Thursday, May 28, 2015

Net Neutrality is Industrial Policy

All communications regulatory frameworks--indeed all regulatory frameworks without exception--have direct business implications, in addition to any number of foreseeable and unforeseen indirect implications.

So you might ask what it means if “strong” network neutrality rules are instituted in the U.S. market, while Europe, which many would have predicted was more likely to do so, seems clearly to be backing away from the concept.

By “strong” we mean not simply the principle that lawful apps cannot be blocked but that all consumer applications are delivered “best effort,” with no packet prioritization permitted in the access network.

It can be suggested that network neutrality is no longer on the agenda in Europe for one simple reason: regulators understand there is a connection between network neutrality and capital investment, in the European setting.

Strongly desirous of high levels of new investment in communications networks--fixed and mobile--European regulators are willing to take a relaxed view of net neutrality in hopes of spurring higher investment levels.

And the reason higher investment levels are expected--when there are no net neutrality rules--is that a whole range of business models and revenue streams are available to service providers.

Such models might include various quality of service options, sponsored app usage, peak and off-peak bandwidth pricing or quality plans, or even app-specific plans based on bandwidth consumption.

European regulators are making an explicit choice to create incentives for faster and more robust capital investment in access networks, by allowing service providers to potentially create new revenue streams based on those investments.

U.S. regulators arguably are less concerned about investment, as multiple facilities-based providers compete across the fixed and mobile segments of the business, and many more third party entrants are getting into the new business of gigabit connections.

U.S. regulators, at some level, might also have concluded that innovation will come from the application side of the business, and that if app providers say network neutrality is required for high innovation, then even if access providers are disadvantaged, app providers should be favored.

That might be an indirect form of industrial policy, but presumably has the effect of aiding app firms to thrive. If one believed the health and financial growth of U.S.-based app firms was important, then network neutrality, aside from its immediate communications industry impact, is an indirect form of industrial policy.

European regulators might be said to do the same.

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