Net Neutrality, Again

Though it never really went away, the debate over Net Neutrality has resurfaced recently in the press. There are two main reasons for the reappearance. One is the change of power in Congress; with control now in the hands of Democrats who are seen as more accepting of the idea of regulation, proponents of Net Neutrality are preparing to reintroduce legislation that stalled under Republican control. Another is the argument that due to the increase in bandwidth heavy applications and services such as video, the Internet's infrastructure is in need of an upgrade; network operators feel they have the right to recoup costs for this, if not from end users then from the content providers.

The Net Neutrality debate is often framed not by a clear definition, but by the presentation of two opposing scenarios. This is in part because a definition acceptable to all parties is difficult to devise and in part because the scenarios elicit more emotion. Net Neutrality advocates, primarily content providers such as Google, Microsoft, and Yahoo!, as well as a host of advocacy groups, believe that lack of legislation would allow network operators to push their own content or services or those of companies with whom they have made financial arrangements; ultimately this could mean certain content or services were relegated to 'slow lanes' or blocked altogether. Opponents of Net Neutrality, primarily telecom and cable companies, believe that passing legislation requiring they treat all content equally, without the opportunity to charge content providers for use of their lines, would unfairly place the burden of network improvements on their shoulders; this would stifle innovation and degrade the service for users to unacceptable levels. Both scenarios make it hard remain neutral and hard to choose a side.

On the legislative side of things both camps last year tried very hard, and failed, to win the favor of then-Republican-controlled Congress; last June two bills, each seen as favorable to one side or the other, stalled. Now, with Democrats in control Net Neutrality advocates are making another attempt. The Internet Freedom Preservation Act, an earlier version of which was one of those killed last year, was reintroduced by Senators Byron Dorgan (D.-N.D.) and Olympia Snowe (R.-Me.), on January 9th. In a BusinessWeek article entitled, "Web War: Nothing Neutral about It," Senator Snowe is quoted as saying, "with the shift of the majority in both the Senate and the House, I am optimistic that Senator Dorgan and I will be able to get the votes we need in the Senate Commerce Committee and on the Senate floor." She has reason for her optimism. Both House Speaker Nancy Pelosi (D.-Calif.) and chairman of the House Subcommittee on Telecommunications and the Internet, Representative Ed Markey (D.-Mass.) have expressed support of regulation; Markey in fact plans to introduce his own legislation on Net Neutrality this year. However, as important as many see Net Neutrality to be, this Congress has other things to deal with, and the Internet may likely take a back seat to issues such as healthcare, the environment, and of course the war in Iraq. BusinessWeek quotes David Farber, professor of computer science and public policy at Carnegie Mellon University on this point, "There are much more important things for the Congress to pay attention to than Net Neutrality . . . There are things going on in the rest of the world that are much more vital for this country."

In the meantime there is the debate over who is responsible for the cost of upgrading the Internet's infrastructure. One item in particular that stirred the fires in this corner of the arena is a recent report from Deloitte & Touche which suggests that the carrying capacity of the Internet is in trouble. According to the report, "One of the key possibilities of 2007 is that the Internet could be approaching its capacity. The twin trends causing this are an explosion in demand, largely fueled by the growth in video traffic, and the lack of investment in new, functioning capacity."

Those in the anti-Neutrality camp fault Neutrality advocates as the cause of the Net's current infrastructure problems and say if legislation is passed, things will only get worse. This position is seen in both Forbes and the Wall Street Journal. Writing for the Wall Street Journal Bret Swanson states, "Today there is much praise for YouTube, MySpace, blogs and all the other democratic digital technologies that are allowing you and me to transform media and commerce. But these infant Internet applications are at risk, thanks to the regulatory implications of 'network neutrality.'" Though a bit less direct in his attack, Phil Kerpen writing for Forbes, refers to the Deloitte & Touche report and states, "Uncertainty over potential network neutrality requirements is one of the major factors delaying necessary network upgrades," and that, "It would be unfortunate if Network Neutrality proponents successfully saved the rapidly aging, straining Internet by freezing out the technological innovations and infrastructure investments that would enable next generation technologies to be developed and deployed." The opposition clearly and obviously disagrees.

Proponents of Net Neutrality state that operators do not in fact shoulder the full burden of improvements; improvements they say are already very much in place and largely paid for. Harold Feld, Senior Vice President of Media Access Project, a non-profit public interest media and telecommunications law firm in favor of legislation, wrote on the blog Wetmachine, "any website or service you use on the Internet has already paid money to a provider to reach you, just like you pay money so you can send email to friends or upload files." He adds that, "Actually, total expenses from major content and service providers to expand network capacity and their transport totaled about $10 Billion last year." Though remaining neutral for the most part, the Deloitte & Touche report does offer some strength to Neutrality advocates; it points out, "ISP's and telecommunications' underperformance relative to their Internet peers may be an issue far wider than Net Neutrality. It has been argued that ISPs and operators may simply have failed to influence the evolution of business models and have ended up as bystanders not winners."

Any debate for which the key terms cannot be defined acceptably for all sides is one that is likely to be both frustrating and long; Net Neutrality is no exception. Those on each side of this issue have been accused of replacing a factual debate with an emotional one; making finding the neutral ground from which a fruitful discussion can spring one of the most difficult things about it. However, one way or another this will have to be done. The Deloitte & Touche report makes this clear. "Balancing the two sides of this debate is likely to remain challenging. Both arguments have their merit; both have their flaws. Clearly, something has to change in the economics of Internet access, such that network operators and ISPs can continue to invest in new infrastructure and maintain service quality, and consumers can continue to enjoy the Internet as they know it today." The report introduces its bottom line with, "All those involved in the Net Neutrality debate need to keep open minds in 2007."

A more complete version of this posting, with journal articles, and research reports can be found at the website of Analyst Views Weekly.

More information on this topic can be found in Northern Light's Internet & Information Services Market Intelligence Center.

And in the following articles:

Google and Cable Firms Warn of Risks from Web TV
Reuters, February 7, 2007
New Internet TV services such as Joost and YouTube may bring the global network to its knees, Internet companies said on Wednesday, adding they are already investing heavily just to keep data flowing. Google, which acquired online video sharing site YouTube last year, said the Internet was not designed for TV.

Information Super Traffic Jam
Forbes, January 31, 2007
A new assessment from Deloitte & Touche predicts that global traffic will exceed the Internet's capacity as soon as this year. Why? The rapid growth in the number of global Internet users, combined with the rise of online video services and the lack of investment in new infrastructure. If Deloitte's predictions are accurate, the traffic on many Internet backbones could slow to a crawl this year absent substantial new infrastructure investments and deployment.

Lawmaker: Net Neutrality a Top Issue
InfoWorld, January 31, 2007
The U.S. Congress still needs to deal with network neutrality, and supporters in Congress are willing to block any legislation favored by broadband providers until the issue is resolved, a leading Democratic lawmaker said Wednesday. "Network neutrality is a large, unresolved debate," said Representative Rick Boucher, a Virginia Democrat, speaking at the State of the 'Net Conference in Washington, D.C. "It's [the Internet's] open and accessible policy that has enabled it to be a platform of innovation."

Net Neutrality, Broadband Taxes Top House Tech Agenda
CNET, January 31, 2007
Brokering a truce between Internet companies and network operators that have been battling over Net neutrality legislation is a top priority, Rep. Rick Boucher of Virginia said in his kickoff speech at an annual conference organized by the Congressional Internet Caucus Advisory Committee. Boucher is a co-chairman of the caucus. Last year, Boucher voted for an unsuccessful amendment--fiercely opposed by broadband providers--that would have imposed strict regulations on them.

The Coming Exaflood
Wall Street Journal, January 20, 2007
Today there is much praise for YouTube, MySpace, blogs and all the other democratic digital technologies that are allowing you and me to transform media and commerce. But these infant Internet applications are at risk, thanks to the regulatory implications of "network neutrality." Proponents of this concept -- including Democratic Reps. John Dingell and John Conyers, and Sen. Daniel Inouye, who have ascended to key committee chairs -- are obsessed with divvying up the existing network, but oblivious to the need to build more capacity.

Web War: Nothing Neutral about It
BusinessWeek, January 29, 2007
There's a high-stakes battle raging in Washington over who picks up the tab for the rising rivers of Internet data and the newly upgraded networks that deliver it. On one side are a host of tech companies—from Google to Yahoo! to Intel to Microsoft that specialize in Web-related content and technology, pushing for rules that they say would keep the Internet free from discriminatory pricing. On the other are the phone and cable companies that run the networks shuttling that information from place to place. They oppose regulation of the Internet. Last year, the skirmish ended in stalemate.