. In many areas of the Internet the market has already matured to give established players a significant competitive advantage in resources and relationships. Even the newly proposed FCC regulations are largely silent on the matter of ‘inter-connection’ fees, leaving open the prospect for ISPs to price discriminate by charging for ‘direct access’ to their networks.

So as the zeitgeist and legislation catch up with the idea of net-neutrality, the market already seems to have found a way to leave it behind.

(Image from: https://radiobruxelleslibera.files.wordpress.com/2014/11/net-neutrality-1-620x400.jpg)