Is access competition enough to ensure Net Neutrality?

In an opinion piece published recently, The Economist argues that the Net Neutrality problem is really a competition problem. I have argued the same in the past. On paper, the argument makes sense.

If there is no underlying cost reason to selectively throttle internet traffic (and there isn’t) then economic theory suggests that in a competitive environment, at least one of the players will go for the option that’s best for consumers (because he will benefit from it in customer acquisition and loyalty). Theory suggests again that others will follow until no one discriminates.

That’s the theory.

In practice, I’m no longer convinced that’s true. At the very least I think you need something in addition to competition to make it work. Before I discuss that though, here’s the the reason why economic theory (or at least the above application thereof) may be wrong in this case.

Everybody understands now (and the Economist piece is thankfully not rehashing the old cliché of “traffic costs going through the roof”) that service providers who want net discrimination want it because it puts them in a position of arbitration and they believe that that arbitration can be monetized. In other words, it’s an artificial way to generate extra revenues from access at a time when market growth is no longer the main driver as most people buy access products already.

Except it’s not. Any rational way you look at it, the revenue opportunity is at best minute, and most likely offset by complex systems, awkward customer relations and bad reputation. If you don’t believe this, go and purchase Dean Bubley’s recently updated Non-Neutral Mobile Data Monetisation Report.

The worse is that I suspect telcos know this. You cannot push that hard – and invest that much money into lobbying – without having done the math. I am somewhat at a loss as to understand why they’re still pushing for this, but it leads me to believe that there is nothing rational about this. And as a consequence, competition or no competition, they will keep pushing because they’re blinding themselves.

In addition, the restructured European telco market that the incumbents are (also) lobbying for would have a very small number of players present in most markets in varying positions. If there were ever ideal conditions for cartels to emerge, this would be it. I’m convinced therefore that competition would be nowhere near enough.

Now there is an argument to be made for a combination of competition and abundance. If markets are competitive and users have more than enough bandwidth to satisfy their needs, then the (misguided) rationale disappears. There is no arbitration position when bandwidth is abundant because there is no need for arbitration. That may not have been the end goal anyway, but if the rationale goes away, it becomes virtually impossible to argue the need for the arbitration role.

Considering abundance is (slowly but surely) emerging, do I conclude, as The Economist does, that regulation / legislation is a bad idea? Yes and no.

In the US, I think The Economist is flat out wrong. Title II is necessary and it should have been in place from day one. It’s not even regulation in the active sense, it’s just the only regime that applies under US law to ensure the ongoing survival of a service as vital as the Internet has become.

In Europe, I think we could do without a law or regulation. The UK example of the Net Neutrality Pledge shows that there are non binding ways to make the problem if not disappear, at the very least become minor. At the European level though, I fear it’s too late for that. The lobbying of incumbent operators, and the extreme positions they have pushed have been so fierce that the pushback is here, and will most likely be more extreme than anything the incumbent operators (and sadly probably the other operators too) will be comfortable with.

I (and others) have been saying for years that this whole debate has been a waste of breath on the incumbent telco’s part: they have nothing to gain and everything to lose. They pushed for laws that would put them in a position to arbitrate (because they knew they’d never be in that position in a free market), they might end-up with laws that block them from doing even common sense network management on services they offer.

It’s a sad state of affairs, but one entirely of their own doing. I for one won’t be weeping for them.