Net Neutrality: Who Pays for it?

In the last two days I had the pleasure to meet and discuss with Martin Cave, Director of the Centre for Management under Regulation, Warwick Business School, Coventry. He came to Switzerland to present his views on the economics of the ICT market at the annual Comdays. A must be event of the Swiss ICT industry.

Martin highlighted a contradiction of the Net Neutrality principle. Capacity doesn't come for free. Someone has to pay for extra capacity used for new services and the investments operators do for providing a good QOS.

I personally agree with the basic concept of any-to-any communication of the bit and net neutrality. I also respect the decision of some governments to block inappropriate content, such as porn and offensive material. I personally disagree that providers can decide what kind of services I - customer - can have (e.g. block my Skype or Zatoo packets).

As Martin said, someone has to pay for the 'neutrality'.

I agree with this principle, let's look together what the options are:

- operators, can recover investments from the monthly broadband subscription or from advertising: a mix of paid and advertised support model might be the solution.

- Operators, can charge a premium for valued content (efficient pricing) to recover these costs.

- Service providers (e.g. google) can support the extra costs with a revenue sharing model.

- Finally, governments, communities and philanthropic associations.

I know, it's not so easy to pick the best option. However, we should be aware that we will be confronted with this dilemma soon.

As already argued in this Blog there is another risk, the formation of new bottlenecks from network / content to distribution. The distributor of the 'information' (everything that can be digitized) might be the next real monopolist. See for example, the rights for sport events, such as Euro08!.

More Info:

6. Biel-Bienne Kommunikationstage, 25. / 26.10.2007, im Kongresshaus, Biel

Openreach & Co: the network separtion

BT Openreach has solved many of the old-time competition problems and promoted the deepest level of infrastructure competition possible. In Sweden and Italy, both Telia Sonera and Telecom Italia have started the process of creating clones of Openreach in an attempt to satisfy upcoming regulatory pressures and EU attempt to increase NRAs powers with functional separation.

However, the approach of the two clones is different. While in Sweden PTS has announced lighter regulatory pressures on Telia-Sonera in case of voluntary network separation, in Italy AGCOM is struggling to convince Telecom Italia that network separation does not mean a complete relief from all obligations in all markets. Telecom Italia proposed to have all retail caps levied.

Network separation can be the solution for some competition problem, but it is not a panacea or a one-size fits all incumbent strategy. It a tool that should be adapted to the environment it wishes to regulate. In some cases, I believe that a sound cost separation system can give similar results to a fraction of the costs and time of a separation.

Moreover, we should not underestimate the cultural factor. Something that worked in UK and Sweden, can be very dangerous in other organizations and cultures. Process and procedures should be therefore carefully adapted and alternatives evaluated before taking any decision. A network separation is a radical change that can take years to recover in case of very complex or old-fashioned organizations structures, therefore, distortion effects on competition can be unpredictable.