Santa Clara University

Net Neutrality

Allen Hammond

Internet (or net) neutrality is the design principle on which the iInternet is based. By virtue of network architecture, Iit mandates by virtue of network architecture that network providers may not use their facilities to ban or control access to programs, types of devices connecting to the network, or the carriage of traffic over the network. In short, networks may not be used to discriminate against sources of information, the information itself, or applications. The continued existence of net neutrality is now the subject of an intense debate.

The net neutrality debate pits telecom giants AT&T, Bell South (which could soon be merged with AT&T), Comcast, and Verizon—who operate the majority of the networks on which the Internet “runs”— against major content and services goliaths like Google, Yahoo, Vonage , and Apple. Pejoratively The debate is simplistically portrayed as a clash between greedy duopolists dominant players in the network services business and opportunistic freeloaders whose businesses depend on a “free and egalitarian” Internet. , aGiven the confusion caused by these inaccurate portrayals of the issue, attempts to resolve the net neutrality debate suffer from the same diversionary unhelpful posturing that has compromised our political processes of late.

The resolution of this debate is far too critical to the nation’s economic and democratic welfare, and thus . Iit should not be allowed to turn on emotionally charged name- calling. A debate conducted in such language obscures rather than informs. There are no “bad guys” in this debate, …only substantial competing interests.

The principle of net neutrality has resulted in many innovative products such as e-mail, the world wide web, and voice over IP (VoIP). These products have revolutionized commerce, while enhancing public speech, political participation, education, and health care. It is argued that many of these products might not have developed under a centralized network regime. Many argue that a decision to jettison the principle now will result in a loss of innovation and consumer options in the future.

Opponents of net neutrality argue that its continuation interferes with cable and telephone companies’ ability to realize a reasonable return on their network investments. For them, Ccontinued adherence to the principle would undermine efforts to address growing congestion and quality of service issues. For them, They further argue that a decision to retain the principle would discourage investment in their networks and might serve as a bar to their efforts to expand into the lucrative content and application markets.

There are substantial elements of truth on both sides. The proponents of net neutrality are right when they point to all of the innovations that the neutral internet network has allowed to flourish. And gGiven recent history, it is highly likely that the continuation of a policy of network neutrality would result in even greater innovations in the future. Moreover, the content and applications firms do in fact already pay for access.

But opponents of net neutrality rightfully ask who will finance improvements and innovations in the network infrastructure? There will be far less innovation if the network upon which the innovations are based, cannot support them due to increasing costs from congestion and threats to network security with no corresponding increase in investment.

The network provisioning necessary to address congestion and security threats requires investment that Wall Street and other sources of financing seems reluctant to make. Alternative financing could come from possible expansion into lucrative related application and content markets, or from charging content and applications services for access, or charging consumers more. Each of these solutions has drawbacks.

Expansion into the content and applications markets does not assure financial success. A market flush with so many innovative competitors will have a significant share of failures.

Charging content and applications providers for preferred status is problematic. It may disadvantage smaller firms who cannot afford to pay for the preferred status of large corporations thereby undermining small firm competition and innovation. And, if network providers do enter the content and applications markets, the access charges may provide a means of discriminating against competitors.

Charging content and applications providers for access may also result in indirectly charging the end customer. It is highly likely that charges paid by the content and applications firms to the network providers would be passed on to the end customer. If they were, the end customer would still pay the the network firms’ price increase. However, the customer would believe the content or applications provider had raised rates, not the network providers.

Under such circumstances an indirect price increase by the network providers would be disingenuous. It could also be used to place the firms competing against the content and applications affiliates of the network providers at a competitive disadvantage.

It is fair to note that fears of prospective anticompetitive activity should not serve as the basis for enshrining the net neutrality principle in law. It is also fair to note indicate that the history of cable and telephone firm market activity justifies some of the fears raised. In the past, major firms in each industry have leveraged their network dominance to disadvantage competitors.

Rather than impose access charges on content and applications firms, the most transparent and economically rational way to pay for network provisioning would be to charge customers directly for their usage. This deals directly with the congestion problem requiring customers to place a value on their usage and the speed with at which their information travels.

The drawback here is the fear that current public interest regulations might be extended to the broadband portions of network provider services but not to their competitors. This would allow some competitors of network providers to compete on price because they would not have to pay their fair share of fees, such as universal service.

A reasonable solution might be the equitable application of fees and requirements for the support of universal service and public safety to all competitors and providers. In this way, regulations would not be responsible for market imbalance. While this proposal has its drawbacks, it is at least responsive to the interests of both sides of the debate.