Internet Ecosystem Power Already Has Shifted to App Providers; Net Neutrality Does Not Matter, in That Sense

The arguments for strong forms of network neutrality have assumed that, in the absence of rules barring any levels of consumer internet access other than “best effort,” access providers would exercise market power in ways that would stifle innovation on the part of app and content providers.

Ignoring for the moment the countervailing argument that some apps and services might actually require quality of service mechanisms, or that consumers should have the right to choose such QoS-based services, if they choose, it has never been completely clear that innovation or business success--for any app provider--is fundamentally conditioned by the nature of internet access policies.

The fortunes of competitors to Google, Facebook and others is logically not dependent on access rules that might include optional quality of service mechanisms, but on the end users’ preference for those leading apps, and the ability of those firms to keep innovating.

It never has been so clear to some of us that the availability of managed services (under conditions when best effort access is protected by weak forms of net neutrality rules, such as access by all consumers to any lawful app) is some sort of major inhibitor of innovation in the apps space.

In fact, virtually all observers would note that value and pricing power within the internet ecosystem  now decisively rests with the application layer providers, which is why access providers always are concerned about their roles as providers of “dumb pipe” internet access.

So long as best effort access is the norm for consumer services, it never has seemed so likely that managed service availability, in and of itself, would shape app provider fortunes. Widespread use of content delivery networks (QoS services in the backbone) do not seem to have affected innovation in the apps business, for example.

Though a study might exist that quantifies the benefits or harm strong network neutrality rules have caused to aps markets, I have not seen such a study. Granted, it would be hard to “prove” a negative, such as an argument that with, or without strong net neutrality rules, the app and content markets would look much as they presently do, now.

It seems logical to conclude that Netflix would be the force it is under any set of rules, because it is a product consumers like, and value. In fact, Netflix now argues that even the end of strong network neutrality rules should not affect its business.

Nor, some would argue, has it been proven that consumer-friendly policies often said to be network neutrality issues, such as zero rating of internet access, are detrimental to innovation. The software business now is said to have a “winner take all” pattern. If that is the case, then net neutrality rules, or the absence of such rules, are not going to be decisive.

The other issue is that zero rating might be a necessary policy as former linear video subscription services become managed services. Linear video users, voice and text messaging users have never directly paid a separate “access charge.” Instead, access is simply an enabler of the retail service. That same pattern will have to hold as streaming becomes the next-generation version of the video subscription service. People will pay for the content. They will not pay for the access, in addition to the content (in a direct way).

And, if has to be noted, if consumers are paying for a subscription video service, they are going to expect a level of quality consistency that will, at least on occasion, require QoS mechanisms to operate. In other words, the business model itself requires zero rating of bandwidth.

The point is that is not clear that presence or absence of strong network neutrality rules fundamentally or even significantly shapes app and content provider market results.  So long as basic network neutrality rules remain in place (consumer access to all lawful apps; no app blocking or interference based on ownership of the apps or content), it has not yet been demonstrated that any actual harm to app providers can be shown, based on lack of strong net neutrality rules.

It would be hard to do so, granted. But it just seems logical that it is the broader appeal of apps and services (demand) that drives app provider success. So long as access providers cannot block lawful content, or engage in other actions that would be criminal under standard antitrust or restraint of trade rules, it has yet to be proven that QoS mechanisms themselves cause harm to app providers.

Nor, it might be argued, do ISPs have so much market power they can do so, even if they wanted to do so. The evidence from distributor negotiations with linear video service content providers provides some insight. ISPs have not proven so powerful they can harm content providers who own valuable content.

In part, one might say, that is because access providers do not have the power to annoy their customers and business partners, as every legacy service is losing value, as customers shift to substitutes, or other providers.

According to a Deloitte survey, 74 percent of U.S. consumers “still subscribe to pay TV such as cable or satellite, but 66 percent of subscribers say they keep their pay TV because it is bundled with their internet.”

If that is an accurate guide to potential behavior, as much as 66 percent of the linear TV subscription business is in danger, and maintained mostly because of price breaks. As in the case of bundled voice and internet access, so video-plus-internet bundles might well disguise huge dissatisfaction with linear video services that would surface quickly if the bundling did not also represent cost savings.

That is one example of the reason why even leading access providers in the U.S. market cannot afford to annoy their customers or abuse leading app providers. Not only is there growing competition, but the basic products themselves are losing relevance.
Post a Comment

Popular posts from this blog

Voice Usage and Texting Trends Headed in Opposite Directions

Who Are the Key Telco Competitors?

Jio is Succeeding at "Destroying" the India Mobile Market