Zero is a Compelling Price

As many have noted, across many products and industries, zero is a very compelling price. As many also have noted, government regulators can create, destroy and modify whole industries, while helping or harming specific actors within industries, by essentially mandating zero prices.

In the case of spectrum auctions, the very availability of spectrum creates the foundation for business models. But rules about “who can bid” also affect market entry and potential market shares.

Spectrum set-asides or discounts further shape the potential fortunes of some contestants.

Many would argue the recent classification of Internet access services as common carrier services will have direct and indirect impact on Internet access and telecommunication markets and market structure, as well.

For Netflix and other content delivery domains, one direct implication seems to be that domain interconnection costs have been affected.

Though the contract details have not been made public, it would appear that traditional common carrier practices about network interconnection, which are based on amount of traffic exchanged, now have been pushed further in the direction of settlement-free peering, irrespective of traffic flows.

Paradoxically, some might argue, we now have the worst of all worlds, The best of all worlds, from a supplier perspective, is a de facto monopoly in a de jure non-regulated framework.

Conversely, the worst of all worlds, for some suppliers, is monopoly regulation in a competitive framework (de facto price controls in open markets).

Cable TV companies once were clear examples of the former, common carrier regulation of Internet access an example of the latter.

Implicitly, mandatory interconnection of Internet domains irrespective of traffic exchange volumes also provides structural business advantage for content delivery domains at the expense of customer-aggregation domains (consumer ISPs).

Government regulators often have logical reasons for tilting regulations in favor of some industry segments, protecting some segments or encouraging other segments while essentially penalizing other segments.

That might be a growing pattern in some countries which believe they can foster their domestic content and app industries by essentially restructuring business costs within the Internet ecosystem.

Mandatory interconnection really is not the issue. Divorcing interconnection from direct cost structures might be the big issue.