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Bill Bennett


Net neutrality in New Zealand

Net neutrality is controversial in the US. It is not an issue in New Zealand. As telecommunications and media companies get closer, it is time to take another look.

What is net neutrality, why does it matter elsewhere and how might it move onto the agenda in New Zealand?

Net neutrality says internet companies can’t play favourites with network data. Nor can they pick and choose what services or organisations can use their networks.

Put in those terms, net neutrality is simple. It echoes the internet’s design where the network is blind to the packets it carries. Everything is a dumb pipe. The neutral internet treats all data as equal. Nothing has priority. It doesn’t block any data. It doesn’t slow any data.

For years that was how everything worked and everyone was happy.

Net neutrality versus profit

US internet service providers decided this got in the way of profit. They decided they would like to choose the traffic going through their pipes. They want to charge big online media companies extra to prioritise their traffic.

Something else changed. In the internet’s early days, no-one knew what traffic was going through the dumb pipes. Then the industry developed a technology called deep packet inspection.

This means service providers are no longer blind. They can look inside the data packets on their networks and see what traffic is passing through.

What they found made them less sympathetic to the idea of net neutrality.

The case for dropping net neutrality

This isn’t as one-sided as it might appear. Telecommunications companies are under pressure to invest more in providing bandwidth.

Yet intense competition drives margins down. Few make fortunes from providing basic internet services. Dumb pipes don’t make for high profits.

Contrast this with the billions media companies earn distributing content on telecommunications networks.

Service providers had a good idea that others make more from the internet than they do. Deep packet inspection confirmed their suspicions. Yet they only needed to turn to the finance pages of newspapers to see what was happening.

Enter Netflix

In 2015, Netflix, the video-streaming service, accounted for one-third of US internet traffic. Service providers had to build fatter dumb pipes. They needed to buy more bandwidth to keep episodes of Game of Thrones streaming into homes. Their costs went up yet they sat outside watching Netflix rake in the profits.

It’s not only Netflix and video streaming. Big internet service providers are often telecommunications companies. Over-the-top services like Skype, which uses voice over IP to bypass phone tolls, hurts their business. Net neutrality helps telecommunication companies’ fiercest rivals and gives little back.

The argument that Netflix, Skype and others should pay to use fatter pipes makes sense from a telco point of view. You could see Netflix and similar large-scale content operations as free riders.

Yet if network owners override net neutrality, critics say it will break the internet.

Breaking the internet

By break the internet, they mean it will choke innovation. They argue the last 25 years of progress made since the internet opened for business would halt.

Online innovation happened because entrepreneurs were free to try new ideas. Email, web, e-commerce, video and social media would not have emerged without a neutral net.

As you’d expect positions on the net neutrality debate come down to self-interest. Yet ideology plays a role.

Net politics

In America, it became political. Lawmakers took sides and government agencies weighed into the debate. In 2015 America’s Federal Communications Commission adopted the Open Internet Order. This enshrined the idea of net neutrality in US law.

Last year presidential candidates Ted Cruz and Marco Rubio tried to overturn the law. Their campaign may have succeeded.

“Ajit Pai, President Donald Trump’s choice to lead the Federal Communications Commission, is taking a page from his boss’ book and moving quickly to roll back regulations. In the process, he’s raising questions about the future of equal access to the internet.”

New York Public Radio 10/02/2017.

Europe has its own net neutrality debate. The Netherlands and Slovenia, passed laws protecting it.

Net neutrality has never been a big issue in New Zealand. In part, the industry structure makes it hard for service providers to discriminate.

All land-based internet traffic passes through a wholesale layer. That means Chorus, Northpower, UFF and Enable Networks guarantee net neutrality. New Zealand land-based ISPs don’t have end-to-end control. It’s hard for them to be anything other than neutral.

Net neutrality not in New Zealand

Until now that’s been enough to keep net neutrality off the agenda. Only land-based networks had enough capacity. Only they could deliver the high-bandwidth traffic that might attract a higher price.

Technology, as always, moves on. Today 4G mobile networks carry streaming video content. Both Spark and Vodafone promote fixed wireless broadband as a landline replacement.

Added to this, carriers, Vodafone and Spark sell streaming video services. Discrimination might benefit them.

Vodafone’s potential merger with Sky is not dead. Spark has its own Lightbox service and a deal with Netflix. There could be a temptation or incentive to prioritise any of these.

Fixed wireless broadband

For now, mobile networks carry a fraction of data traffic — under ten percent. This may yet change if fixed wireless broadband grows.

Yet mobile will remain small compared to fixed-line broadband services.

It doesn’t serve Vodafone or Spark’s interest to discriminate in fixed-line broadband. If either tried to do so with fixed-line broadband, rivals would step in. They’d make a lot of it in their marketing.

Tough competition is enough to counter the threat to fixed-line internet.

Mobile networks face less competitive pressure. Despite 2degrees the mobile market is not far from a duopoly1.

End-to-end control

Vodafone, Spark and 2degrees have end-to-end control over the traffic. There’s at least a potential to discriminate.

Today Spark and Vodafone have an ability to discriminate and a possible incentive to do so. That’s not to say they will, but they can.

This is what has changed. It could bring the net neutrality debate to New Zealand. The recent change in the US climate might embolden companies here to follow.

Or not.

Regulatory action

The Commerce Commission has never been backward when dealing with telecommunications companies. If there’s a whiff of reduced market competition, expect action.

Likewise, the government revisits the Telecommunications Act every five years. Many in Parliament would love to squash net neutrality.

Think back to earlier debates about internet issues. Our politicians are not up to speed.

The Commerce Commission is slow at times. Its processes can be ponderous. After bruising battles on other fronts, the last thing telcos want is another fight. It would be long, expensive and distracting.

Red-tape alone could be enough to keep net neutrality off the agenda. If not, there is the near certainty of market intervention. That and potential penalties will concentrate minds.

Update: Sarah Putt has another take on Net Neutrality at SP Media and talks about it on Radio NZ Nine to Noon.

  1. Yes, the point is debatable. One could argue the giants only tolerate a weak third player because it gives the appearance of full competition. ↩︎



6 thoughts on “Net neutrality in New Zealand

  1. There have been a few cases of ISPs offering free access to certain websites/services. For instance, Orcon (I think) offers free access to the Steam gaming service. It’s a slightly different approach that the net neutrality debate focus, but it still has a similar competition impact as well as potential to promote vertical integration.

  2. The fundamental issue is contribution to costs. For instance, Youtube accounts for (guess) 50% of peak internet traffic – yet pays nothing towards costs – not hosting, not peering, if you are a cable owner MAYBE some international bandwidth.

    Their traffic volume growth as huge – say 30% year on year (so the costs to provide the internet to your home are increasing) … but again no contribution.

    Yes you could argue that the fee you pay your carrier should cover that…. but with prices continuing to fall (because the internet is a commodity – right up until you have an outage), Costs continuing to rise in real terms, WHO will continue to invest in that infrastructure????

  3. There is no “net neutrality” .
    The big monopoly search engines see to that.
    The commerce commission’s actual function and role is to protect the corporate monopolies( which is the opposite of what the office claims).
    What is says and what it does are two different things.

  4. net neutrality is simple.

    Yes, yes it is. It’s the telecommunications version of hundreds of years of common carrier transportation networks. It doesn’t even need a special name. It has long been well understood, through years of conflict and legislation, for example in the US over railways, that controlling the transport gives immense pricing power to the operators of such networks.

    It’s not precisely to do with the Internet architecture, plenty of other transport resources, runways at major airports, electricity transmission networks and even gas pipelines are wedged open by common carriage, aka open access obligations in Part 4 of the Commerce Act.

    The operator is not permitted to optimise their return to the despite of the public good, that’s the quid pro for the reliability of return in operating a utility infrastructure. Spillovers will happen, they benefit the security of the operator’s return and the freedom of the connected.

    So, common carriage isn’t related to architecture or origin, it is the function of the service in the economy that makes it necessary. Being a customer designed service, the Internet probably had a leg up in that regard.

    The big problem is that presently everyone’s view of telecommunications has been skewed by decades of vertical integration between passive and active elements and a longer time as a single service provider, dial-tone. As you’ll note above, it’s transmission not generation that is common carriage.

    This means service providers are no longer blind.

    There was always constructive knowledge of what was going through the pipes. Operators are customers too. There’s no need to suggest someone suddenly peeked under the covers and found something nasty there.

    Telecommunications companies are under pressure to invest more in providing bandwidth.

    Competition has that effect, and about time too.

    Maybe you saw “unlimited” plans suddenly went from impossible due to physics to nearly universal in the US in the space of a week. Actually the investment required for more bandwidth is cheap as chips by comparison with the holes and poles of passive infrastructure deployment. Thank goodness the Government finally stepped up to its collective action coordination responsibility and got UFB underway.

    Yet intense competition drives margins down.

    I think the glorious (for some) past of low risk associated with utility and thus risk-free high returns through the pricing power of monopoly (or at least dominance) is well behind us now. Those margins were well overdue to come down. If companies lack the wit to see the changes, and think they can simply ignore the obligation to be non-discriminatory, for more money, I think they’re in for a shock.

    Few make fortunes from providing basic internet services

    And why is it anyone thinks provision of utility services should make a fortune?

    Dumb pipes don’t make for high profits.

    No, nor do they make for high risk, unless of course, like AT&T you go $100B in debt for Time-Warner just when Janet Yellen starts cranking up interest rates. It may even be that the volatile entertainment media might suffer a downturn with so much of our time (and that is the scarcity, not content) spent with gossip networks like Facebook and Twitter.

    But the foundations of telecommunications, “investments in basic infrastructure will pay steady, reliable returns until the sun explodes.” https://backchannel.com/google-fiber-was-doomed-from-the-start-a5cdfacdd7f2 Incidentally the lesson of Google Fiber to me is, if you don’t do it different, you’re doing it wrong.

    Contrast this with the billions media companies earn distributing content on telecommunications networks.

    They’re nowhere near the scale of the carriers of that content. Andrew Odlyzko’s short illustration suffices:

    “Unfortunately for these companies, content is not the key. Content
    certainly has all the glamor. What content does not have is money.
    This might seem absurd. After all, the media trumpet the hundred
    million dollar opening weekends of blockbuster movies, and leading
    actors such as Julia Roberts or Jim Carrey earn $20 million (plus a
    share of the gross) per film. That is true, and it is definitely
    possible to become rich and famous in Hollywood. Yet the revenues and
    profits from movies pale next to those for providing the much
    denigrated “pipes.” The annual movie theater ticket sales in the U.S.
    are well under $10 billion. The telephone industry collects that much
    money every two weeks! Those “commodity pipelines” attract much more
    spending than the glamorous “content.”


    It’s a little old, but I doubt much has changed in this regard since then.

    So there’s no real contrast, nor any reason to pander to the carrier’s envy of the successful users of their service. They can console themselves with the litany of content and other failures that paid them money on the way to their demise. High return, high risk, that’s the name of the game that carriers don’t play.

    And while streaming media may be the biggest consumer of cheap Internet bandwidth, recall “[i]n 1832, newspapers generated no more than 15 percent of total postal revenues, while making up as much as 95 percent of the weight.” Streaming video, the demon that eats the Internet can’t also be the carriers saviour.

    Discriminatory pricing, text book marketing practice, British Airways or Ryan Air, you decide but those pricing options are in the plane, not on the runway.

    Service providers had a good idea that others made more from the internet than they were.

    Yes, the rest of the economy which rests on telecommunications services (historically a major proportion of the costs of a business, after staff) will be larger than the carriers. I’m at a loss to understand why you’d expect it to be otherwise. Why media streaming, which has only begun as Internet price/performance reached the point where it could be wasted for this “solved problem” as opposed to the much higher value uses we’d reserved it for till now, should be the target of acquisition by carriers and/or exploitation by discriminatory services is a puzzle.

    The argument that Netflix, Skype and others should pay to use fatter pipes makes sense from the telco point of view.

    We all pay more for fatter pipes, what common carriage prohibits is favouritism. Carriers, for their own good frankly, should not favour their own offspring, nor be permitted to knobble competition. I’m pretty sure Netflix and others pay a lot to carriers and provide them with a reason, risk free, for customers to subscribe to the carriers service. The way this is written you’d be lead to think Netflix et al are not paying anything. It’s a similar presentation to that used by Telecom to condemn unbundling, giving the impression that access seekers were something other than customers wanting to pay.

    Yes margins are being squeezed but considering how fat they were it’s only just about time.

    You could see Netflix and similar large-scale content operations as free riders.

    No, I can’t. They are paying. Further those services are the reason for many subscribing to the carrier’s services. Someone told me once that Citylink left a lot on the table. “Wise,” I replied, “they rent seats at the table and if they took it all, there’d be no demand for those chairs.”

    I’d really like to see one of those large-scale content operations walk away from a competitive carrier and see who loses. I think customers would follow Netflix rather than stay with a carrier that couldn’t offer it.

    It’s a two way street now, back in the mono-service days, or the interval when there were multiple services and carriers could dictate, carriers could do what they want and extort increases to pay for their failures, which are legion, Ferrit, First Media and esolutions for example. This isn’t your top down telco sector any more, it’s a peer to peer ecology and mistakes will be paid for by those who make them.

    Yet if network owners override net neutrality, critics say it will break the internet.

    If operators of utility transport infrastructure, rail, electricity could choose only to carry what they wished, and charge discriminatory prices based on their self-interest and the customers’ ability to pay, it would certainly break a lot of expectations and diminish the social value of shared infrastructure.

    However I don’t agree with all the “zero rating” alarmism and I think misunderstanding where impartiality applies (to the carrier, not the customer) has impaired some significant beneficial initiatives. https://en.wikipedia.org/wiki/Wikipedia_Zero# See also https://web.archive.org/web/20191019020054/https://nztelco.com/2013/06/14/sending-party-pays-for-bridging-the-digital-divide/

    All land-based internet traffic passes through a wholesale layer. That means Chorus, Northpower, UFF and Enable Networks guarantee net neutrality.

    Put another way, the RAND availability of bitstream services to new entrants like Bigpipe and Stuff Fibre (and incidentally all this weeping salt tears for the margins of service providers is rather summarily contradicted by these new entrants) means competition controls the temptation to behave like a monopolist, as you note.

    The wholesale bitstream layer is one layer too high, the open access should be applied to the Layer 1 passive infrastructure and then we’ll really see some competition and innovation.

    New Zealand land-based ISPs don’t have end-to-end control. It’s hard for them to be anything other than neutral.

    Hoorah for us! Actually I do hear we are rather well regarded in this matter.

    Vodafone and Spark sell streaming video services.

    Well actually I understood Spark couldn’t sell Lightbox so gave it away for free and Netflix is just a customer premium in exchange for being locked in for two years. I don’t think this supports the theory that revenue glory belongs to the media streaming sector. I note TrustPower will give you a TV to watch the streaming service of your choice if you sign up for 2 years. http://www.trustpower.co.nz/landing-pages/nationwide/samsung

    Nobody goes to a carrier, they get stuff delivered by a carrier from someone else.

    There could be a temptation or incentive to prioritise any of these.

    And even if they resist that temptation, customers might get sick of subsidising Spark’s Lightbox and Netflix customer lock-in efforts, it might backfire, even more so if other services get a kicking to make the carrier’s services look good.

    Tough competition is enough to counter the threat to fixed-line internet.

    Which is why, apart from the political posturing, common carriage is a problem in the US. They have so little competition.

    Vodafone, Spark and 2degrees have end-to-end control over the traffic. There’s at least a potential to discriminate.

    End-to-end has a rather specific meaning in the domain of the Internet https://en.wikipedia.org/wiki/End-to-end_principle and is a somewhat grandiose description of the situation. After all, the ends of the Internet are way beyond (to their chagrin) the control of any local operation.

    Cellular operators have a small vertically integrated oligopoly to abuse, that’s all.

    You mentioned earlier a wholesale layer, and layers are the secret sauce that technology has added to the mix in the last decade or so. It is a structure that is most resistant to obstruction by incumbents, the range of their control over the stack of layers being limited.

    Rather than end to end, I think “top to bottom” would be more apt.

    There’s always the potential to discriminate, in all things, that’s why vigilance and carrying through the regulatory model to Layer 1 is essential. You can’t stop halfway and hope.

    Telecommunications Act gets revisited every five years or so. Many in Parliament would love to squash net neutrality.

    Indeed it is under review (http://www.mbie.govt.nz/telcoreview) as we speak. There have been some significant changes to the vertically integrated thinking that has dogged telecommunications in its migration from a legislative and natural monopoly into a fiercely contested ecology with open access to stable (fibre, copper, free space, they don’t change, much) passive infrastructure foundations and endpoint and service investments made elsewhere.

  5. Hamish, when you have telco monopolies( as we do at the top level all merge into the same group) there is no ” net neutrality”. Venture capital in the hands of one group of bankers that can create money from debt (that also own the media conglomerate) is not ” natural” .


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