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