Net Neutrality: Whats a Business to Do?

By Carol Mattey

AS BROADBAND PROVIDERS PURSUE

the long and expensive process of upgrading their networks, they face another major challenge: convincing Wall Street that those investments will yield acceptable returns.

In recent months, a number of broadband providers have suggested they might reserve bandwidth for their own content or charge content providers for preferred bandwidth on their networks. Depending on your point of view, that suggestion is either a reasonable business model that will justify investing billions of dollars in network upgrades or the end of the Internet as we know it.

Advocates of net neutrality are quick to point out that the consumer pays to access content over the broadband connection, so broadband providers should not be paid again by content providers. But, given that consumers typically pay less than $40 per month for broadband Internet access, the economics (and incentives) dont exist to deploy broadband ubiquitously in the United States particularly the bandwidth necessary to support more advanced applications unless the network owner expects to sell additional value-added services. Is it really wrong for network owners to create additional revenue streams to defray their enormous infrastructure investment?

There is general agreement in the industry that broadband providers should not block Internet content or in any way inhibit consumers choices, and any censorship or overt blocking of information flow to or from consumers would likely bring about a public outcry. But real life rarely presents such an extreme, black-and-white case. The more likely scenario is policymakers will need to confront whether there should be limits on how a broadband provider can manage its network.

Last summer, the FCC released a policy statement setting forth four principles to encourage broadband deployment and preserve and promote the open and interconnected nature of public Internet. In particular, the FCC declared consumers are entitled to access lawful content of their choice; to run applications and services of their choice, subject to the needs of law enforcement; to connect their choice of legal devices that do not harm the network; and to competition among network providers, application and service providers, and content providers. The FCC stated it would incorporate these principles into its ongoing policymaking activities.

Subsequently, Verizon Communications Inc./MCI Inc. and AT&T Corp./SBC Communications Inc., as a condition to secure approval of their respective mergers, agreed to conduct their businesses for two years in a manner that comports with the principles set forth in the FCCs [Internet] policy statement. Would these companies run afoul of the merger conditions if they charged selected content providers a fee for guaranteeing certain throughput on their networks?

Moving to the industry at large, would it be problematic if network owners reserve a significant portion of bandwidth on their new pipes for their own content? Would net neutrality requirements preclude revenue sharing and other commercial arrangements between network owners and content providers?

Meanwhile, Congress is looking at whether network owners should provide equivalent treatment to all content transmitted over their digital pipes in essence, a common carriage model in the digital age. One bill would prohibit network owners from charging content providers for priority delivery. Another bill would prohibit broadband providers from restricting access to content, but would permit network management and traffic prioritization. Absent a clearly defined standard for what network management practices are reasonable, however, Congress would be consigning the FCC (or federal courts) to years of litigation to develop a common law meaning to those terms. Because there are many competing powerful interests in this area, it is not surprising that Congress may shelve this issue for another legislative session.

No matter where you sit on this issue, it is critical to have a realistic understanding of how potential regulation may affect your business plan. As the convergence of voice, video and data accelerates, the critical question is whether broadband providers will successfully leverage value from the edge of the network. Network owners need to identify alternative scenarios for recouping their significant capital investments. Content providers need to assess whether its time to forge new arrangements for delivering content to consumers, and whether the benefits of preferred bandwidth are worth the costs. All parties need to handicap the odds of regulatory change and the potential impact on certain business models. In the end, all companies in the rapidly converging marketplace are charting their courses for revenue growth and hoping to weather the regulatory turbulence ahead.