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Net Neutrality, Banned Business Models & Price Controls

by on August 14, 2010 · 2 comments

I continue to be mystified by the contention of some Net neutrality advocates that it is not a form of economic regulation.  The reality, of course, is that Net neutrality would ban business models and necessitate price controls. If that ain’t regulation, I don’t know what is.  As Robert Litan and Hal Singer note in their new Harvard Business Review essay, “Why Business Should Oppose Net Neutrality,” “Non-discrimination under the FCC’s net neutrality proposal means that ISPs cannot offer enhanced services beyond the plain-vanilla access service to content providers at any price.”  Thus, any type of service prioritization or price discrimination would be prohibited under the FCC’s Net neutrality regulatory regime.

As I explained in this earlier essay and in the video below, this would be a disaster for investment, innovation, and consumer welfare. Differentiated and prioritized services and pricing are part of almost every industrial sector in a capitalistic economy, and there’s no reason things should it be any different for broadband. As Litan and Singer note, “The concept of premium services and upgrades should be second-nature to businesses. From next-day delivery of packages to airport lounges, businesses value the option of upgrading when necessary. That one customer chooses to purchase the upgrade while the next opts out would never be considered ‘discriminatory.'”

And let’s not forget, something has to pay for Internet access and investment in new facilities. Differentiated services can help by allowing carriers to price more intensive or specialized users and uses to ensure that carriers don’t have to hit everyone – including average household users – with the same bill for service. Why would we want to make that illegal through Net neutrality regulation and the misguided price control schemes of a bygone regulatory era?

http://www.youtube.com/v/AgxzFwqqFGw?fs=1&hl=en_US

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Some people are never happy

by on May 12, 2008 · 15 comments

Broadband Reports ran an opinion piece by Karl last week discussing the rumors that Comcast will soon adopt a 250GB a month maximum with overage fees for excessive consumption.

As the piece points out, implementing overage fees runs the risk of giving FiOS (and, to a lesser extent, U-Verse) an even bigger edge on cable broadband. AT&T and Verizon, because of their last-mile network architectures, are less susceptible to congestion caused by heavy users than C omcast, with its shared cable network. AT&T and Verizon have gotten by without terminating heavy users or even charging them extra.

Yet right after Karl finishes explaining about how overage fees will change the competitive landscape, he starts ranting about the prospect of “investor pressure constantly forcing caps downward and overage fees upward.”

Competitive pressures make this scenario a remote possibility, especially as content portals serving massive files like Apple TV and Xbox Marketplace gain mainstream appeal. If Comcast wants to deflect criticism from other ISPs over bandwidth limits, any cap must be high enough to ensure very few customers even approach it. Arguably, 250GB a month is enough to satiate even power users, at least for a couple more years.

ISPs are competing fiercely to attract subscribers, so providers regularly make hay out of trivial product differences such as the “ugly cabinets” that AT&T sometimes installs when upgrading a neighborhood’s DSL speeds. Imagine the ads Verizon will run if Comcast starts charging customers for heavy use—“With Comcast, you never know when you’ll be hit with an enormous monthly bill if your kids go on a YouTube frenzy or your computer is overtaken by hackers. Here in FiOS land, rest assured there are no extra fees, no matter how much you download.” It’s not hard to see this message resonating with customers, especially those living in households with multiple Web-savvy residents.

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