FCC Moves to End Common Carrier Regulation of Internet Access

As expected, the U.S. Federal Communications Commission has voted to open a proceeding on internet access regulation, seeking what it calls a return to “light touch” regulation, and specifically, reconsidering regulation of internet access services under common carrier rules, something that was instituted in 2015. The proposal would return internet access to the “information service” category it had held for decades.

Some have supported the shift to common carrier regulation for a few stated reasons, including protecting edge providers (app providers) from “paid prioritization” schemes instituted by major internet service providers. Others opposed the common carrier rules because it limited permissible business models based on quality of service.

The ironic twist is that the viability of “paid prioritization” is questionable. Few seem to believe it is possible to create a sustainable market for such services.

Dr. George Ford, The Phoenix Center chief economist, argues that “no paid prioritization rule, from an economist’s point of view, should not be prohibited on a blanket basis.”

But that is not the same as arguing there is a clear consumer demand, or sustainable business case. “I’m not sure there is a business case.”

It is not that such possible payments are unusual. They are not. Two-sided markets in media, content and retailing are rather common, where an entity connects buyers and sellers, generating revenue from one set of partners, or sometimes from both. Any retailer--physical or online--can generate revenue from consumer buyers and product sellers.

Content networks earn money from distributors (satellite, cable TV, telco TV, Netflix, Prime) and advertisers. Distributors earn fees from subscribers (end users) as well as advertisers.

“Some sort of payment from a content provider is not that unusual,” says Russ Hanser, Wilkinson, Barker Knauer partner. “Is there a business model? I don’t know.”

There are analogies. The best example is the content delivery network (CDN), where content or app providers pay a third party to expedite delivery of packets over backbone networks, controlling latency. By extension, some have proposed there might be a market, or markets, related to providing latency protection issues in the consumer access services business.

The issue is whether direct revenue models can be created, and if so, how big those markets could be. The argument is that some apps, especially voice, videoconferencing and highly-transactional apps (gaming, for example) benefit enough from latency control that entities (app providers or end users) are willing to pay to have that capability. As always, consumers are resistant to value-added services, so value is less a question than propensity to pay.

Zero rating is sort of the mirror opposite of that issue. Where there clearly is a large market is allowing users to consume as much bandwidth as required to stream video or listen to audio. Where paid prioritization concerns revenue paid to ISPs by app providers, zero rating actually allows app providers to be used without any concern for mobile data usage limits.

In such cases, any revenue benefit is indirect, taking the form of higher new account additions or reduced churn. Eventually, ISP owners of their own subscription content services obviously will benefit more directly in the form of revenue earned by selling content subscriptions.

So far, it is not clear whether there is a market for paid prioritization. And, if so, it is not clear that the market is big.
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