Last week, we discussed a US court ruling that may affect our costs in using the internet and concluded that it is actually the power play between content providers (Netflix, Youtube, etc) and retail service providers (RSPs) like Verizon that will lead to an increase in costs.

What moderates these RSP behaviours is not net neutrality regulations. It is even-handed competition.
The Court ruled in favour of Verizon, the world’s second largest telecommunications company, and against the Federal Communications Commission (FCC).  The effect was to take away net neutrality protections opening the door to Retail Service Providers (RSPs) deciding what data can and cannot be sent over their networks, and who can and cannot send it.

net-neutrality2There will be a reason that Verizon took the FCC to Court.  Verizon says that “The court’s decision will allow more room for innovation,” and “Consumers will have more choices to determine for themselves how they access and experience the internet.”

Of course, greater consumer choice is a good thing, but it tends to be more available to those who can afford to pay the costs of making choice available.

For example, the burgeoning demand for streaming video is leading to the need for increased bandwidth (Mega Bytes) and faster speeds (Mega bits per second).

RSPs will have two choices to handle this demand.

First is to invest capital to upgrade their networks and to charge customers and/or content providers more to deliver the video.

The second choice is to not invest and then either refuse to accept video or limit the speed that it is delivered at so that other services delivered over the same network, are not compromised.

The first choice, investing in their network, is dependent on the return on investment that can be achieved in a competitive environment.  The second choice contravenes net neutrality principles.

One point to take from this is that conforming to net neutrality rules, may require RSPs to make investments in their network with consequence that cash rich RSPs will gain a competitive advantage over cash poor telcos.

This is likely to reduce competition and innovation.  Which would be a reason for Verizon taking the court action.

The sincerity of Verizon’s stance needs to be considered against the recent history of our own telecommunications industry.  It was only six years ago that the market dominance of Telecom NZ was removed when regulators required it to operationally separate.   That dominance was blamed for a lack of innovation and investment in our telecommunications services.

What moderates these RSP behaviours is not net neutrality regulations.  It is even-handed competition.

Which is working well in urban areas.  There we have price-differentiated services based on copper and fibre technologies.  Want to download more videos?  Just pay a little extra and move up to the next data plan.

People in rural areas are not so lucky.  For us, the market has failed to deliver the competition benefits that our urban cousins enjoy.  We pay at least twice the price for half the speed.  Low data caps and high overage means that we cannot indulge in a lot of video streaming and High Definition video is not really practical.

So do we need regulations such as the FCC’s Open internet Orders in New Zealand?

I would argue yes and no.

No for markets where competition is strong.

Yes for markets where competition has failed to deliver equitable services.

This series on net neutrality will conclude next week.