Even Traditional LIne of Business Regulation is Being Swept into the Network Neutrality Framework

Ecosystems are tricky things. Value is created only when all the segments are aligned from the first supplier to the last consumer. But value and revenue within the ecosystem is unstable because one segment’s costs are another segment’s revenue.

Tougher still are situations where existing ecosystems bump up against new ecosystems. That is a big problem wherever whole industries once were regulated in silos, but now overlap, entirely or substantially.

How to treat Internet voice and messaging provides one clear example, as equivalent products and services now are provided under distinctly-different sets of rules.

But questions about how contestants in any market “should” be regulated or taxed now have been pulled into the language and thought categories “network neutrality.

Whether that makes sense or not remains to be seen. Consider the logic or arguments now raised in India about regulating Internet voice and messaging. Now even regulating “like things in like ways” is garbed in net neutrality language.

We might be stretching the slogan too much. Sometimes there might be very sound reasons for treating “like” services in unequal ways. That often happens early on, when policymakers want to encourage new ways of doing things, or new competitors.

More simply, the notion of consumer choice also suggests the ability to create different products, with different characteristics, at different price points. Net neutrality arguably helps app providers, but inhibits innovation on the part of Internet service providers who are bound by “best effort only” quality of service.

The new wrinkle is that older arguments about like treatment of like services is being recast in the thought patterns of network neutrality as well.

In India, service providers warn they might have to raise prices up to six times if new regulations treating Internet voice and messaging the same as carrier-provided voice and messaging are not adopted.

In other words, mobile operators want “over the top” competitors held to the same rules and standards as carrier voice in areas related to taxation and other fees paid by carrier voice suppliers.

Those issues are more important in a net neutrality context.

Net neutrality ultimately will raise capital investment requirements for mobile Internet access suppliers and possibly make unlawful some business models. The reason is the only way to deal with congestion is to supply more bandwidth. And that means higher infrastructure investments.

Equal treatment of like services, on the other hand, will make it possible for mobile operators to compete more effectively with OTT alternatives because all play by the same rules.

By prohibiting traffic shaping, net neutrality forces ISPs to rely on "brute force" bandwidth upgrades.

To the extent that net neutrality forbids zero rating, the rules also limit demand growth, and hence supply pressures.

OTT app providers, on the other hand, would see their costs of doing business rise by quite some amount, and those costs likely would be recovered from customers.

It is easy enough to predict that if most of the cost advantage of OTT voice and messaging is erased, the value of OTT apps will be reduced and consumption of carrier voice and messaging could grow, while OTT share shrinks.