Net Neutrality: To be or not to be

What is Net Neutrality (NN)?
Net neutrality (NN) is generally construed to mean that Telecom Service Providers (TSPs) must treat all internet traffic on an equal basis, no matter its type or origin of content or means used to transmit packets. All points in a network should be able to connect to all other points in the network and service providers should be able to deliver traffic from one point to another seamlessly, without any differentiation on speed, access or price. The principle simply means that all internet traffic should be treated equally.

In USA, FCC has defined Network, or "net" neutrality as another way to refer to open internet principles. The open internet is the internet where consumers can make their own choices about what applications and services to use, and where consumers are free to decide what content they want to access, create, or share with others. However, according to some economists,

Net neutrality has no widely accepted definition, but usually means that TSPs charge consumers only once for internet access without discriminating between content providers and content over the network. In other words, Net neutrality implies that there cannot be any price discrimination between suppliers of content and also among the customers that access such content.

Yet other economists argue that price discrimination is legitimate especially in view of externalities i.e. if a video service hogs bandwidth it ought to pay more. Currently, Net neutrality is a topic of great debate across the world. At one level, it is being linked to the right to freedom of expression and the right to information.

The underlying idea of an open internet is that all internet resources and the means to operate on it are easily accessible to all. It effectively renders the network carrier a dumb pipe i.e. intelligence of management and operation of communication must lie at the end points of the network and not in the network.

The ‘end to end’ principle says that communication protocol operations should be defined to occur only at the end points of a communication system or as close as possible to the resource being controlled. It is this principle that in effect, implies that a network is a ‘dumb pipe’. And this is the argument used by advocates of Net neutrality.

There are several definitions of Net neutrality. Net neutrality prohibits TSPs from speeding up, slowing down or blocking internet traffic based on its source, ownership or destination. According to Hahn & Wallsten, “Net neutrality usually means that broadband service providers charge consumers only once for internet access, do not favour one content provider over another, and do not charge content providers for sending information over broadband lines to end users.”

Arguments put forward that counter Net Neutrality principle Some experts believe that mandating Net neutrality would be inconsistent with sound economic management of the internet. Innovations in application services can be better achieved if innovators can respond to price signals from platform providers, such as broadband producers. So, for example, innovators might take into account potential congestion costs of bandwidth-intensive applications.

There is a demand for “fast lane” internet in certain sectors; this enables content providers to ensure priority delivery of their content. Telemedicine is one such example. A Japanese study noted that poor quality images limited the medical use of the internet, but that a very high-speed dedicated link can make real-time surgical collaboration possible.

According to some experts, if Net neutrality is imposed, due to rise in data traffic, TSPs will be forced to increase the cost of access for consumers and consumers would be worse off. Instead, CAPs that earn by advertising and other business models should be charged by the TSPs. CAPs are the strongest advocates for Net neutrality.

If a particular TSP were to threaten to charge a Google or Amazon, they could withdraw the service from that TSP. The loss of this service could result in possible loss of clients for the TSP to other TSPs that have access to these services. While the CAP may lose access to the TSP’s subscriber base, however, the largest CAPs are now so big and have such a diverse set of users internationally that such a move would have little impact on their overall revenue. This argument is strongest when there is a vibrantly competitive retail broadband market.

Globally, the market is already dealing with the issue by virtue of a range of new mechanisms, including:
1. Tiered pricing structures, so that data hungry users are charged additional sums for the data used; and
2. The use of certain delivery networks by CAPs to reduce their access costs and improve the quality of service for their customers.

An over-application of Net neutrality rules will actually reduce the ability of providers to offer properly tiered services to third parties. For example, Net neutrality rules should not prevent TSPs from providing higher Quality of Service to business customers (or home workers).

However, where the incumbent has market power, then they will need to be applied in such a way that prevents incumbents from acting anti-competitively and discriminating in favour of their own content and applications business in the provision of such services.

Therefore, the issue is actually about the effectiveness of any over-arching telecom regulatory regime and its ability to effectively target discriminatory conduct, drive competition in retail markets where there is wholesale market power and do so in a timely and effective manner.

The debate around Net Neutrality

Openness has been the guiding principle for the growth of the internet. This has been vital for innovation on the internet. Net neutrality ensures that new entrants in a business running on the internet are able to compete fairly with incumbent giants.

Proponents of Net neutrality contend that when a service provider breaches neutrality of a network, new entrants become vulnerable to unfair competition as their access to the internet infrastructure is restricted.

They argue that any preferential treatment of internet traffic would put newer online companies at a disadvantage and slow down innovation in online services.

It has been suggested that to ensure a thriving and neutral Internet, the following issues need to be addressed:

i.The Internet must be kept open and neutral. Reachability between all endpoints connected to the Internet, without any form of restriction, must be maintained.
ii.All data traffic should be treated on an equitable basis no matter its sender, recipient, type, or content. All forms of discriminatory traffic management, such as blocking or throttling should be prohibited.
iii.Network service providers should refrain from any interference with internet users’ freedom to access content (including applications of
their choice).
iv.There should be restricted use of packet inspection software (including storage and re-use of associated data) to control traffic.
v. Complete information on reasonable traffic management practices and justifications for the same must be accessible and available to the public. TSPs should be transparent and accountable to any changes in practices.
vi. Non-neutral treatment of traffic for “voluntary” law enforcement purposes must be prohibited unless there is a legal basis for it.

Concerns regarding departure from Net Neutrality
A policy decision to outright depart from “Net neutrality” raises various antitrust and public interest issues. There are concerns that TSPs will discriminate against certain types of content and political opinions. Such practices may hurt consumers and diminish innovation in complementary sectors such as computer applications and content dissemination. Discriminatory pricing proposals, if implemented, could raise a variety of significant anti-competitive concerns.

Access networks, if left unrestrained by non-discrimination rules, have incentives to favour their own services, applications, and content and to kill competing services. In the absence of non-discrimination rules, last mile carriers can leverage their market power to control/support their voice telecom services.

One of the concerns is the possibility that TSPs will degrade and/or restrict capacity in traditional internet access to force applications and content providers to use the TSPs new “premium” service. The possibility exists that this degradation and restriction of capacity will happen in a coordinated way, in a cartel-like fashion.

Besides concerns over incentives for creativity, there is another concern regarding allowing TSPs to charge fees from content producers: it can result in TSPs “competing” for content, as seen in other platform industries, by charging different fees and bargaining on exclusive arrangements with content providers. In turn, such bilateral agreements could inevitably lead to fragmentation—where certain content would only be available on certain TSPs—and hence multiple “internets.”

The ability of smaller and start-up Content and Application Providers (CAPs) to compete with the more established CAPs may be affected if they are unable to secure access to specific TSPs or afford access-tiering charges, particularly if a TSP with market power reaches an exclusive arrangement with an established CAP or where smaller CAPs are unable to secure affordable access.

These potential barriers to entry may deter new start-ups from joining the market, which threatens to hinder innovation and diversity in the long run. The fact of the CAPs being charged instead of subscribers will likely mask the true cost of internet service to subscribers. This will further create price distortion and surplus loss; because the generally more competitive market for large business customers will not shield them from the levies imposed by the access carriers.

Also, there is no simple index or measure of capacity or bandwidth use of an application that is closely correlated to the willingness to pay for that application. For example, bandwidth use is high for some highly valued services, like video on demand, but bandwidth use is very low for information services, such as search or bidding in auctions in real time, which are also highly valuable. In the absence of legally mandated non-discrimination, TSPs may attempt to capture the consumer surplus that remains after uniform pricing.

Source: Consultation Paper on Regulatory Framework for Over-the-top (OTT) services, Telecom Regulatory Authority of India (TRAI)