This Industry Viewpoint was authored by Alan Levy, CEO of Skywire Networks
In recent weeks and months, the term “net neutrality” has appeared on the front pages of every major newspaper and magazine. As an owner and operator of Skywire Networks a NYC based Internet Service Provider (ISP) and the founder of BlogTalkRadio a podcasting, live-audio streaming platform, I have owned businesses that sit on opposite sides of the net neutrality debate.
First, I think there’s some lack of clarity about what net neutrality actually is, and why it is so important to everyday consumers. In essence, net neutrality is the principle that all ISPs need to treat all Internet data similarly. That means there can be no data discrimination allowed, and cannot charge different on a user/website/content type level.
For example, as reported, Netflix customers may consume 37% of the entire Internet. Today, a Netflix customer pays $11.99 a month whether or not they stream one hour of content a month or 100 hours of content a month. Netflix, of course, wants their customers to be happy, active consumers of their content and would prefer the active rather than the passive user.
While Netflix is ambivalent on the issue of consumption and continues to deposit the same $11.99 from their customer regardless of consumption, it is the ISP that is incurring the real cost of servicing the user that streams 100 hours a month. The ISP funds the connections and infrastructure necessary to facilitate the internet connections. Apart from the invested capital necessary to build the internet connection from the customer's physical location all the way to the ISP’s main network at a far-flung data center, the consumption of internet is a real variable cost.
Apart from the increase in the ISP’s variable cost of providing access to the internet, the ISP also must be mindful how significant increases in consumption affect their network infrastructure and architecture. Networks are built and sized for expected levels of consumption. In an apartment building in New York City, the ISP installed cabling and, perhaps, fiber optics into the building, through the basement, and then through the building’s risers to each individual apartment. The building is connected to the ISP’s backbone, which is where the ISP connects to the internet.
What happens when most of the tenants in the building at night either stream the NFL on Amazon, watch YouTube Live, binge watch House of Cards on Netflix or spend hours on Facebook? The network slows down because it has been built to support only a certain amount of consumption. Under the existing net neutrality paradigm, two things will happen. Either the tenants will continue to suffer, or the ISP will make the decision to upgrade the network in order to accommodate the increase in usage. If the ISP chooses the latter, they have to absorb the costs themselves - which gives them much less incentive to upgrade the existing infrastructure.
The dominant internet players oft-referred to as FANG - Facebook, Amazon, Netflix and Google - are screaming from the rafters that all internet traffic should be created equal. In fact, over the summer, when new FCC Chairman Ajit Pai opened the net neutrality policy change for public comment, more than 22 million comments were submitted. Most of these were in favor of maintaining the existing net neutrality rules. FANG executives, not to mention every major media outlet and online news publication argued that the internet will cease to exist as we know it. I disagree.
A key argument made by those in favor of maintaining net neutrality, state that killing it would stifle innovation and hurt the small, relatively powerless web companies. I laugh when I hear this argument, simply because FANG is so large, so profitable, and so powerful that as soon as a new emerging platform develops, FANG doesn’t hesitate for a second to crush them. Actually, they wait until a new innovation gets a bit of traction and starts to scale and then assign 1000 engineers on a mission to crush that new, emerging start-up - but I digress.
The FANG companies aren’t nearly as concerned about stifling innovation, saving smaller internet firms, or the consumer being hurt, as they are about protecting their own quasi-monopolies. FANG is deeply concerned that the only way that they can reach their customers is via the customers’ ISP (i.e. Verizon, Comcast, AT&T, Charter, etc.). In the example I cited above, where the Netflix user, a Verizon FiOS customer for example, streamed 100 hours a month, Verizon will be able to throttle back the internet speed of such power users. If the internet connection is shared with a large apartment for example, all the tenants will suffer from the throttled speeds.
Slower speeds will motivate angry customers to tie up Netflix’s’ call centers (i.e. more costs) and perhaps even cancel their subscriptions. To take this one step further, if net neutrality is revoked or modified, Verizon can negotiate a deal with Netflix to create different tiers of consumption at different price points. If Netflix wants the user experience to be the same for all of their customers (as in “great”), then they will have to make a decision. They can either absorb the higher cost for the power user, or create different tiers of consumption. Which choice do you think they will make?
Net neutrality is a very complicated issue, and I’m very interested to see how it plays out in the months and years to come.