Editor’s Note: Welcome to our weekly Reality Check column where C-level executives and advisory firms from across the mobile industry share unique insights and experiences.
The net neutrality debate is bound to continue to make news for some time to come with Netflix, Comcast and Verizon bringing it to the headlines once again. In its simplest form, network neutrality is about whether the companies that carry our Internet traffic should be permitted to manage that traffic by restricting access to some sites or providing fast-lane service to others, which can also be referred to as blocking and favoring. With the over-the-top players representing an increasing threat, this debate has taken on new meaning, as has the emphasis on making carriers more efficient in rolling out fresh services to capture new revenue streams, bundling, partnering with OTT players and creating overall efficiency with technologies such as software-defined networking and network functions virtualization.
Some people think blocking and favoring is a good idea, because without the ability to manage traffic in this way, the entire Internet will collapse. The companies that carry the bits will be overwhelmed by undisciplined traffic and not earn enough money to continue to expand the Internet. Conversely, others think blocking and favoring is a bad idea, because by default, this favors close partners and those people who can pay, leaving the great mass of users and innovators with a second-rate service, or no service at all, thus bringing an end to the Internet as we know it. Perhaps both sides are exaggerating a little. The Internet might demonstrate a surprising resiliency to keep going, no matter what Internet service providers, regulators, legislators, users, abusers, edge providers, device manufacturers and others do or don’t do.
The dominant access providers in the United States are ISPs that are legal subsidiaries of the cable companies and the phone companies, owning most of the communications pathways into the homes and businesses of Internet users, and carrying most of the mobile data, too. From the perspective of these companies, the root issue is that networks have finite capacity and are expensive to expand. Investment in network growth needs to be justified not by the amount of traffic that needs to be carried, but by the revenue that traffic will generate. Where is the return on that investment? Broadband access pricing is generally simple, with a fixed price for a certain maximum bandwidth. The assumption was that mere Web surfing would generate a few high-utilization users and a larger number of low-utilization users. Wrong assumption. Those pesky users discovered ways of using the Internet that the telco and cable strategists had presumably not predicted, such as peer-to-peer file sharing, media streaming, media downloads, online gaming, and voice and video calling.
To be fair, maybe the strategists did predict all of these things, but they just didn’t expect them all so soon, and to this magnitude. They perhaps didn’t understand the intrinsic dynamic nature of the Internet. Perhaps nobody did at that time.
However, a younger generation had no problems imagining cool new ways to use that plentiful bandwidth. Media owners regarded a lot of file-sharing as illicit and a breach of copyright. They pursued the culprits in the courts. Users tended to not appreciate this kind of policing. “Hey dudes, all we’re doing is having some pals around to the apartment to watch a movie. It’s just sharing an experience with a few friends.” “Hey dudes,” said the movie guys, “you really have two million friends?”
The movie industry and the bit-carrying companies reinforced each others’ opinions. They swung into enforcement mode to protect their networks from overload and their intellectual property from theft. Fair enough, but by concentrating only on enforcement, they missed a huge and obvious signal: there’s a market out there. Others did notice, and before long, legal media downloads and streaming were thriving — due in part to the innovation of Apple and the iPod — and users were actually paying money to Amazon.com, Apple’s iTunes, Hulu, MOG, Netflix, Pandora, Spotify and many others. None of these initiatives came from the media owners themselves or the bit-carriers. Nonetheless, the media companies benefit from royalties and the access providers benefit from user demand for greater bandwidth to feed these services, for which many users seem willing to pay.
Interestingly, legal and paid-for media streaming uses up network capacity in the same way as illicit and unpaid-for media sharing. Actually, the illegal way — using bit-torrent to fetch compressed file downloads — can be more network-efficient overall than streaming the same media product every time it’s consumed.
For the time being in the United States, it looks like blocking and favoring is going to be permitted. It does not look like this new ruling will be reversed any time soon. Perhaps we should look at the practical implications based on what the Internet is really like today, not on what it looked like when the net neutrality discussion started.
So assuming that net neutrality is pretty much dead, what might happen? Probably some of the first attacks will be on sites and processes that enable illicit and unpaid media sharing. This will please the media owners, release some bandwidth for other purposes, and push users toward legal media services, which may come from those carriers who own the ISPs. If this had happened a few years ago, the impact would have been dramatic. But now, many legal media and streaming services exist. Some users displaced from illegal sites will make more use of the legal sites and some illegal sites will make an attempt to become legal. Others will continue to find ways to keep their users happy and we can expect to see a continuing cat-and-mouse game over the years to come. In any case, it’s possible that the bandwidth savings may not be that great and may represent just a small and short-term dip in the continuing trend of bandwidth demand growth.
And — if bandwidth really is the issue — then we can expect to see full-fledged blocking and favoring taking place. Your favorite media site, search engine or e-mail service could, in principle, become available through some ISPs and not others, with ISPs favoring their own services and those of partners and others who pay a premium for the fast-lane privilege. Will this really happen? It might turn out not to make as much business sense as expected since customers will notice. But the likelihood is there, and if that wasn’t the plan, why spend all this time and money making it possible?
Also the carriers, cable companies and their ISPs all have a long-standing fear of becoming mere utility companies or simple carriers of packets. They’ll see anything that seems to bring them premium revenues as moving them away from commodity services and into adding value. Unfortunately for providers, the end of net neutrality won’t alter the fact that their primary role is still to carry bits. They can invent all sorts of ways to charge differently and differentially for the packets they carry, but unless the end customers and edge providers perceive that they add actual value to the service, then they are still commodity packet carriers — just with a different billing model.
Esmeralda Swartz has spent 15 years as a marketing, product management, and business development technology executive bringing disruptive technologies and companies to market. As chief marketing officer of MetraTech, Swartz is responsible for go-to-market strategy and execution, product marketing, product management, business development, and partner programs. Prior to MetraTech, she was co-founder and VP of marketing and business development at Lightwolf Technologies, a big data management startup. She was previously co-founder and SVP of marketing and business development of Soapstone Networks, a developer of OSS software now part of Extreme Networks. At Avici Systems, Swartz was VP of marketing for the networking pioneer from the startup stage through its successful IPO. Early in her career, she was a director at IDC, where she led the network consulting practice and worked with startup and leading software and hardware companies, and Wall Street clients on product and market strategies.
