The personal blog of Arthur Khessin

Illusion of a neutral internet?

Is today’s internet neutral? Hmm… no, but the situation could get much worse. Decisions and agreements which are now heavily discussed in the US may result in a global paradigm shift.

When it comes to internet, there are typically following 3 parties involved: 

What is the issue?

Content Provider achieved to capture the vast majority of the value through clever business models (mostly based on advertising), but experience extreme competitive pressure through “everything for free” mentality which was established during the dot com boom among users.

Internet Service Provider on the other hand experienced a massive decline of their revenues (and profits) in the last years given increased costs through exponentially higher bandwidth and traffic while decreasing tariffs (through introduction of flat rates and low-cost competition).

A natural result is a shakeout of weak players, a market concentration and a stronger desire to capture even more value.

While Content Providers are relatively flexible in terms of business model (they can introduce subscriptions, mobile versions, affiliate partnerships, offline activities etc), ISPs are rather in a dead-end street. They tried to extend their offer through triple-play offers (internet, TV, mobile), but remained pushed to a niche of commodity products with very small possibility of differentiation – where the price decides everything.

And now – ISPs are trying to break free – their only chance is to change the rules of the game. 

What can they do?

Those last 2 alternatives sound like a hidden price cartel which would increase the tariffs – what is not far from reality, while the consequences are much more significant than just price increases.

Internet access is a regional business (independent whether mobile or fixed) and through market concentration there are a lot of oligopolies out there. In addition, there are also many integrated ISPs with one leg in the content business.

So imagine now a scenario, where e.g. France Telecom would prioritize the access to its own video website, so that all the content is loaded within seconds – while for example access to youtube.com would be degraded to slowly and unusable. Logical result – the market share of youtube.com would go significantly down. Except… Google agrees to pay a premium fee to be also prioritized. If Google would not agree to pay – they could lose 40% of its users in France (who have France Telecom as their internet access operator). And if Google agrees to pay – other video websites would be in serious disadvantage. So what could those do? Correct – they would have to pay as well to stay competitive. Other ISPs would be stupid not to jump on the same train, by making the same conditions and establish an additional significant revenue stream.

And towards the end-users the principle would be similar as it is already the case with cable operators. A client would need to book an extra option which would allow him to access e.g. youtube.com in a fast way.

What does it mean for us? 

Sounds like a really worst case, isn’t it?

In reality – I see the presumption that our today’s internet is neutral nothing more than an illusion.

ISPs are already prioritizing different content. Own video and VoIP services have always priority over normal websites thanks to QoS (Quality of Service). (I)llegal P2P traffic is already limited or even blocked. Free VoIP services such as Skype are also partially blocked (especially on mobile data) with excuses of net stability etc. In terms of charges, ISPs are already earning nice revenues by offering unlimited bandwidth for its own B2B clients which use their datacenters, while limiting access from external low-cost networks (sometimes even tier 1).

Take aways: 

Internet’s neutrality is a clear illusion, if taking into account that it was already always controlled by large corporations (both access and content). 

Attempts of ISPs to change the rules by becoming a gate control – could create more than just a temporary price increase. But rather a paradigm shift, from internet being a battleground where the best concept and content wins into an oligopoly with large corporations dividing the market among themselves. 

Solution:

I have my doubts that this development can be prevented (on the mid-term) through governmental control. I rather believe in the force of users and new innovative open technologies which would counterpart any “walled garden”. At the same time net neutrality from the technical point of view is impossible to establish anyway, a company whose servers are better connected will be faster by definition and a law ruling can not solve this situation. Web 2.0. demonstrated that internet users evolved and are not passive “lean back” content consumers anymore, but active contributors who would not accept change in game rules with such negative impact, but rather penalize those who try to establish it.

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