Law of Unintended Consequences Now Will Play Out in Internet Access

“Managed services,” or “specialized services” now might emerge as a key development for service providers, should network neutrality rules become more popular, or survive legal challenge. The reason is that such services are exempted from the rules.

Oddly enough, the argument that network neutrality is needed so the “Internet doesn’t become cable TV” will have the perhaps-unintended consequence of increasing the value of such managed services for Internet service providers.

In other words, it is likely a rational Internet service provider, with the requisite scale, can make higher profit margins on a managed service than from commodity high speed access.

It therefore makes sense that rational actors will shift effort towards managed services.

Consider that, from 2010 to 2013, U.S. mobile data pricing (per unit sold) declined by only single digits year over year. In the first nine months of 2014, data pricing dropped by 77 percent, according to industry analyst Chetan Sharma.

Whatever profit margins might once have been, one can argue those margins are dropping, even if suppliers are selling more units.

Average (mean) mobile data consumption increasedto about 2 Gb a month in 2014. That single-year increase is unusual.  Sharma notes it took 20 years for consumption to reach 1 Gb per month usage levels.

In addition to plunging prices (less revenue per unit sold) and higher usage (more network cost), marketing costs have grown as competition has become more intense.

Overall U.S. operating expense rose 20 percent, year over year. Income was flat while earnings grew three percent.

That is likely to convince larger ISPs to create new products where bandwidth is simply an enabler of a service, and not the actual product sold to an end user. Linear video services and carrier voice services or text messaging require bandwidth and network services, but the product purchased by the customer is not “bandwidth.”
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