Net neutrality: it’s about scarce resources, stupid!

(this post reflects my ideas and my ideas alone – it may or may not be the same as those of my employer)

Sure enough, the net is full with arguments around net neutrality, on the wake of the leaked Google-Verizon talks and the subsequent officially released proposal that would treat mobile broadband (and some other future services) differently from traditional fixed internet access. Some went on a crusade on behalf of net neutrality; some defended the Google/Verizon proposal, but, for sure, everyone has an opinion. So do I 😉 .

The bottom line is that mobile access is different. While you can just lay more and more cables at relatively low cost, the frequency band usable for wireless access is limited by the laws of physics. There are just a limited amount of bits that can be transported over the air in a certain location – thus, radio resources differ from fixed access (cables) in that they are really a scarce resource. Sure enough, you can increase throughput to some extent by increasing the density of cells (base-stations), but this obviously requires both capital investment and generates operational costs. Even then, physics will eventually kick in.

Thus, someone has to pay for bandwidth over the air – it’s just the basics of economics when it comes to the access to scarce resources: (un)availability of supply and demand is driving the prices. In this case, there are four parties that may pay the bill: the mobile operator, content providers, the content consumer (end-user) and the government. The operator has little incentive to do any investment beyond gaining more (paying) customers – and the market is quickly reaching 100%+ penetration in developed countries (and some developing ones as well). That leaves the other three: content consumers, content providers and the government.

In their momentary lapse of reason, mobile operators decided to offer flat-rate mobile broadband to their customers – something that they surely regret by now. The hard fact is that this will be hard to change – and even charging for traffic that exceeds a certain limit will not mitigate the cost of providing good quality service (read: dense networks): most of the users will stay below the limit and the few heavy users are ‘good enough’ at consuming the scarce resource when it’s most needed. The result: low quality network, customer complaints – just look at the reputation of AT&T in the US  as a consequence of the popularity of the iPhone.

The government may be part of the solution: by enshrining the right to net access at a certain level (say, X MBits/s) and subsidizing network buildout that can guarantee such level of service. Such an approach would guarantee equal basic access, while not hindering innovation and further improvements: on top of requiring a minimal service, it shall give the freedom to content providers, consumers and mobile operators to negotiate commercial agreements on who gets access – and for what extra fee – to the additional bandwidth that may be built out – and sold – by the operator. It’s a bit like social security versus getting rich: everyone is eligible to a minimum standard of living, but beyond that he or she is free to get rich, according to his or her capabilities.

Sure enough, such a framework has a number of tricky issues (such as how to decide how much it really cost to build the minimum level of service and how much of the operator investment goes beyond that). But it’s my strong belief that such a public-private partnership and the combination of regulatory guarantees and requirements of certain level of service coupled with industry-driven differentiation of the access to a scarce resource is the way forward. No, not everyone will be a bit-millionaire – but everyone will have enough bits to feel OK and those with more demand will earn more.

Just as in our society otherwise. It’s the worst solution – except all other possible solutions.

One Response to “Net neutrality: it’s about scarce resources, stupid!”

  1. Johan says:

    Andras,

    Interesting read, but I could not disagree more. One could (and should) argue that the only ones that do get paid today is the operators – not the ones who provide the content that makes the networks attractive. The only reason people are willing to subscribe to the networks (and this is much more expensive in the US compared to Finland/Sweden) is the availability of mostly free newspapers, movies, music. The operators are already cannibalizing on the content providers and it would make more sense for them to pay back, not the opposite.

    Cheers,
    Johan