An Essay on Net Neutrality (Part 3.. that's it for now)

He also declared:

"I do see competition law as the answer to many of the issues."

I would agree that in the face of anticompetitive behavior content providers may assist to the competition law and build a case against blocking or shaping Internet competitive traffic. Nonetheless, that kind of “ex-post” regulation is applied once the anticompetitive conduct has been exercised (perhaps for a long time) and the harm is already done. Many casualties -like companies going out of business or a significant loss in consumers’ confidence- may occur.

This is where telecom “ex ante” regulation comes into picture: to prevent misconducts from regulated parties. It is precisely because of this issue that the institutional design for telecom regulation includes two regulators. On one hand, the so called “sectoral” regulator mandated with creating and maintaining a level playing field (ex ante) and on the other hand, a general competition authority with the aim of punishing observed anticompetitive behavior (ex post).

Now, let’s take a look of what kind of regulatory policies could be enacted to preserve the net neutrality principle.

Remedies

Improving Information Disclosure to Consumers

Assuming a scenario where there is sufficient competition in broadband access, network operators would have very little incentives to block or prioritize traffic without the user’s consent. Since what broadband operators are offering is a “big access pipe”, they will be more concern in offering greater bandwidth and less worried about content and applications, after all innovation at the edges of the network is happening at a very impressive pace and users are often surprised with all the things they can do on the net.

Nonetheless, despite some sort of competitive environment, lack of information may entail an important market failure. Many of the potentially negative issues -even associated with an Internet structure that may allow for some kind of traffic shaping- could be addressed by better information disclosure and consumer protection rules.


The net neutrality principle could be much better protected in markets where Internet users can make informed choices between competing broadband providers and are free to change provider in the face of unwanted blocking or traffic shaping. A principle in consumer protection policies is that users need to know exactly what they are buying. Signing up for a broadband connection should not be an exception.

An expedite way to intervene in this issue is for regulators to encourage or require a better disclosure from network operators or ISPs on the types of traffic shaping (if any) they may use, including information when there are services that are blocked or degraded to an extent that performance could suffer.

In the face of broadband packet shaping policies regulators should implement safeguards that include encouraging or requiring broadband providers to clearly state real-life broadband speeds and what percentage of the connection could be used for best-effort service.

Despite the usefulness of this kind of policies, little can be achieved to preserve net neutrality in the absence of sufficient competition or high switching costs.

Competition in Broadband Access

Following the OECD work in the analysis of Internet traffic prioritization, fostering competition in the broadband access market has been the main policy recommendation for its members. The OECD believes that the risk of anticompetitive behavior typically declines as the number of effective competitors in a market increases and of course, in line with this organization philosophy, it would not entail a direct intervention that could distort markets even further.

Therefore, the level of competition in the broadband market appears to be the most important factor a regulator takes into account to assess the need to implement safeguards against anti-competitive traffic prioritization. Nonetheless, defining the market to determine the level of competition is not as simple in broadband markets since data services may be available over multiple platforms.

In due course, regulators need to undertake a careful market analysis to determine whether consumers have effective choices for substitutable broadband Internet access.

But not only should regulators evaluate the available supply of broadband access providers. Consumers may find that changing operator implies a high switching cost. That switching cost may be the result of the high cost a competitive provider faces to -for example- pay the incumbent for an unbundled line.

Other challenging issues may arise from trying to foster competition in the broadband market. We should remember that the telecom sector was considered a natural monopoly with the existence of a public company that provided the access to the last mile. Even though there have been deep liberalization processes in most countries, it still remain incumbents with a strong dominant position.

There are only a handful of countries with sufficient level of competition in the broadband access market that could provide enough safeguards to discourage carriers to use their power to block or prioritize traffic on the net. Moreover, it could take many casualties until regulatory policies can be enacted to promote a level playing field in this market.

The challenge to preserve net neutrality is indeed a big one. Perhaps policy makers should try to translate the separation of the platforms from the services they convey into meaningful regulatory instruments that allow the consumer to make their own choices regarding communications content, services and applications.

A word for Latin America

Although there have been some discussions in Latin American countries towards net neutrality, the real debate and actions are taking place in developed countries. Latin American governments are still dealing with very strong incumbents even to promote competition in basic fixed and mobile telephony.

As we have just analyzed above the net neutrality principle is at a higher risk when concentrated broadband markets are observed. Even in developing countries such as in the US there is no sufficient competition in the broadband access market. As Cerf stated:

“For the foreseeable future most Americans will face little choice among broadband carriers. Enshrining a rule that permit carriers to discriminate in favor of certain kinds of sources of services would place those carriers in control of online activity. Allowing broadband carriers to reserve huge amounts of bandwidth for their own services will not give consumers the broadband Internet our country and economy need.”

“Most American consumers today have few choices for broadband service. Phone and cable operators together control 98 percent of the broadband market, and only about half of consumers actually have a choice between even two providers. Unfortunately, there appears to be little near term prospect for meaningful competition from alternative platforms. As a result, the incumbent broadband carriers are in position to dictate how consumers and producers can use the on-ramps to the Internet”.

Concentration in Latin American markets is much more acute. Liberalization processes started until very recently (well not that near) and there are many regulatory projects such as competitive tariff policies, local loop unbundling or number portability that have not yet been enforced, not to mention all of the issues surrounding the Internet.

Despite there appear to be more challenges in the Latin American region to preserve the net neutrality principle there are also many opportunities that arise from the fact that governments in Latin American have not defined a strong position towards Internet governance issues. Moreover, Internet in Latin American is viewed as an instrument that may help national governments to “leapfrog” to achieve some public policy goals that could not be fulfilled with the legacy PSTN.

While assessing risks and opportunities for the Latin America region to preserve the net neutrality principle we should consider the following:

• There is a risk to leave Latin-American governments to make inadequate public policy decisions without an appropriate understanding of what Internet governance should be (evangelize).
• Given the concentration in the different telecom markets in Latin-America, incumbent carriers have incentives to block or prioritize Internet traffic, jeopardizing net neutrality. Telecom regulators may appear as an ally for content providers in this particular issue (at least in Mexico).
• There is an area of opportunity to influence in Latin-American’s process to regulate (or not) the Internet.
• Internet is a “good guy” for governments in Latin-America since it is helping them to achieve some public policy goals.
• A revision of legal and regulatory frameworks (privacy, intellectual property, network regulation, content, etc.) in the region needs to be done, in order to assess whether new products or services available on the Internet are under a legal certainty environment.


If we do not pursue net neutrality the risk is that we may turn the Internet into a private network with centrally managed content which could only be uploaded or webcasted by major communication companies delivering the usual (very often bad quality) content we watch on open T.V., hence hampering innovation at the edges of the network.